NSW: Q&A Strata Manager Insurance Commissions

NSW Committee Members are wondering what their strata manager has to disclose regarding insurance commissions due to the new legislation. Also, is there a way to get out of paying strata management insurance commission?

Table of Contents:

• QUESTION: With the new NSW strata laws, are strata managers required to update current managing agency agreements?
• QUESTION: What fees can strata managers charge to organise insurance quotes?
• QUESTION: Should strata managers have a letter of appointment signed by a committee member before a broker is appointed?
• QUESTION: Does the decision to renew building insurance, made by the committee behind closed doors without a compliant strata meeting, fulfil the requirements for sufficient disclosure and transparency?
• QUESTION: Our Strata manager paid his company from our trust account to make up for lost insurance commission. Is he authorised to do this?
• QUESTION: How does your company put forward a proposal for a strata insurance policy based on last year’s premium from a competitor without full knowledge of the commission structure or even if there was any commission in the policy?
• QUESTION: When organising our strata insurance, are we entitled to know the rate of insurance commission paid to the broker or the Strata Manager?
• QUESTION: To avoid paying commission, are we able to directly contact and insure with the same insurance company we have insured with over the past few years?
• QUESTION: Is it compulsory to pay our strata manager commission as per the strata managing agency agreement or can insurance commission be excluded from the Agreement on renewal?
• QUESTION: We’ve noticed that our renewal for Strata Insurance includes commissions of nearly 50% of the policy price for the Strata Managing Agent and Broker. Is this usual?
• QUESTION: Our Strata Manager is an authorised representative of a Broker. They flatly refuse to admit to receiving any type of insurance commission. If they are receiving a commission, what do they need to report to comply with the new legislation?
• QUESTION: Can a strata manager charge higher strata management fees if a committee decides to place the insurance independently of the strata manager? What is the connection between strata management fees and strata manager insurance commissions?
• QUESTION: Our building insurance is due mid 2019. Is the Owners Corporation able to renew this themselves or must it go through the Strata Management Company? We would prefer not to pay our Strata Manager insurance commissions.

Question: With the new NSW strata laws, are strata managers required to update current managing agency agreements?

1. With the new NSW strata laws, are strata managers required to update current managing agency agreements by 3 February 2025, or will the disclosure laws only apply to new agreements?
2. If the new laws apply retrospectively, will strata managers be required to include an annexure that can be attached to any current managing agency agreement?

Answer: Any provisions of an agency agreement that are inconsistent with the amendments will be void in the light of the amendments.

1. The disclosure laws apply to all strata managers from the date of commencement of the amendments, no matter when the agency agreement was entered. From memory, I do not believe that the agency agreements need updating (although there might be some agency agreements which might – strata managers will need to check the provisions of each agreement). Having said that, any provisions of an agency agreement that are inconsistent with the amendments will be void in the light of the amendments.
2. See above. The notice provisions are separate to the agency agreement and place additional obligations on strata managers to those already in any agency agreement.

Christopher Kerin
Kerin Benson Lawyers
E: enquiries@kerinbensonlawyers.com.au
P: 02 8706 7060

This post appears in the December 2024 edition of The NSW Strata Magazine.

Question: What fees can strata managers charge to organise insurance quotes?

Answer: This may vary depending on the terms and conditions of your specific management agency agreement.

Provided your managing agent uses the standard Strata Community Australia strata management agency agreement and that your agent has delegated authority to arrange insurance quotations, the fee for doing so would usually be included in the “agreed services” fee in respect of which no additional charges would apply.

This may vary, however, depending on the terms and conditions of your specific management agency agreement (MAA) as some agencies may charge an additional amount. If so, the fees are generally included in the schedule of charges B, C & D, which are part of the MAA.

Leanne Habib
Premium Strata
E: info@premiumstrata.com.au
P: 02 9281 6440

This post appears in the March 2024 edition of The NSW Strata Magazine.

Question: Should strata managers have a letter of appointment signed by a committee member before a broker is appointed.

Answer: It is reasonable for the strata manager to seek the committee’s consent before appointing a new broker on an insurance policy.

In New South Wales, a strata manager is responsible for managing the affairs of a strata scheme. However, the specific authority delegated to a strata manager regarding the common seal may vary depending on the terms of their engagement and the instructions provided by the owners corporation.

