I’ve had a lot of queries recently from committee members asking how schemes deal with disputes with the Building Manager.
The majority of schemes over 20 lots will have a Building Manager / Onsite Manager / Caretaker / Independent Contractor (all different names that refer to the same position) appointed under Management Rights agreements.
For a lot of those schemes the bulk of their yearly administrative levy cost will go toward paying the Building Manager.
A Management Rights purchase by contrast will start around $750,000 and can be many millions of dollars. The majority will cost between $1 and $2 million.
There’s a lot of money tied up in Management Rights, for both parties. As you can imagine, getting value for money is at the top of everyone’s mind.
The bulk of this article is going to be about the Caretaking Agreement and more specifically what happens when disputes arise.
And I should warn you up front: this is probably not going to be good news.
Management Rights Agreements
The first thing you need to be aware of when dealing with Building Managers is to know that the appointment contracts are important documents.
They will should contain everything required around how the contracts will operate, the responsibilities of each party and what happens if either party doesn’t come to the party. They will include:
• The term of the agreement including options for renewal
• The tasks expected of the contractor, including what, when and how often
• The remuneration payable by the body corporate
• An annual increase in remuneration
• Opening hours of an office if applicable
• Limitations for either party
• What to do in the event of a dispute
• When and how a contract may be terminated
The second point to take on board is that these are contracts. They are not “body corporate” contracts, they are commercial contracts and as such their operation has little to do with body corporate legislation.
This is an important point to remember because any dispute that leads to legal action, which sadly almost all of them do, the remedies being sought are for breach of contract rather than breach of body corporate legislation.
If you have a dispute the first thing to do is to read the contracts and see what it is that the parties have all actually agreed to.
Then, if you’re sure you have a breach, there is a process to follow.
A Process for Resolving Disputes with the Building Manager
Firstly, in all circumstances check your own agreements first as they may outline a different process.
Secondly there are some assumptions I’m making here. They are: that the committee is the one seeking resolution of a breach, they’re doing so because a valid breach exists and the breach continues unabated despite the steps taken.
The process for resolving disputes with the Building Manager is:
- An Event Happens – more likely a series of non-performance of contracted duties
- A verbal notice to remedy with clear instructions and time frames is given
- A written notice to remedy with clear instructions and time frames is sent to the Building Manager
- Repeat the above – it’s a good idea to give lots of scope in this phase, keeping a written record of everything
- A formal Breach Notice is issued to the Building Manager (how and when a breach notice can be issued will should all be set out in the contract)
- Dispute resolution attempts are made; Negotiation of an agreement, possibly formal conciliation, most likely lots of correspondence
- The committee put forward a motion to a general meeting that the Management Rights Agreements be terminated
- The motion is resolved by the lot owners
- The Building Manager is notified of the Termination
- A court confirms the Termination. A court is not required to confirm the action but you better believe the manager will be trying to have the termination declared void both via Body Corporate Adjudication and QCAT.
The bad news: This is a legal process and the body corporate should embark on it only with the help of a legal professional. Yes it’s expensive, yes there may be additional hoops because of your by-laws and restricted issues and ye,s you’re more than likely going to incur the ire of some lot owners.
The thing is, the Building Manager has a lot to lose and will almost certainly refer to their Solicitor, probably immediately the first formal letter arrives.
The even worse news: It is very difficult to terminate a Management Rights agreement. Many schemes try but it rarely succeeds.
Which is not to suggest that this process is not followed consistently, and successfully. The most common outcome of the procedure is that the Management Rights are sold to a new operator in return for the scheme dropping the action.
Admittedly it’s a roundabout sort of solution and it doesn’t address wider issues, but by that point everyone is usually sufficiently beat up enough to want the whole matter to disappear.
Be aware, other cases are resounding wins for Building Managers.
Before You Issue A Breach Notice
If any scheme is having an issue with their Building Manager the first thing they need to do is review the contracts.
Get familiar with the wording. This is the sticky part because if you follow this route of enforcing compliance the terms and their interpretation will be predominantly what you’re arguing about.
Make sure what you’re asking them to do is included in the contract. You cannot breach a Building Manager for a task they have not contracted to do. This may seem like an obvious point but you’d be surprised how many committees have argued this point. Unsuccessfully I might add.
Keep track of all the ways you’ve spoken to the caretaker. Write if you can. Verbal conversations don’t carry the weight of written.
Have the discussions minuted in committee minutes. This is essential for both the making of your case and getting the other lot owners on board. They need to see the committee has done all it can do before they take the step of terminating the contracts.
Give them many opportunities to resolve the problem. Document each one of course, but give them the chance.
If you breach the Caretaker and it comes to legal action, which is the usual response, then you will need to be able to make your case. In all instances the body corporate must be able to demonstrate they have given reasonable notice that has not been complied with.
