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Building managers dodge contract limits bullet

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Stories about incompetent or dishonest strata building managers are the stuff of apartment dinner party one-upmanship.  Or should that be one-downmanship?

To be fair, most strata and facilities managers are honest, hard-working, professional and efficient, but how bad do the worst ones have to be before state governments change the laws to curb their excesses?

NSW restricted strata managers contract lengths in the 2016 strata Act, to one initial year in a new building then a maximum of three years, as well as compelling them to declare any commissions they made, specifically targetting strata insurance payments.

However, there are no such limits on building facilities managers and there is a big push in the current review of NSW strata laws to also place similar restrictions on their contracts, with some currently starting at 10 years but thereafter are virtually open-ended, with managers given the option to renew endlessly.

Why the squeeze on contracts? Look at it this way, the kind of people who are likely to want to con their customers into signing over-long contracts are exactly the kind you need to have answer to their clients every three to five years.

A few weeks ago we touched on Victoria’s plans to restrict owners corporation management (aka strata management) contracts to three years.  This would be a big improvement on the current situation but significantly, this only applies to strata managers – building (facilities) managers have more or less escaped unscathed in the new laws that will come into force in December.

“… contracts, including a building and facilities management contract, can be entered into by a developer for a maximum term of three years – where that contract has been entered into before the first meeting of the OC and benefits the developer,” a spokesperson for Consumer Affairs Victoria told us this week (my emphasis).

“An OC may also choose to enter into a longer term contract with a service provider, including a building and facilities management contract, at any point after the first meeting has occurred.”

That’s building managers off the hook, then. However, as we mentioned before, there are other major restrictions on owners corporation managers – the official term for strata managers in Victoria –  in a broader overhaul of strata law.

The good news for strata managers is that Victoria’s Tier One schemes, those with more than 100 lots, must appoint one unless they apply for special permission not to do so.

After that, things get progressively tighter.  For a start, contracts with developers for setting up the strata schemes expire at the first AGM of the new owners corporation.  Also, the developers or their associates can’t be appointed as managers.

After the first AGM,  any new and subsequent contract is limited to three years, with a raft of restrictions on what they can contain.

For instance, contracts can’t demand that the owners corporation convenes a general meeting or passes a special resolution to sack the manager.

The contracts also can’t contain clauses that allow for automatic renewal, or re-signing as a guaranteed option for the strata managers.  When it comes to sacking the manager, the contracts can’t insist on notice of more than three months for larger schemes, and one month for smaller blocks.

So far, so procedural. But as you dig into the detail of the changes you discover where the issues of integrity and honesty lie. For instance, unlike in Queensland, developers are not allowed to sell, or “receive payment” for management contracts.

Managers must ensure goods and services acquired on behalf of the owners corporation are procured on genuinely competitive prices and terms, and any special relationships with suppliers and service providers have to be declared to the strata committee. 

Where managers are entitled to receive commission from securing a contract – such as owners corporation insurance – they have to notify the chair of the owners corp in advance.

Managers are also not allowed to exert pressure on owners to influence the outcome of a vote or election.

While this may seem like a crackdown on managers, apart from the restrictions on contract terms, it’s mostly just a clarification of roles and responsibilities – a re-drawing of lines so that everyone knows what’s expected of them.

Doubtless there will be a few dodgy operators who will be caught on the hop, but that’s the same in any business.

The Victorian law changes come into force in December this year.  In the meantime NSW lawmakers are consulting strata residents about what they think should be in their next revamp of strata law.

This is all important stuff. Strata and building management is a huge and growing industry with an increasing influence on all our lives.

According to this report from three years ago, the number of strata managers, building managers and other direct employees of strata schemes was approaching 10,000.  It will be well over that by now.

And strata managers, building facilities managers and strata committees acting out of mutual self-interest, rather than for the greater good of their communities, can be as damaging to your investment as cracks in the concrete.

As for other state, Queensland grimly hangs on to the legalised corruption of the pre-sale of caretaker management rights, with some strata managers there aiding and abetting the conversion of already onerous 10-year contracts into 25-year millstones around the necks of apartment owners.

We in the southern states all have our occasional issues when it comes to strata and building management – and they have their problems with us residents  and owners –  but you wouldn’t want to get between a Queensland strata manager and a bucket of money.

One Reply to “Building managers dodge contract limits bullet”

  1. Jimmy-T says:

    If you want to start a discussion or ask a question about this, log into the Flat Chat Forum (using the Forum link on the menu at the very top of your screen). More people will read it there and you can more easily keep track of responses.

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