The common seal is a legal instrument used to execute official documents on behalf of the owners corporation. While strata managers often handle administrative tasks related to the common seal, such as keeping it safe and using it when required, the extent of their authority with regard to the common seal is typically outlined in the agency agreement or contract they have with the owners corporation. These agreements specify the scope of their responsibilities and the limits of their delegated authority.

Regardless of whether the strata manager has authority under their agreement to use the seal, it is reasonable to seek the committees’ consent before appointing a new broker on an insurance policy.

Following on from the webinar done by Michael Kleinschmidt from Bugden Allen Graham Lawyers [NAT: Strata Managers as Fiduciaries, or ‘Wow, I didn’t know that…’ | LookUpStrata], if the strata manager is receiving a financial gain, there should definitely be informed consent.

Strata Insurers do not have a requirement that the Letter of Appointment is signed by a committee member. They accept Letters of Appointment signed by strata managers.

Before appointing any broker, the committee should understand the remuneration differences and what impact that will have on the premium. If the strata manager is appointing a broker and being paid a share of the insurance broker’s remuneration, it would be a reasonable expectation this information is highlighted.

Tyrone Shandiman
Strata Insurance Solutions
E: tshandiman@iaa.net.au
P: 1300 554 165

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 Advisenent Australia AFSL No 240549, ABN 15 003 886 687.

This post appears in the February 2024 edition of The NSW Strata Magazine.

Question: Does the decision to renew building insurance, made by the committee behind closed doors without a compliant strata meeting, fulfil the requirements for sufficient disclosure and transparency?

A compliant strata meeting per the Strata Scheme Management Act 2015 offers transparency and disclosure to all owners.

Does the decision to renew building insurance, made by the committee behind closed doors without a compliant strata meeting, fulfil the requirements for sufficient disclosure according to John Trowbridge’s Strata Insurance Disclosure Handbook?

Insurance is a significant item of expenditure with serious ramifications if not executed correctly.

If renewing strata insurance doesn’t warrant a strata meeting per the SSMA, then what does?

Answer: Providing full disclosure to the committee and subsequently incorporating this information into the strata records is a reasonable and acceptable approach.

While strata legislation across Australia imposes conditions on the approval of certain decisions at a general meeting for strata buildings, it’s important to note that decisions related to insurance are not explicitly included in this requirement.

The owners typically elect a committee to take on the responsibility of making certain decisions on behalf of all owners, and buying decisions on insurance is part of the function and mandate of a committee.

In the context of John Trowbridge’s recommendation, the disclosure proposed should undoubtedly be integrated into the owners corporation’s records. These records should be accessible to all owners, ensuring transparency and accountability within the community.

Although I cannot speak on behalf of John Trowbridge and his specific findings, I personally hold the perspective that providing full disclosure to the committee and subsequently incorporating this information into the strata records is a reasonable and acceptable approach. This approach aligns with the principles of informed decision-making and promotes a well-informed committee that can act in the best interest of all owners.

John Trowbridge, Trowbridge Consulting has recently developed a Disclosure Handbook User Guide outlining the intended use of the material within the Handbook.

Tyrone Shandiman
Strata Insurance Solutions
E: tshandiman@iaa.net.au
P: 1300 554 165

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 Advisenent Australia AFSL No 240549, ABN 15 003 886 687.

This post appears in the October 2023 edition of The NSW Strata Magazine.

Question: Our Strata manager paid his company from our trust account to make up for lost insurance commission. Is he authorised to do this?

Our strata manager paid his company $450 from our trust fund because he did not receive commission for renewing our strata building insurance. His argument is that this is less than the usual 20% commission.

I could not see any reference to justify this action in our contract. Is this general practise?

Answer: The strata manager has to decide what is more important – the $450 or having an annoyed scheme who may not re-appoint them.

To the best of my knowledge, this is not normal practice. Further, the strata manager cannot be paid anything which is not included in their agency agreement.

So in brief, either:

1. The payment is not a part of the agreement, so must be refunded immediately, and is probably reportable; or
2. The agreement does actually have a provision saying if no insurance commission is received, the strata manager is entitled to a payment of $x instead, meaning the payment is authorised. Even here, simply paying it to oneself is probably poor form without confirmation or further disclosure and the strata manager has to decide what is more important – the $450 or having an annoyed scheme who may not re-appoint them.

James Moir
Madison Marcus
E: Strata@madisonmarcus.com.au
P: 02 8022 1222

This post appears in the November 2022 edition of The NSW Strata Magazine.