Be aware this is a difficult process to go through. It’s frustrating, costly and stressful. Remaining calm and considered when pursing resolution is vital. Never lose sight of the fact that resolution, not winning, is the aim.
Something that some schemes try is to withhold payment of the monthly contract sum in order to force compliance. Withholding payments is never a good idea. On the contrary you’ll simply create more bad blood with the Manager, make the scheme look mulish and open yourself to a counter-claim of non-payment.
And finally, I cannot stress strongly enough that this is a complex procedure with many variables. Seek legal advice.
Negotiation is a Far Better Option
All good contracts will should have some form of mediation nominated for when disputes arise. Discussion and negotiation are going to be your best option moving forward.
As the Office Commissioner Body Corporate put it
Conciliation can help those involved to:
• have a say, listen to one another and suggest solutions
• reach their own agreement and not have one decided for them (as happens with adjudication)
• develop or maintain good relations—especially important if they live in the same building
• give everyone involved useful information which might prevent further disputes.
Building Managers are key professionals in the life of a body corporate. A dispute with the Building Manager is not only going to be costly but it’s also going to generate a tense atmosphere around the property and compromise the ability of the management team to work together.
If you can resolve the process without dragging the matter through court and having one party or the other’s will enforced on the other so much the better.
A functional relationship with the Building Manager is vital to the success of a scheme. And after all, functional or not, you’ve still got to pay for it.
Unless stated otherwise all the information on this website relates to Queensland legislation.
Lisa,
Thank you for this article. It appears to me, that this problem is just another example of overreach by self-serving body corporate committees. Who would have thought that a contractor would only want to do what is written in a legally binding contract??? One issue with body corporate living, is that a majority of owner occupiers don’t want to be bothered with body corporate governance. They are happy to elect a committee that is, more often than not, comprised of a power-needing few. The logic of the crowd stems perhaps from an assessment that no individual owner will pay the full cost of projects and foibles prosecuted by the committee. The power and authority of an elected body corporate committee is limited in the legislation. But you wouldn’t know it by the actions of some committees. The legislation states that committee members (at least): comply with a code of conduct, become familiar with the act, and act on behalf of all owners (not just themselves). However, it appears that this is rarely done. Unfortunately, there are inadequate checks and balances on the actions of body corporate committees. So, down the track we occasionally have a lot of ill feeling and an expensive disaster; that could have been avoided with some initial fair and right minded thinking.
Thanks for commenting. It seems you’ve had a bad experience with a committee past. I think the problem is with the individual people though and not the process. A well functioning committee is a beautiful thing and brings a great deal of satisfaction to lot owners.
I certainly have seen plenty of examples of what you’re describing, including the expensive disasters and power hungry people. One of the things that bothers me when someone throws out the line “inadequate checks and balances” is the assumption that someone else is the one responsible for those checks and balances. Those balances are there, they just don’t get utilised often because people expect someone else to deal with it.
Just as committee members are expected to learn legislation and code of conduct so too are the lot owners. They can then keep track of what’s going on, and if necessary raise an objection.
Hi Lisa
Thank you for your helpful site.
Are you able to provide some direction in an unusual issue.
In our building we have a manager who works under the normal type of contractual agreement.
The establishment has many short term rental units as well as permanent residents.
Recently the manager advised he was intending to go on a long break for perhaps a year or so and that he had engaged someone to replace him for that period
The committee has no objection to this arrangement however can you advise what obligations morally and legally ie licence requirements etc that all parties have in this unusual situation.
Hi Ronald
That is a good question. The first place to check is the agreement which will likely have a clause about holidays. Usually its for a short period of time though, so not sure how this long break is going to work. The Caretaker may need the scheme approval.
They will also need to at least hold a substitute licence for longer than 30 days so its recommended they hold a letting agent licence.
Read the agreement, there should be a clause allowing him to employ a substitute but this person should supply references and have to be approved by the committee.
I doubt that a year’s absence would be acceptable, a month yes
Hi Lisa,
Sadly our sale fell through, but now we are faced with the body corporate taking legal action saying we have failed to perform our duties. It appears the Chairperson we have had problems with has taken out caretaking agreement to lawyers and gone through every detail, complaining about everything, all of which are lies. We have been managers here for 12 years and would not have lasted this long if we were not performing our duties, other owners who live in the complex have written to us saying how lovely the place is kept.
Honestly I am at my wits end, we have contacted our solicitors with the truth, and hopefully this will be resolved, but it has hurt deeply that one committee member can make life so darn complicated, and ticks me off when everyone knows she is a liar, but let her get away with it.
Hi Carole
I’m so sorry your sale fell through. Did they give you a reason why?
