This article about indemnity, waivers & hold harmless clauses in strata management contracts has been supplied by Tyrone Shandiman, Strata Insurance Solutions.
Table of contents:
- QUESTION: How do we get indemnities in Strata Management agreements removed?
- ARTICLE: Indemnity, Waivers & Hold Harmless Clauses in Strata Management Contracts
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Question: How do we get indemnities in Strata Management agreements removed?
I am currently reviewing two potential new strata management companies, both of which have releases and indemnities in their agreements, similar to those you have outlined in your article.
I understand the points you have made but these clauses are included in standardised agreements and I would expect it is almost impossible to get strata management companies to agree to delete them.
What is the best way to go about trying to get them removed? Refer the clauses to the Owners Corporation’s insurer for their advice and then show the advice to the strata management company explaining why these clauses cannot be agreed to?
Answer: If the strata management company is not willing to delete the conditions then the owners corporation should consider whether it wants to expose owners to the risks that are highlighted in the article.
We have had a number of clients who have re-negotiated their strata management contractual terms and conditions over the years.
Our experience is smaller strata management companies, whereby the proprietor still has an active role in the business are the companies most amenable.
If the strata management company is not willing to delete the conditions then the owners corporation should consider whether it wants to expose owners to the risks that are highlighted in the article.
If this is a concern for you we would recommend shopping around to find a strata manager with better terms and conditions.
Tyrone Shandiman Strata Insurance Solutions T: 07 3899 5129 E: tshandiman@iaa.net.au
This post appears in Strata News #398.
NAT: Indemnity, Waivers & Hold Harmless Clauses in Strata Management Contracts
Strata buildings should pay particular care to indemnity, waivers and hold harmless clauses when entering into strata management contracts. Strata Insurance Solutions have recently reviewed strata management contracts of various strata managers and industry standard contract conditions and we have found clauses that should raise concern for committees.
Such clauses can:
- Mean that the body corporate/owners corporation provides indemnity to the strata manager for liability they may incur arising from activities undertaken on behalf of the body corporate/owners corporation.
- Limits or waives the insurers right to pursue recovery of costs against the strata manager.
- Mean the body corporate/owners corporation agree not to hold the strata manager responsible for any loss, damage, or legal liability (Hold Harmless).
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In the event of a legal claim, solicitors representing a plaintiff in a legal action may cast a wide net which can mean various parties are drawn into a legal matter – this can include both the body corporate/owners corporation and the strata manager, even where those parties are not negligent. Where a strata manager can successfully defend an allegation of negligence, the defence costs of such a claim can still run into the hundreds of thousands of dollars.
Below are sample clauses we found in contracts that have raised some concern:
- The strata manager will not be responsible for loss or damage to the body corporate/owners corporation unless such loss or damage is caused by wilful or negligent act of the strata manager;
- The body corporate/owners corporation must immediately on demand indemnify the strata manager against any matter for which the strata manager has no liability to the body corporate/owners corporation;
- The maximum liability of the strata manager arising out of the performance or non- performance of the Services, whether under the law of contract, tort or otherwise, shall be the amount of the agreed services fees for the year in which the liability arose;
- The strata manager is deemed to be discharged from all liability in respect of the agreed services and the additional services, whether under the law of contract, tort or otherwise, at the expiration of two years from the date of the act or omission giving rise to the liability, and the owners corporation/body corporate shall not be entitled to commence any action after that date.
Our first concern is indemnity and contractual liabilities the body corporate/owners corporation are entering into. By agreeing to the first two terms and conditions in the points above, in the event the strata manager has a legal claim brought against them and they are able to defend this action on the grounds their actions were not wilful or negligent, by virtue of an indemnity clause, the body corporate/owners corporation could be responsible for paying the strata managers legal expenses that should be covered by the strata managers own insurance.
Generally, insurance policies contain contractual liability exclusions which means the insurer does not accept liability incurred by agreement in a contract. While some strata insurers might provide conditions that are more favourable to contractual liabilities entered into with strata managers, should the body corporate/owners corporation change insurer, the new insurer may have a more onerous contractual liability exclusions and it would rely on the committee at the time of changing insurer to understand the consequences contractual liability clauses in the strata management contract have on insurance. Furthermore, those favourable terms and conditions might only extend to certain claims like public liability, covering only personal injury & property damage claims and not extend to other claims such professional indemnity covering financial loss resulting from professional negligence.
Our second concern is the body corporate/owners corporation are limiting the insurers rights of subrogation or recovery against the strata manager in the second two terms and conditions in the points above. Strata policies have Recovery or Subrogation clauses which generally states that you must not do anything that prevents or prejudice the insurers rights of recovery/subrogation.
Strata managers should have Professional Indemnity, Management Liability & Public Liability insurance that adequately covers them in the event of a legal claim brought against them. If the strata managers actions were not deemed to be a wilful or negligent act, that should be a defence available to the strata managers insurer at the time of a claim.
It should not be left to a body corporate/owners corporation to cover the cost of the strata managers legal defences. Likewise, if the strata managers acts, errors or omissions are wilful or negligent and this causes a financial loss to the body corporate/owners corporation or lot owners, the strata managers insurance should indemnify them against actions for these with no limitation on time or liability amount other than as permitted by law.
We recommend committees undertake a review of their strata management contract and specifically look for indemnities, waivers or hold harmless clauses. In the event, such terms exist the body corporate/owners corporation should seek further advice from their insurance broker and/or legal advice. Where the risks associated with such clauses are too high, they should seek to negotiate different contract terms with the strata manager before entering into a new contract with the strata manager.
Tyrone Shandiman Strata Insurance Solutions T: 07 3899 5129 E: tshandiman@iaa.net.au
This post appears in Strata News #318.
Have a question about indemnity, waivers & hold harmless clauses in strata management contracts or something to add to the article? Leave a comment below.
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This information is of a general nature only and neither represents nor is intended to be personal advice on any particular matter. Shandit Pty Ltd T/as Strata Insurance Solutions strongly suggests that no person should act specifically on the basis of the information in this document, but should obtain appropriate professional advice based on their own personal circumstances. Shandit Pty Ltd T/As Strata Insurance Solutions is a Corporate Authorised Representative (No. 404246) of Insurance Advisernet Australia AFSL No 240549, ABN 15 003 886 687.
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