Question: How does your company put forward a proposal for a strata insurance policy based on last year’s premium from a competitor without full knowledge of the commission structure or even if there was any commission in the policy?

Answer: Any quotes we submit clearly spells out how we arrange our quotes.

We don’t put forward proposals for last year’s premiums. So, how we will put proposals forward is very simple. If they are available, insurers first seek to get quotes from the market. The second option that is available, and that I do talk to my clients about, is that there are certain insurers that will reserve to the holding broker.

Firstly, obviously, the holding insurer will do that, and there are some insurers that will only quote one broker at a time. We can still provide clients an indication of what our pricing would be for those policies if they provide us with a copy of the quotes that they’ve received from those companies. Any quotes we submit, obviously, clearly spells out how we arrange our quotes.

Tyrone Shandiman
Strata Insurance Solutions
E: tshandiman@iaa.net.au
P: 07 3899 5129

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.

This post appears in the August 2021 edition of The NSW Strata Magazine.

Question: When organising our strata insurance, are we entitled to know the rate of insurance commission paid to the broker or the Strata Manager?

Answer: What you may not find disclosed fully is that there can be profit shares that are not classed as commissions

The broker has a duty to disclose this to you. You should definitely ask what the commission structures are. In NSW, it’s a requirement for the commission structure to be disclosed on the AGM papers. What you may not find disclosed fully is that there can be profit shares which are not classed as commissions, which are buried in financial services guides, but if you know the commission and broker fee the broker gets, that will help inform you around whether it is or isn’t reasonable.

The standard industry commission within Australia policy is 20%. But what we are finding at the moment is that some Commission’s are as much as 20% commission and 20% fee, and obviously that has a very, very big impact on the cost of insurance for the lot owners. So, I would always suggest informing yourself, asking the strata manager and broker to provide transparency around their fees and commissions.

I know that there are strata managers out there who don’t take commissions and are happy to discuss the fee, and maybe what it means is their fees differ from those managers that do include commission in their strata management fees.

I think the point I’m making is, know what your fees and commissions are. Your contracts come up every one or three years and those are things you can discuss with your strata manager when renewing the contract.

Tyrone Shandiman
Strata Insurance Solutions
E: tshandiman@iaa.net.au
P: 07 3899 5129

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.

This post appears in the July 2021 edition of The NSW Strata Magazine.

Question: To avoid paying commission, are we able to directly contact and insure with the same insurance company we have insured with over the past few years?

We live in a block of 12 units in Sydney NSW.

Last year we were charged around $500 by our Managing Agents to obtain three (3) Building Insurance quotations from the broker they use and to insure the building.

Our Strata Committee thought that this amount was excessive considering the Managing Agents also obtain a Commission. Do you agree or disagree?

Can a Strata Committee obtain their own Building Insurance quotations, and then advise our Managing Agents accordingly?

Does a Strata Committee under Law have to obtain three (3) quotations OR are we able to directly contact and insure with the same insurance company we have insured with over the past few years?

Answer: With regard to your charges and insurance commissions, it’s important to know what the Commission’s are for

You can insure directly with an insurer but be aware that, in New South Wales, there is a specific requirement to get three quotes for the insurance every year. The two issues around insuring directly for committee is:

1. who’s advising you that the policy is appropriate and correct? You’re best using a broker for that, and they’re qualified to give advice in that regard.
2. Who manages the claims and the claim process as well.

If I was a committee member with no experience in insurance, I would use a broker, knowing the services that brokers offer.

With regard to your charges and commissions, it’s important to know what the Commissions are for. If you’re being charged $500 just to get a quote, and I haven’t seen that in many strata management contracts, that would be something I would be looking at when my strata management agreement came due for renewal, to discuss whether that fee was appropriate.

Tyrone Shandiman
Strata Insurance Solutions
E: tshandiman@iaa.net.au
P: 07 3899 5129

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.

This post appears in the June 2021 edition of The NSW Strata Magazine.

Question: Is it compulsory to pay our strata manager commission as per the strata managing agency agreement or can insurance commission be excluded from the Agreement on renewal?

Our strata management company charges a considerable fee for arranging insurance, however, it is facilitated through an insurance broker who I guess may also be getting a commission from the insurance company.

Is it compulsory to pay the management as per the strata management agreement? or can the insurance commission be excluded from the Agreement on renewal?

Answer: Always refer to your agreement.