I think you’re doing the right thing contacting your Solicitor. It is shocking, and at the same time I suppose reassuring, how much difference one person can make. I’d try to keep the interactions with this committee member as small as possible. You should be able to ask to have a liaison appointed, one committee member you deal with. I’d insist it not be the one person you don’t want.
Has any Body Corporate been united and determined enough to terminate a MELA when the caretaker has consistently done a lousy job and thumbed his nose at the BC committee? Of course, it’s all a consequence of the Queensland Disease. Only in Queensland can a developer sell the caretaking and letting rights for 25 years before the Body Corporate is even constituted. As this rort becomes more widely known, with all the new off the plan unit blocks get up and running, how long can this continue? In just over two years, our second useless caretaker is now selling because he doesn’t like the way we have insisted that he do the job for which we pay him, and we have no confidence that no 3 will be any better. Well, this time we are going to get a lawyer who works only for bodies corporate, Caretakers like ours are giving this industry a very bad name.
Hi Jane
Yes some bodies corporate have successfully terminated the management rights. Never without legal action however. As the Caretaker can lose anything up to a couple of million in value its a decision to be made carefully and courts require a high standard of proof. I does happen though.
Good luck with the new manager. Its also possible to get a good one. Many schemes work really well with their onsite managers.
We terminated the Caretaker’s Agreement several years early thanks to much work by myself. I read the Agreement thoroughly and found a myriad of breaches but these contracts are not performance based so are a complete sham.
I read every meeting minute that covered 16 years and found several cases of fraud involving the Caretaker and contractors and the committee. The committee had been in place for far too long and there was an unhealthy arrangement between the executive and the Caretaker.
I wrote to and spoke with all the owners, overthrew the committee and then exerted a lot of pressure on the Caretaker. I was hoping to put him in jail but forcing him to resign was good enough.
They said it couldn’t be done but we ripped up the Agreement and kicked him out.
Hi Lisa , Our caretaker / management right holder in July last year took up his option of a further ten years on his contract , bringing his term up to fifteen years and his age would be in the mid seventies. We have now been informed he has placed a motion on the AGM agenda , just one year later , asking for a further five year term bringing his term to twenty years to be voted on by secret ballot by all property owners. The body corporate committee is against this on a number of grounds . Is this legal and can the committees views be circumnavigated this way ?
Hi Keith
Yes it is completely normal and legal for the Caretaker to seek an extension on the agreement. The request is usually instigated by the Caretaker’s financier. The value of the contract is dependant on it’s term with longer contracts more valuable. “Top-ups” happen all the time.
Is it a good idea for owners to agree to the top-up? That’s a different story. The longer the term the more value, or, if you’re the lot owners, the more commitment they need to honour. Particularly without renegotiation of the Agreements.
QLD is the only state that allows 25 year terms on Management Rights Agreements and only for those schemes registered under the Accommodation module. The Unit Owners’ Association QLD have been campaigning for some time to educate owners about top-ups. You might like to read their latest article on the subject.
Happy New Year Lisa,
Can the committee request the caretakers leave a committee meeting after they give their report?
They are dysfunctional and it would be a lot healthier to be able to talk about the issues if they were not present.
Thank you in anticipation of your reply
Jan
Hi Jan
Yes, absolutely ask them to leave. The committee needs to discuss matters freely amongst themselves. The same applies with your body corporate manager.
Thank you very much for clarifying this Lisa. I really appreciate the service that you provide.
Regards Jan
Hi Jan
Can a resident (or group of residents) in a body corporate complex in Queensland serve a breach notice on a Caretaker providing that they have legal assistance and documented proof of consistent breaches of a Management Agreement?
This course of action is being considered in light of the fact that the Committee is ignoring continual breaches by the Caretaker to carry out his duties as outlined in the Management Agreement between the Caretaker and the Committee of the complex.
Or can only the Committee serve a breach notice in Queensland?
Thanks
Hi John
This is difficult to answer as there’s lots of moving parts. The short answer is NO, the owners cannot breach the caretaker. Its a committee responsibility, unless the owners have made it a restricted issue, meaning the committee may not breach the caretaker either, but the owners in general meeting must vote to do so.
Either way the owners can take action by forcing an EGM with a motion to breach the Caretaker. It takes 25% of owners submitting a motion to the committee to force an EGM, along with submission of the motion to be voted on. Alternatively, if the FYE is approaching you can submit a motion to be voted on at the AGM.
Its a good idea in this case as it will give the owners a chance to vote on this contentious issue and, if owners vote yes, force the committee to take action.
Hi Lisa, your site is so valuable, thankyou.
