This article is about disclosure of commissions and benefits has been supplied by the Commissioner for Body Corporate and Community Management.
A recent ABC news story highlighted alleged kick-backs and commissions strata management companies in New South Wales may be collecting.
The story may have been an eye-opener for many Queensland bodies corporate or lot owners, as the thought of body corporate management companies in Queensland, receiving commissions and benefits may evoke unease and doubt amongst owners.
Not that it’s necessarily illegal.
Body corporate legislation varies from state to state and this article seeks to provide clarity and ensure readers are well-informed about the disclosure requirements of body corporate management companies under Queensland body corporate legislation.
In Queensland, the Body Corporate and Community Management Act 1997 (the Act) covers the receipt of commissions and benefits by body corporate managers and caretaking service contractors.
Under the Act, where commissions and benefits are provided, it requires disclosure to the body corporate to ensure that there are no potential conflicts of interest or breaches.
Schedule 2 of the Act includes a code of conduct for body corporate managers and caretaking service contractors.
One of the main concerns of body corporate management companies receiving kickbacks and commissions is that they may not be working in the best interest of their body corporate.
It opens up the possibility of them making subjective recommendations of goods and services not being supplied at competitive rates based on what they benefit themselves.
This can lead to a body corporate engaging a service or a provider that may not be the most suitable or cost-effective, but what’s best for the receiver of the commission, be it financially or as a gift.
Amended legislation
The Queensland Government recognised these issues and introduced strict disclosure requirements for commissions and benefits received within the Body Corporate and Community Management regulation updates in 2020.
The purpose of these disclosure updates was to emphasise the necessity for body corporate managers and caretaking service contractors to disclose any commissions, payments, or benefits associated with contracts being considered by a body corporate, including insurance policies.
Notably, the biggest update was adding to existing disclosure requirements that any monetary benefits had to be disclosed to ensure transparency.
Disclosure requirements were expanded to include insurance policies held by the body corporate and mandated the inclusion of all details of any parties involved and any benefits they could receive.
The updates also included provisions to restrict committee members from receiving benefits from a service contractor or caretaker unless authorised by the body corporate, to remove the potential for preferential consideration of a specific contractor.
How this works in practice
We now look at the Queensland body corporate legislation and the disclosure requirements of commissions or benefits received.
When a body corporate is considering entering a contract for the supply of goods or services, it should request written confirmation from the body corporate manager or caretaker of any association with the provider of the contract.
Even if the body corporate does not specifically ask for written confirmation, under the legislation, the body corporate manager or caretaker is required to disclose, in writing, any associations.
This notice will identify the contract and the nature of their relationship with the provider and any commissions, payments or other benefits they may receive due to the association.
The most common example would be when a body corporate committee is approving the insurance policy that was arranged by a body corporate manager.
Often body corporate managers have a relationship with an insurance broking firm, sometimes multiple firms.
A relationship could range from part-ownership of the brokering firm, receiving a commission – via the broker – from the insurer or a share of the broker fee.
In all these scenarios, the body corporate manager must provide a written notice to the body corporate outlining the association with the broker, and the exact monetary amount they will receive if the insurance policy offer is accepted.
The general meeting disclosure requirements relate to the insurance policy the body corporate is confirming or considering.
The notice of your annual general meeting, or a note attached to the administrative fund budget proposed, must include all details related to the insurance policy.
The details must disclose if there is any type of monetary or other benefit that will be obtained and if the insurer, insurance broker or intermediary will provide any type of monetary or other benefit, to any of the following parties:
- the body corporate
- a member of the body corporate
- a member of the committee for the body corporate
- a person engaged as a body corporate manager or service contractor; or
- an associate of a body corporate manager or service contractor.
It is important to ensure these details are correct. Adjudicators have upheld that failing to disclose correct information relating to commissions is a failure of legislative obligations and leaves motions open to dispute.
This ensures transparency within the body corporate, but also falls in line with one of the secondary objectives of the Act, which is to provide an appropriate level of consumer protection for owners.
Committee members are not bound by the same disclosure requirements as a body corporate manager or caretaker. They can only accept a benefit from a caretaker or service contractor if they have been authorised by the body corporate at a general meeting by ordinary resolution.
Consequences for non-disclosure
If the body corporate manager, or caretaker, fails to disclose a commission or benefit, or that they are an associate to a provider or contract that is being considered, the body corporate can take action in the Magistrates Court which may result in fines.
Failing to act in the best interests of the body corporate, conflicts of interests and failing to ensure competitive prices for goods and services, are reasons a body corporate manager or service contractor may be in breach of their code of conduct.
Separate to pursuing a fine being applied, if a body corporate manager or caretaker for a scheme fails to perform their duties, comply with the Act or code of conduct, the body corporate can choose to issue a remedial action notice.
This notice, which must contain specific details contained within the regulation module, may allow the body corporate to terminate its agreement with their body corporate manager or caretaker if an issue goes unresolved.
A remedial action notice allows the body corporate manager or caretaker to resolve the issue. It isn’t a one-way ticket for the body corporate to end a contract they don’t favour.
While it may not seem that a remedial action notice would be difficult to prepare, a body corporate should consider obtaining legal advice before serving it.
It is important to highlight that while the disclosure changes made to the legislation aim to help mitigate potential issues that can arise regarding commissions and benefits, a body corporate can directly obtain their quotes for policies and works.
Bodies corporate that work directly with companies, may receive benefits.
Keep in mind that a body corporate manager is engaged to help a body corporate. They are not decision-makers and can only act on the instructions of a body corporate or committee.
What to look out for
Turning our attention to real-world examples, commissions come in many forms, be it a financial payment or another type of benefit.
It is not beyond the realms of possibility for a body corporate manager or caretaker to receive an all-expenses paid holiday from contractors, brokers or insurance companies for access to a large portfolio of bodies corporate as new potential clients.
Examples of commissions of this type, including cash payments, may be harder to discover. Cash payments could be made by businesses or maintenance contractors (painters, plumbers, electricians) to a body corporate management firm or caretaker to be on a list of preferred tradespeople. Under this arrangement, they are the first call for quotes/service from a body corporate manager or caretaker.
A payment received by the body corporate manager to recommend specific contractors must be disclosed, regardless of the timing of the payment – even if it’s a yearly subscription that the service contractor pays the company – or in cash.
If the body corporate manager obtains goods and services that are not competitively priced they may be in breach of the code of conduct.
To clarify, body corporate managers can have preferred tradespersons, but yet not receive payment from such contractors. It is only if they receive a benefit that they are required to disclose the practice.
Whether benefits are an all-expenses paid day out at the races or even a box of doughnuts or cupcakes for the office, any benefit received by body corporate managers and caretaking service contractors must be disclosed to the body corporate.
Further information
If you or your body corporate have concerns relating to commissions or disclosure requirements, you should discuss these arrangements with your body corporate manager or caretaker, or seek legal advice on the matter.
Remember that our information service is here to answer your questions. Call us at 1800 060 119 or submit your question through our online inquiry form.
This article is general information only and not a substitute for legal advice.
For more details on bodies corporate in Queensland, visit our website.
Information Service Freecall 1800 060 119 Commissioner for Body Corporate and Community Management
This post appears in Strata News #701.
Have a question or something to add to the article? Leave a comment below.
Read next:
This article has been republished with permission from the author and first appeared on the UOAQ website.
Visit Strata Insurance OR Strata Legislation Queensland
Looking for strata information concerning your state? For state-specific strata information, try here.
After a free PDF of this article? Log into your existing LookUpStrata Account to download the printable file. Not a member? Simple – join for free on our Registration page.