The first thing is, always refer to your agreement. What do the terms of the agreement say? It might include that if we don’t insure the property through our broker, you will pay us the commission that we would have earned. Or it might be that the strata manager charges an hourly fee for the management of insurance.

Now, if it’s the latter, obviously, then you need to understand what services the broker provides? Does the strata manager need to be involved in the insurance? I guess it really does come down to – Does the body corporate or owners Corporation want the choice of who they use as well. So by all means, I’m sure that strata managers are open to negotiating the terms and conditions of their contracts. If they’re not, you might decide there’s someone else out there that does not have that same condition in their contract.

Tyrone Shandiman
Strata Insurance Solutions
E: tshandiman@iaa.net.au
P: 07 3899 5129

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.

This post appears in Strata News #379.

Question: We’ve noticed that our renewal for Strata Insurance includes commissions of nearly 50% of the policy price for the Strata Managing Agent and Broker. Is this usual?

We recently got our Strata Property Insurance, which has understandably gone up since last year. However, of the $54,000 for the policy, there is a fee for the broker of $15,000 and a commission for the Strata Managing agent of $8,000 which is equal to nearly 50% of the policy cost. The Strata Managing Agent sources the policy via the Broker.

Is this usual or actually ethical and legal? We are trying to independently source insurance options as the Managing Agent has told us this is the only insurer that will offer us a policy.

Answer: Committees should make an effort to fully understand the remuneration and commission structure that both the strata manager and insurance broker receive.

We have seen an increasing number of policies similar to that of the questioner that should be a cause of concern for the owners corporation.

Strata Insurance has traditionally worked from a standard industry commission rate of 20%, however, we have seen some instances where the broker takes the standard 20% commission + a fee that is excessive (sometimes more than the commission).

What makes this more concerning is that often in addition to disclosed commission received by the strata manager, a profit share is also paid to the strata manager. In this example the strata manager may disclose a commission of $8,000 – but what is not disclosed is the further profit share for the placement of the policy. For example, below is a disclosure I found buried in the Financial Services Guide of one broker that has a business model based on the payment of referral fees to strata managers:

We may also make other payments to the shareholders of our parent company (name withheld) and our Strata Manager calculated by reference to our profit, less certain cash flow and certain capital expenditure (distribution amount). For the Strata Manager’s their share of the distribution amount will relate to the insurance premium generated as a consequence of each manager financial services.

Is it ethical? Commitees should judge for themselves. Is it legal? Only Australian Securities & Investments Commissoin (ASIC) or Australian Financial Complaints Authority (AFCA) can determine this.

Committees should make an effort to fully understand the remuneration and commission structure that both the strata manager and insurance broker receive.

Despite the fact the strata manager has suggested the insurer is the only available insurer – it does not preclude the committee from seeking a quote from the same insurer but with a different remuneration structure.

We also believe separating the duty of managing the strata property vs arranging the insurance is a good way of reducing conflicts of interest – in the questioners example where the strata managers recommended broker is charging fees and commissions that make up 50% of the premium payable – one should question whether the strata manager is recommending a policy in the best interest of owners or a policy that better aligns to their own financial interest.

Strata Insurance Solutions have never paid a referral fee or “kickback” to strata managers for providing the opportunity to arrange insurance. Strata Insurance Solutions instead rebate our commissions and charge a reasonable fee for service and this can make a large difference in the premium payable by strata properties. For an obligation free quote, contact Tyrone Shandiman on 07 3899 5129.

Tyrone Shandiman
Strata Insurance Solutions
E: tshandiman@iaa.net.au
P: 07 3899 5129

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.

This post appears in Strata News #303.

Question: Our Strata Manager is an authorised representative of a Broker. They flatly refuse to admit to receiving any type of insurance commission. If they are receiving a commission, what do they need to report to comply with the new legislation?

I am the Secretary of a Strata Committee which comprises of five members.

Our Strata Manager is an authorised representative of an Insurance Group and Broker.

The Strata Manager insists, at every AGM, that they do not receive any Insurance Commission. Few of us are questioning that as a broker, they do not receive some sort of payback as we know brokers receive a commission or rebate of some kind.

We have also been told that the new legislation refers to transparency around commissions. If the Strata Manager is receiving insurance commission, what do they need to report to comply with the legislation?

In the contract between the Owners Corporation and the Strata Management Company, it states: This agreement has been prepared specifically for use by [this strata management company].