Regarding our Caretaker and the Caretaking contract which states Clause “effect minor repairs and maintenance … as to not require the services of a skilled tradesman”. The Caretaker has let many trees grow out of control after the Body Corporate had paid for some to be cut back a few years ago, he has cut down a lot of other trees, but tells the Committee, that he doesn’t want to cut down those trees and the BC has to pay to have them cut back.The Committee feels that we need to draw a line here and we feel that the Caretaker should not be the person that says, I will cut those trees but I don’t want to cut them so BC pays. Does the body corporate have a right to say to the Caretaker… because this clause was not adhered to and the trees were not maintained by the caretaker after the BC had previously paid to have them cut back, then it is your responsibility to pay for the trees to be cut back so they can be maintained per your contract. We feel if we don’t draw the line we could be asked more often to pay for tree cutting if he doesn’t want to do it.
Hi Julie
I’m glad you’re enjoying the site.
Your question relates to contract law no body corporate matters. You’d best address to a Solicitor. Terms and conditions in Caretaking Agreements vary widely so its best to have it interpreted by a professional.
That said: I have seen bodies corporate insist that works be done at the Caretakers cost following failure to act in a timely manor per the agreement.
Your site is so helpful I am so grateful for this site. Thankyou
Hi Lisa,
Wow, your knowledge is like an endless stream, thank you for helping so many of us who are lost in the red tape of management rights and committees
Here is one I hope you can help with. Our onsite caretaker has executed a deed of termination on the Caretaking and Letting Agreements, he has given the 90 days notice as written in his agreement
The committee has now asked that he pass on all his information, contractors details, list of upcoming maintenance works, and they want him to walk around with them and show them how to perform every duty that he does. Does the Caretaker not own the agreements and is under no obligation to show the committee these things, after all they have not bought the agreements off him, as would happen if he had sold the management rights which would include his letting and caretaking agreement. I as an owner think it is up to the committee to sort this out themselves, after all they were the cause of the Caretaker taking this action.
Hi Gregory
Personally I agree with you. There is unlikely to be a clause in the contract that requires the Caretaker to pass all his information / skills to the committee. Caretakers only do that when they sell as its in their best interests to do so.
Review the contracts of course but I’d say its up to the Caretaker what they do. After all, the worst has already happened …
Hi Lisa,
Your site is great. If a Committee withhold the monthly payment to the caretaker. Then after 14 days as agreement indicated, caretaker could terminate the contract. If caretake choose to terminate, could caretaker ask Body Corp to pay all the business loss costs to the caretaker? As the agreement only mentioned caretaker could terminate contract But not saying anything what will happen after that. Thank you very much.
Hi Zio
If the Caretaker terminates the contract then there is no business loss suffered by the Caretaker … they’re the ones who ended the contract. Hence I have never heard of a Caretaker seeking to terminate a contract. If the body corporate is failing to meet their obligations under the contract, ie not paying on time, then you have an action for breach of contract. Maybe speak with a Solicitor.
It is common for a Caretaker to sell the Management Rights back to the body corporate. What happens then is for payment of an agreed lump sum the parties agree to mutually terminate the agreement.
Hoping you can help. Our complex, in Queensland, was built and sold off the plan. The developer had the first AGM and a contract was drawn up to employ an off site caretaker. Before the next AGM where all owners attended the caretaker agreement was amended.
We now have learnt the body corporate is paying the developer for the caretaker and in turn they are paying the caretaker.
Where do we stand?
I might add the term is for 25 years and an increase of 3% each year.
Hi Sandy
I am not sure that anything you have said is a breach of legislation. In fact its pretty common. The management rights are an integral part of the value of a development and many developers register and hold management rights, employing persons to carry out the physical role. It is another asset for them. So long as they are meeting the terms of the agreement and the agreements were validly entered (which is likely as they are specifically done when the developer owns all lots and can vote how they like) then there is little you can do.
So its more than likely this is legal. Is it ethical…now that’s a different conversation and there are many people in QLD bodies corporate who loathe the management rights industry.
I am currently in my third term as a BCC Chair and have been accused by the Caretaker and several friendly owners of the caretaker that I am guilty of many things. I only became a committee member because no one would stand up to the Property Manager. I have learned by sad experience over the last 2 years that there are several owners who are just greedy and it is at the Tenants expense. We currently pay the caretaker an exorbitant salary to do virtually nothing. We have had performance reviews done so we know what the salary should be as far as the duties expected but this Property Manager is a law unto themselves and completely ignores any directions given. It has become quite clear that Body Corporate Legislation needs to change urgently in Queensland to give more power to the Body Corporate to Terminate any underperforming contractor just like in the private sector
HI Alan
Its awful when there are problems between committee and building manager. Unfortunately, the only real recourse is legal action and you will need the owners to get behind you to approve that.