Changing Strata Management Companies – “Breaking Up is Hard to Do”

Article contributed by Tom Bacon, Principal Lawyer at Strata Title Lawyers

 

When most of us enter into personal relationships, there is a fairly evenly-distributed balance of power and autonomy, at least to start with.

And when we do enter into these relationships, we expect them to last long-term.

We also realise that when relationships end, there is the potential for this to be cataclysmic unless both parties are very careful and sometimes the ending can overshadow everything that preceded it.

In the context of a building’s relationship with a professional manager or caretaker, the stakes can often be quite high.  Most committees have come to rely upon professional management to undertake the daily operation and administration of their communities.

For some committees, this reliance is reasonable and a balance is struck between the committee members’ responsibilities and that of their licensed manager. However, for some communities, the professional manager or caretaker rules the roost and controls all information and accounts.

As such, it is important for committees to become more proactive about how a relationship with a professional advisor might end and what can be done before that happens to insert some clarity into that process.  Otherwise, the transition can be difficult and even damaging to the community.

One of the first and most obvious steps a committee can take is to ensure that its management agreement is properly reviewed by a specialist lawyer prior to signing.

If the committee would like the ability to terminate, with or without cause, at any time throughout the term of the contract, then the contract must provide the owners’ corporation (OC) with that right.

If the committee would like to have the ability to control the handling of its funds and records, then that must be spelled out as well.

The time to discuss what you want the relationship to be and how its ending should be handled, naturally, is before you sign the agreement.

Equally important, the committee must retain a copy of the executed management contract. Many committees are dismayed to learn that they have not retained possession of a copy of their management agreement, which can be problematic if problems surface and they must ask the management company to provide that agreement to them.

Most large management companies these days provide an impressive range of services which can include all aspects of the financial operations for an OC, in addition to the infrastructure maintenance, insurance procurement, collection of delinquent accounts and interaction with vendors and professionals.

Most large management companies also offer technology which can streamline operations and make them more effective by taking advantage of available technology.

However, when it comes to receiving copies of all those digitised records at the end of a relationship, some companies are better than others at achieving a graceful departure and some refuse to deliver the records altogether and assert that those records belong to the management company, not the owners’ corporation for whom the records were created.

The Owners Corporation Act in Victoria requires management companies to turn over the OC’s records at the end of the relationship, even if a monetary dispute exists.

It might be tempting to use the leverage of those records and the crippling effect their absence will create for the community and the new manager or company coming on board, but it is in the manager’s or management company’s best interests to resist that urge.

As with most things in the owners’ corporation arena, what goes around comes around and new committees may even bring back the management company which their predecessors ousted – that is, unless a less than gracious departure left a sour impression.

As for the committee’s responsibilities in this process, it is analogous to a marriage. A fine-tuned prenuptial agreement can prevent a lot of unnecessary pain down the road.

Committees need to ensure that a management company transition does not place the OC’s operations in jeopardy.

While a perfect management company fit can last for decades and be mutually beneficial for both parties, it is important for committees to at least consider the possible end of the relationship at the time they are entering into each new contract.

If you would like further advice on owners corporation matters, Tom can be contacted by email at tom@stratatitlelawyers.com.au or by telephone 02 9091 8068.

 

The content in this paper is intended only to provide a general overview. It is not intended to be comprehensive nor does it constitute investment nor legal advice. You should seek professional advice before acting or relying on any of the content.