This Strata Management Company is not a member of SCA (NSW), nor use the Property Stock & Business Agents Regulation 2014 (2014).

This Agreement was handed to us to sign at the AGM which we duly did. As this is a lengthy legal document should we not have been given the option to take the Agreement home and read through it?

Answer: The wording of the clause would suggest that there is no offence under the Act.

Section 60 of the Strata Schemes Management Act, 2015 (NSW) sets out the requirements as per the below:

60 Disclosure of commissions and training services

1. A strata managing agent for a strata scheme must report the following at the annual general meeting of the owners corporation for the scheme:
   1. whether any commissions or training services have been provided to or paid for the agent (other than by the owners corporation) in connection with the exercise by the agent of functions for the scheme during the preceding 12 months and particulars of any such commissions or training services,
   2. any such commissions or training services and the estimated amount or value of any such commissions or training services that the agent believes are likely to be provided to or paid for the agent in the following 12 months.

Maximum penalty: 20 penalty units. It will be an offence for an agent to receive commissions or training services that are not of a kind permitted by the agent’s terms of appointment or approved by the owners corporation (see section 57).

Further, the Property Stock & Business Agents Act, NSW 2002 Section 55 states that a licensee is not entitled to commissions unless there is an agreement in writing which complies with the legislation etc.

While membership of SCA is recommended but not compulsory, the strata manager cannot avoid the operation of the Property Stock and Business Agents Act, 2002 (NSW) because a strata manager cannot manage an owners corporation or its property unless he or she is duly licenced under that Act.

You seem to suggest that the contract was not included in the agenda (which would have afforded you the opportunity to review its contents). This is not likely to be fatal to the legal effect of the contract – in future, we recommend you defer consideration of motions with which you are not adequately acquainted and request a copy of the contract prior to the meeting following receipt of the Notice of meeting.

Read next: NSW: Approving Agreements At General Meetings: How Much Information Needs To Be Given To The Owners?

Leanne Habib
Premium Strata
E: info@premiumstrata.com.au
P: 02 9281 6440

This post appears in Strata News #240.

Question: Can a strata manager charge higher strata management fees if a committee decides to place the insurance independently of the strata manager? What is the connection between strata management fees and strata manager insurance commissions?

Can a strata manager charge higher strata management fees if a committee decides to place the insurance independently of the strata manager?

After finding a more competitive offer with another provider and advising the strata manager of our intention to place the insurance with this insurer, the strata manager advised “irrelevant of whether you use one of the insurance companies we obtained quotes from or not the commission payable to our office will still apply according to our strata management contract.”

The Competition & Consumer Act 2010 deals with the topic of third line forcing which states “Third line forcing occurs when a business will only supply goods or services, or give a particular price or discount on the condition that the purchaser buys goods or services from a particular third party. If the buyer refuses to comply with this condition, the business will refuse to supply them with goods or services.”

The Act also goes on to discuss other types of exclusive dealing.

Does the contract which requires us to either place insurance with the strata managers insurers, resulting in them receiving strata manager insurance commissions, or pay higher costs to the strata manager breach the Competition & Consumer Act 2010?

The strata manager insurance commissions clause in question:

1.3.1 Insurance Fee and Commissions

The Owners Corporation acknowledges that it has been fully informed by receipt of this appointment of the Manager’s arrangements with the authorising licensees listed in Clause 1.2 (or with various insurers if the Manager, or the Manager’s employee, holds an Australian Financial Services Licence) and that it has agreed that:-

1.3.1.1 the manager may receive or retain as a commission a percentage of the base premium payable by the Owners Corporation on the placing of insurance or the insuring of risk by the Owners Corporation;

Percentage of base premium payable 20% and/or fees disclosed in the applicable Financial Services Guide

1.3.1.2 if the insurance commission is less than 15% of the base premium paid by the Owners Corporation the Owners Corporation will pay to the Manager a fee being the difference between the commission received and the 15% of the base premium.

1.3.1.3 such commission shall be in addition to the fee for service set out in Clause 2.1.

Answer: The wording of the clause would suggest that there is no offence under the Act.

The wording of the clause would suggest that there is no offence under the Act.

The clause is also fairly well drafted, such that it could not be said to be misleading or deceptive.

It also seems unlikely that the clause contravenes the third line forcing provisions in the Competition and Consumer Act 2010 (Cth).

