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Letter Of Authority - Existing Building Insurance Policy
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kezza111
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02/01/2018 - 9:49 pm
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I just found out that our recently appointed SM (coming from being self managed) sent a Letter of Authority to our existing building policy holder without advising the SC in writing.

Our SM has forwarded renewal policies for our consideration that now includes her commission.

When I attempted to get a renewal quote from our existing policy holder without this added commission, I was advised that they no longer manage our policy as our recently appointed SM has taken over due to the Ltr of Authority that [they] received.

Our contract with this SM is a fixed amount with the insurance commission included as part of the deal.

The SM has put forward 6 renewal policys..all more expensive compared to the current policy..by $800..which is about to expire.

As a member of the SC, I thought that the SM should have advised us about the letter of authority to us.

And secondly, we’re not able to get a renewal quote on a policy that we’ve had for years with the same people due to the change over in who is managing our current policy..the new SM.

Should the SM be required to justify the price hike/commission amount?

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Lady Penelope
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03/01/2018 - 10:49 am
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In my opinion …at first glance the SM appears to have over stepped his authority but this very much depends on what contract provisions that your OC approved and has signed with the new SM in their Strata Management Agreement.

Was the SM’s exclusive authority to seek out alternative insurance  policies something that was agreed to in the SM’s contract? Check the contract. 

What reasons were given for not being able to renew your existing policy, and were these reasons given by the insurance company or the new SM?

I would have thought that the Committee would also have the authority to also seek out quotes for insurance. After all, any owner has a right to seek out quotes that can then be submitted by that owner as a Motion at general meetings. This will no doubt generate animosity with your new SM which is something that you may not want.

https://www.lookupstrata.com.au/nsw-duties-of-strata-treasurer/

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kezza111
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04/01/2018 - 7:55 am
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Hi Lady P,

The insurance company advised us that [they] “transferred the policy to another intermediary in line the with insureds request and based on the date on the letter of appointment we will assume the policy will now be closed and paid by the new intermediary”.

The contract is the standard SCA Strata Management Agency Agreement form.

There is no agreement in the contract that the new SM is to have exclusive authority. The new SM has “Full authority subject to limitations as disclosed in Schedule A2”.

Checking our contract Scedule A2, it says “Arranging insurance cover for the scheme as instructed by the owners corporation strata committee.” It has an additional note to indemnify the agent if the OC arranges for placement of the insurance cover or engages a third party.

As the Chair/Secretary/Treasurer I have not instructed her to do anything yet…as we have only just signed the contract in early December.

Under Schedule C1 – Disclosure Schedule – it states that the agreed service fee has been determined on the basis that the agent receives an insurance commission which thereby effectively provides a cost subsidy. If no insurance commission or other agree fee is paid to the agent, the agreed fee service will increase in accordance with Clause 3.3.

Clause 3 basically says that should the OC arranges its own insurance that has the effect that the agent doesnt receive her commission then the agreed service fee shall be increased to the amount equivalent to the commission she would have received.

Whilst I understand going from self managed to being professionally managed will increase our costings….however the sharp increase of our insurance policy which includes her commission by $800 does seem unreasonable.

I have emailed our new SM of two months to ask her to clarify the “Letter Of Authority” and have yet to receive a reply.

Based on the above it appears we are contractually bound to pay her the commission regardless if we go with one of her quotes or source one of our own.

Fielding unhappy phone calls from owners who now want to return to “self managment”…as I have said to them be careful what you wish for….they wanted to go professional so be prepared to pay for it.

Thanks Lady P for your advice. 🙂

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Lady Penelope
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04/01/2018 - 11:51 am
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The ‘devil’ is usually in the detail in these contracts. Perhaps next time that the contract is about to be renewed your OC can remove the clause that refers to commissions, or your OC can change it to reduce the amount of commission to a number that better suits your scheme’s circumstances.

If you hold all three executive positions then you have effectively been doing the job of the SM for free over all of the time prior to the employment of the SM. I wouldn’t be moving back to a self managed mode unless there are more willing and interested owners who will join the committee and share the load!

I would contact the SM again next week, when the SM should be back at work, about the Letter of Authority and the lack of response, and also reiterate the SM’s contractual boundaries and delegated duties.

Keep a record of any perceived performance transgressions and look again at the SM contract to understand the termination for ‘breach of duties’ provisions in the contract.

If things become ‘messier’ then you can also seek mediation through the OFT. Information from their site is below:

Dispute with a strata managing agent 

The NSW Civil and Administrative Tribunal (the Tribunal) can make decisions about disputes with a strata managing agent.

Disputes are resolved at a Tribunal hearing if they are not resolved at mediation or determined inappropriate for mediation.

Only an owners corporation can apply to the Tribunal for an order to resolve a dispute with a managing agent about their agreement. The Tribunal, in dealing with such a dispute, can make the following orders:

  • terminate an agreement
  • require payment of compensation by a party to the agreement
  • change, confirm or declare invalid the terms and conditions of the agreement
  • dismiss the application.

The Tribunal may make an order to terminate an agreement due to:

  • the managing agent’s unsatisfactory performance under the agreement
  • unfairness of charges paid
  • a strata managing agent not disclosing commissions or training services, or disclosing these in good faith
  • the agreement being harsh, oppressive, unconscionable or unreasonable
  • the managing agent not disclosing an interest, which led to them being appointed

 

This is not a particularly good start to your scheme’s relationship with the SM. 

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