About 10 Years ago my wife and I decided to purchase a Unit in a 48 Unit complex as an investment property. We had purchased investment properties before but this was the first one that involved a Body Corporate. Being nieve we asked the real estate sales person what the Body Corporate was all about and he told us that basically that we owned the inside of the property and that anything on the outside was maintained by the Body Corporate that would be paid for by the Body Corporate fees we would have to pay. This was a very much over simplification of the reality of a Body Corporate. As I was doing the conveyancing myself I did inspect the Body Corporate records and did discover that the property had previously had plumbing problems, that a Body Corporate committee existed and that I could nominate to be on the committee.
Having read a small amount about Body Corporate, I felt it wise to nominate for the committee and after being unsuccessful the first year became a committee member the subsequent year and have been one ever since.
My wife and I a few years later purchased another Unit, this time in a 8 unit complex, that also had a Body Corporate. I also became a committee member of that Body Corporate and subsequently took up the position of Treasurer on both Committees
On attending my first Annual General Meeting, prior to becoming a committee member, I was confronted with a big wad of paperwork much of which I did not understand and a list of motions that each owner had to vote on. At that meeting a vote was to be taken as to if new contracts where to be made with the on site manager (caretaking service contractor).
There where two contracts, a Caretaking Agreement and a Letting Agreement. The caretaking agreement basically set out the obligations of the caretaker and the body corporate in relation the ongoing maintenance of the common property of the complex and the letting agreement gave the caretaker and non-exclusive right to provide a letting (rental) service to owners that wished to use that service.
Both contracts went on for many pages. But what stood out to me was that both contracts where for a period of 5 years with a 5 year option after the first 5 years. Having come from a business background I asked why such a long contract period was necessary and was told that it was the standard in the industry. Although I voted against the motion at the meeting, mainly because the then committee had recommended that owners vote for the motion, the motion was narrowly passed. The new contract then replace the existing contracts such that the caretaker had 5 plus 5 years contracts from that point in time and some additional clauses to his advantage.
In addition to the contracts the Body Corporate had with the caretaker it also had a one year contract with the Body Corporate Management company that was renewed at each Annual General Meeting. In the other Body Corporate that I am the Treasurer of more recently this contract has been for three years.
In summary a body corporate could have a caretaking agreement and a letting agreement which would have a term of 5 to 10 years and a management agreement with a term of 1 to 3 years.
Now, ten years on, after going through lengthy disputes with the caretaker in the case of the larger body corporate and the management company with the other body corporate I see what the major problem with these contract are. They are very much written to be for the advantage for the other party and so to the disadvantage of the body corporate.
The major advantage the other parties (caretaker and management companies) have over the body corporate in all these contracts is the termination clauses. In all these contracts the other parties can terminate the contract by giving the body corporate usually 30 days notice. However for the body corporate to terminate the same contracts it usually has to prove the other party
(a) is convicted of an indictable offence involving fraud or dishonesty
(b)is guilty of gross misconduct or gross misconduct in performing duties or failing to perform duties.
© is in breach of the agreement and that breach continues at the end of 14 days after writing in notice delivered by the body corporate to the other party requiring the breach to be remedied
(d) basically is bankrupt.
To prove any of the above points require lengthy complicated and possibly expensive legal procedures to take place.
The major reason these contracts are so one sided is because they are a commodity. That is these contracts can be on sold to other people or organisations. The conditions that allow this to happen are usually also written in to the contracts. In the case of caretaking and letting agreements these contracts have been sold for ten of thousands and over one million dollars. In the case of management companies these organisation can be sold as an on going business.
This commodity that has a value concept is only an advantage for the caretaker or management company, NOT the body corporate.
Caretakers and management companies have argued that because they have to pay so much to purchase these businesses that it is an incentive for them to work well for the body corporate and so preserve there investment. However the past litigation has shown that in that case of caretakers, they have successfully used these one sided contracts to give themselves a relativity high income for poor performance. In my own situation I can attest that a caretaker received for 5 years the full contract remuneration whilst satisfactory completing less than 10% of the contracted duties and not remedying numerous breach of contracts notices served on him.