On the face, it appears that offering the discount on management fees is ‘exclusive dealing’ for the purposes of s 47(6)(c) of the Act.

However, the third line forcing prohibition will fail on two grounds as follows:

1. It does not appear that the purpose of the clause is offering a benefit on a condition that the Committee acquires services from a preferred provider (and not a competitor). Rather, it seems to merely provide an incentive to take out insurance with the preferred provider in order to reduce management costs and thus fees; and
2. The clause does not have the effect of substantially lessening the competition in the relevant market.

Mario Esera
HWL Ebsworth
E: mesera@hwle.com.au
P: +61 7 3169 4750

This post appears in Strata News #223.

Question: Our building insurance is due mid 2019. Is the Owners Corporation able to renew this themselves or must it go through the Strata Management Company? We would prefer not to pay our Strata Manager insurance commissions.

I am the Secretary/Treasurer for a small, inexperienced Owners Corporation in NSW.

We are one year into a three-year Strata Management contract and have discovered that our Strata Management is very expensive, gives poor service and is charging us unnecessary fees (though they are in the agreement). An example is they have been charging us a monthly defect management fee although we are a new building when in reality, our only defects where ones that required a small amount of carpet re-laid and a door seal replaced.

We have an AGM coming up. Our building insurance is due mid 2019. Is the Owners Corporation able to renew this themselves or must it go through the Strata Management Company? If possible, we would prefer not to pay our Strata Manager insurance commission.

At the moment, the Strata Management Company are receiving a commission on the insurance, which we agreed to. I have asked around other buildings and have been advised that, in some cases, their Strata Management gives the insurance commission back to the Body Corporate.

I brought this up with our Strata Manager who advised that the commission has to be paid to a “licenced person”. Is this correct? If possible we would like to put this commission back to our Capital Works Fund.

Answer: You need to check what your contract states with regard to strata manager insurance commissions.

Tyrone Shandiman: The decision makers, with regard to the insurance, is the Body Corporate committee and the committee are entitled to place the insurance with whomever they choose.

By practice, most strata managers will take a commission for the insurance policy they place and do not give it back to the body corporate as it is a revenue stream for them.

When the policy renews the committee may consider seeking alternative quotes with other providers who do not pay a commission to the strata manager and they may find this provides a saving for the owners corporation.

You need to check what your contract states with regard to strata manager insurance commissions. Although rare, we have seen some contracts state the strata manager is still entitled to a commission if the insurance is not placed with them.

Leanne Habib: If your strata manager uses the standard Strata Community Australia Strata Management Agreement, the commission’s position is outlined in clause 3.3 set out below:

3.3 In addition to the fees and charges in clause 3.1 and 3.2, the agent is entitled to remuneration for its services in the form of rebates, discounts and commissions disclosed in schedule C1 and schedule C2 as follows:

1. If the first option in item 6 is selected, the agent may retain rebates, discounts and commissions paid to it by the providers of goods and services to the owners corporation described in the disclosure schedule C1 or schedule C2 or as otherwise notified in writing to the owners corporation from time to time and agreed in writing by the owners corporation.
2. If the second option in item 6 is selected, the agent must pay to the owners corporation any rebates, discounts and commissions paid to it by providers of goods and services to the owners corporation within 30 days of receipt except for any rebates, discounts and commissions described in the disclosure schedule C2 which may be retained by the agent.
3. If the third option in item 6 is selected, the agent must pay to the owners corporation any rebates, discounts and commissions paid to it by providers of goods and services to the owners corporation within 30 days of receipt.
4. If the owners corporation:
   
   1. delegates the agent to arrange insurance cover;
   2. selects the first or second option in item 6; and
   3. later takes steps to arrange its own insurance or directs, instructs or passes a resolution that has the effect that the agent does not receive a commission or rebate for the placement of insurance, then the agreed services fee shall be increased by an amount equivalent to the commission the agent would have received had the agent arranged the insurance cover.

3.4 The agent must account to the owners corporation for money received by the agent on behalf of the owners corporation in the manner and with the frequency set out in item 8.

3.5 At any time, by written agreement between the parties, items may be added to or deleted from the additional services rates and/or charges.

So, whether or not the owners corporation or strata manager is entitled to receive insurance commissions depends on which option is selected in Item 6 on the front page of the contract.

This post appears in Strata News #218.

These articles are not intended to be personal advice and you should not rely on it as a substitute for any form of advice.

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