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Body Corporate Managers: A Question of Trust – Fidiciary Duty in an Ethically Emaciated Industry
“ … So the developer says to a strata manager, “I want you to do a budget and write some by-laws and tell me what should be in the common property and what shouldn’t be, but I am not going to pay you for that. What I am going to do, I am going to give you a three year contract when this thing is built” Comment by anonymous developer. (source: Nicole Johnston Phd Thesis)
In late 2016 Nicole Johnston completed a PhD dissertation at Griffith University examining conflicts of interest that may exist in the formation phases of Community Title (Body Corporate) Schemes. This snippet draws heavily on sections of this dissertation, in particular Chapters 4 and 6.
In many instances developers, Body Corporate Mangers have a fiduciary duty to the Body Corporate. This means they must acting on behalf of other parties treat their interest as paramount. Elements of this concept is also incorporated into the Codes of Conduct which are applicable to Committees, Body Corporate Managers and Caretakers. The Codes of Conduct represents a statutory contract between these entities and the Body Corporate and Lot Owners in general.
Fiduciary duty requires loyalty to those you are acting on behalf of. The idea of trust also seems closely related. Trust seems to have both rational and intangible elements. We rely on another party to do the right thing in circumstances where we are very often unaware, unavailable or unable to verify the precise actions taken on our behalf. Unsurprisingly, we usually find breaches of trust (loyalty) bitter pills to swallow.
The Codes of Conduct contain provisions which are consistent with the concept of fiduciary duty, such as: to act with honesty fairness and professionalism, to act in the Body Corporates best interest, to keep the Body Corporate fully informed.
In this context its is perplexing that it seems to be an ongoing open secret, which many owners continue to be oblivious to, is that often (?) Body Corporate Managers get the initial three year contract to provide secretarial and administrative services to a new Body Corporate by providing no cost or concessional cost services to the Developer concerning the establishment of the Body Corporate.
Arguably this provides the developer with a financial benefit he is not entitled to and it ties the Developer and Body Corporate Manager in a relationship that is more important than that between the “employing” Body Corporate and the Body Corporate Manager.
These contracts often seem “fully priced” so it gives the appearance that Owners are footing the bill for something that should have been borne by the developer.
Novice and not so novice Owners and Committee members are often completely oblivious to the basis on which their Body Corporate Management contract has been created. Of course, the existence of the contract is disclosed, but no one will disclose that the winning of this contract has been achieved by enticements offered to the developer.
This Body Corporate Manager business strategy has downstream impacts affecting how owners view the ethics of the industry and the level of trust Committee and lot owners have in their particularly Body Corporate Manager. Some Body Corporate Managers believe they can successfully manage this problem.
We do not know how widespread this practice is; but from the research and comments reported in the dissertation and our own anecdotal feedback suggest this is a widespread practice.
Certainly comments made by Body Corporate Managers about this matter suggest its an embedded industry practice. As to the assertion that some of these contracts are fully priced many Body Corporates usually have no difficulty in finding replacement arrangements at substantially lower cost.
The (first) incumbent Body Corporate Managers often show breathtaking audacity in this issue by offering to match the (substantially lower) best price thrown up by a tender or quoting process. Body Corporate Managers seeming can’t conceive this behaviour is often the final nail in the coffin in terms of trust and the relationship generally.
Committee and Owners are left wondering why it was so easy for the incumbent to slash their fees in the face of competitive pressure. Committees and Owners are left with the unanswered question; why have we been paying so much in our first three years of existence, and how is the incumbent, apparently without much consideration able to slash their fees to meet the competition?
Even if novice Committee members are unaware of the possible manner that their Body Corporate Manager gained their contract trust in the Body Corporate Manager is often eroded with the growing perception that the relationship between the developer and the Body Corporate Manager is stronger than that between the Body Corporate Manager and its paying customer the Body Corporate.
It is natural that this might be so as the developer is in a position to offer further contracts the the Body Corporate Manager, especially if they are a very large developer.
It is no wonder then that one Body Corporate Manager described themselves as a mediator between the Body Corporate and the Developer. That is possibly the best that can be said as some Committees have the impression that Body Corporate Managers run interference in favour of the Developer.
A mediator though, is surely by definition not making the interests of the Body Corporate they are acting for paramount. Body Corporate Managers seemingly at best are passive when it come to providing information that may be of value to a Body Corporate Committee and potentially averse to a Developer.
This tactic to win new business, does the Body Corporate Management industry no favours in the long run. It seems to have been going on for a long time and thus an embedded process which to some makes it okay.
The Body Corporate Managers sector needs to go beyond splitting hairs about what its legal obligations are and look at the spirit embodied in the Codes of conduct and have a good think about the ethics of its trade.
Perhaps they should look no further than what’s being said at the moment at the Royal Commission into Banking.
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