Section 129 of the Body Corporate and Community Management (Standard Module) Regulations 2008 ,Termination under the Act, by agreement etc. (1) The body corporate may terminate a person’s engagement as a body corporate manager or service contractor, or authorisation © under the engagement or authorisation.
This means that a body corporate can insert a condition in a contract (the engagement or authorisation) stating how the contract can be terminated. This could simple say by giving 30 days notice, so making the contract equal for both parties.
Yes, as shown in the above section it is possible to set up a contract such the the termination clause is the same for body corporate and the other parties.
Traditionally these contracts have been set up by the other parties lawyers and the lawyers for body corporate just accept them without explaining the possible consequences of such contracts. Their is no legal reason for these contract to be one sided to the detriment of the body corporate.
Most contract have a clause that allows the other parties to sell (assign) the contract to another person or organisation. The wording of the assignment clauses, make it difficult for the body corporate to refuse any proposed assignment.
It is difficult to know if a person or organisation that wishes to purchase the contract is, in the long term, going to fulfil all the obligations of the contract.
A caretaker or management company can sell the contracts at any time with the same one sided contract conditions applying.
Even though you may be completely happy with your present caretaker or management company at some point in time they will sell their contract or change the people you are dealing with to other people that may not be as good as the present ones. It is not possible to try out someone new. If the new people are not satisfactory a body corporate would have to go through a complicated lengthy and possible expensive legal process to remove the new people because of the one sided contracts.
In my own situation a caretaker that most owners where happy with sold his caretaking and letting agreements to a person that most owners where completely unhappy with and it took over 5 years of legal wrangling and personal torment to fix the situation.
No qualifications are required for any person or organisation to be a caretaker or a management company such that in tough economic times many people purchase such contracts with the concept of buying them selves a job often without the knowledge of what is required to fulfils the obligations of the contracts. They may later discover because of the amount they paid for the contract and the work they have to do under it, the contracts are economically non viable and then they do not perform the contract duties because they know the contract is one sided in their favour.
Write a motion to be put at the next Annual general Meeting of the Body Corporate as follows:
“That the Body corporate seeks to not enter into any contract where the termination clause(s) of the contract are different for the Body Corporate and the other party(s) to the contact”
For the explanatory note this web page can and should be referred to
Very little. If you have a contract with a management company or onsite manager there is a very strong probability that these one sided clause exists. If the other party to the contracts is not performing the duties of the contract then check the contracts to see if such exist. If they, do the only way out of the contracts is via the one sided conditions of the contract. This means that you would have to go through a long convoluted legal procedure to prove the other party is not performing the contracted duties.
In my situation we where lucky that when contracts for a onsite manager where change to a new onsite manager the other parties lawyers made a mistake such that the onsite manager could not take up the second 5 year option. However we did have to put up with non performed duties for 5 years with the look of the complex very much degraded and attempting to deal with a a hostile onsite manager. Regardless of the mistake, that was to our advantage, the onsite manager still took legal action that was not fully decided until over a year after the 5 year contract came to an end.
My situation with a management company that completely ignored many of the instructions that the committee gave it continues because it is not worth while going to the trouble of attempting to terminate the 3 year contract through the legal system. The committee in this situation has had to perform many of the duties that the management company should be performing, so as to get them done the way the committee want them performed.
Read the termination clauses for all contracts before the body corporate enters into those contracts. Insist that any one sided conditions re termination are removed. If the other party refused to remove them, point out that if they perform the duties of the contract satisfactorily, they have nothing to worry about. If the other party insists that conditions remain because of the amount they are paying to purchase the contracts, them point out that the amount they pay for the contracts has no effect on the relationship between the body corporate and them and it is they who have to determine the viability of the contracts. If they still refuse to remove the one sided conditions then don't enter the agreements and find another party that will. There will always be someone willing to enter non one sided contracts
If enough body corporates refuse to enter these one sided contracts, the performance of the parties contracted to body corporates can only improve.