Terminating Management Rights in Queensland – Strata Snapshot Series featuring Mario Esera
This article and the accompanying video, discussing terminating management rights in Queensland, has been supplied by Mario Esera, now of HWL Ebsworth.
In Queensland, caretaking and letting rights are big business. People pay millions for those rights. Equally, some Bodies Corporate pay millions to their caretaker or letting agent over the lifetime of their engagement. Sadly, not all caretakers are created equal.
So what does a Body Corporate do when their caretaker or letting agent just isn’t up to scratch? Does it simply continue to pay them for services that aren’t being properly performed? Or does it look to get rid of them? Unfortunately for Bodies Corporate, terminating management rights is notoriously difficult. Special Counsel, Mario Esera, discusses why climbing Mt. Everest may be easier than terminating a management rights agreement.
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The First Step: The Remedial Action Notice
A journey of a thousand miles begins with a single step. When it comes to terminating the engagement of a caretaker or letting agent, the first formal step is usually issuing a Remedial Action Notice.
The regulation modules that apply to Bodies Corporate established by the Body Corporate and Community Management Act 1997 (BCCMA) set out the minimum requirements for Remedial Action Notices. Those requirements typically include:
- stating duties the Body Corporate believes have not been carried out (Breach);
- setting out what must be done to remedy the Breach within a stated period (Deadline); and
- a deadline of “not less than” 14 days after being given to the caretaker or letting agent.
It is extremely important that all minimum requirements are met, as any defect could be fatal.
This was a lesson learnt the hard way by the Body Corporate in the case of Peterson Management Services Pty Ltd v Body Corporate for The Rocks Resort [2015] QCAT 255 (21 May 2015). The Body Corporate issued eight (8) Remedial Action Notices which all had a Deadline of within 14 days – rather than not less than 14 days. Because the Remedial Action Notices failed to comply with the minimum requirements set out in the Regulation Module, all of them were deemed to be defective, meaning that all steps taken by the Body Corporate in reliance on those notices were invalid and of no effect.
A journey of a thousand miles begins with a single step. The Body Corporate for The Rocks Resort effectively tripped and fell at the first.
The Ascent: Approving Termination
If a properly prepared Remedial Action Notice has not been complied with by the Deadline, terminating management rights may only be approved by an ordinary resolution of the Body Corporate, decided by secret ballot.
In most situations, this will require the Body Corporate to convene an extraordinary general meeting where lot owners vote on a motion that either approves or rejects termination (Termination Motion).
Unfortunately, neither the BCCMA nor the Regulation Modules provide much in the way of guidance when it comes to the content of a Termination Motion or the explanatory material that accompanies it. The District Court in the decision of Body Corporate for Palms Springs Residences CTS 29467 v J Patterson Holdings Pty Ltd [2008] QDC 300 found that Bodies Corporate owed a fiduciary duty to lot owners to provide such information to “fully and fairly inform members” of what is being considered.
So does that mean that the Termination Motion should contemplate the caretaker or letting agent commencing proceedings against the Body Corporate challenging the termination? Or is it merely enough to inform lot owners that the Remedial Action Notice has not been complied with by the Deadline?
There is no clear answer, meaning that the terrain a Body Corporate must successfully navigate can be uncertain. As with most things, the key is receiving well-informed advice ahead of time from the Body Corporate’s manager and, if necessary, a solicitor.
Nearing the Summit: Reasonableness
Even if a Body Corporate manages to avoid the pitfalls associated with Remedial Action Notices and Termination Motions, there is one final challenge when terminating management rights that must be overcome. The BCCMA states that a Body Corporate must act reasonably in anything it does. Case law confirms that this extends to terminating a management rights agreement.
Therefore, even if a Body Corporate does everything right from a procedural point of view, their expedition can still fail if the act of termination is considered to be unreasonable in all the circumstances. Unfortunately, what is or is not unreasonable can sometimes be difficult to assess.
For example, a Body Corporate issues a Remedial Action Notice to its caretaker for failing to clean a common area. Before the Deadline, the caretaker cleans most of that common area but leaves behind cigarette butts and bird waste. Strictly speaking, the caretaker has not complied with the Remedial Action Notice, but would it be reasonable terminating management rights where they have remedied most of the Breach? Probably not.
Then again, what if this is the fourth time in six months that the Body Corporate has issued that caretaker with a Remedial Action Notice for the same Breach and each time they fail to comply completely? Is a decision of terminating management rights in those circumstances still unreasonable? The answer becomes less certain.
So is Climbing Mt. Everest Easier?
Climbing Mt. Everest is difficult, but at least you have a good idea of how long it will take, how much it will cost and you know that about 4,000 people have done it successfully. By comparison, terminating management rights could take months or years, cost thousands or hundreds of thousands of dollars, and there are only a handful of Bodies Corporate that have ever done it successfully.
Whilst that may justify putting any attempt of terminating management rights into the “too hard” basket, Bodies Corporate and their Committees have a duty to act in the best interests of lot owners. Therefore, if your caretaker or letting agent is receiving substantial payments for services they are not performing properly, action must be taken.
It may be that starting this process does not result in a successful termination, but hopefully, it will at least remedy the Breaches and put your caretaker or letting agent on notice that your Body Corporate will not be taken advantage of.
The key for Bodies Corporate is that they take full and informed advice before embarking on what could be a perilous expedition. You wouldn’t climb Mt. Everest without an experienced Sherpa, and you shouldn’t embark on the process of terminating management rights without an experienced solicitor. Whilst that may not guarantee success, it should at least ensure that you avoid some of the hazards that other Bodies Corporate have succumbed to.
If you or your Body Corporate is having difficulties with your caretaker or letting agent or you simply wish to discuss the matters raised in this article in more detail, please contact Mario Esera.
Mario Esera
Partner
P: +61 7 3169 4750
E: mesera@hwle.com.au
W: HWL Ebsworth
This post appears in Strata News #102
Have a question or something to add to the article? Leave a comment below.
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Question:
If a caretaker knowingly puts swimmers lives at risk by placing a pool cleaning device, which has instruction that state this is a danger to swimmers, in the pool against prior instructions from the Body Corporate Committee what actions can the Body Corporate take?
The Body Corporate Committee consider this to be reckless endangerment.
Hi Helen
The Following response has been provided by Chris Irons, Strata Solve:
I don’t know what ‘reckless endangerment’ means, so cannot comment on that.
On the rest of your query, if an instruction has been given which has not been complied with, then that might indeed be a problem, although we do need to consider if there are any mitigating factors about why the device was used – perhaps, for example, in that particular moment, it was necessary. For whatever reason.
After that has been clarified, if there remains an issue between caretaker and the committee, or if this is indicative of a systemic pattern of issues between the parties, then some dispute resolution might be warranted. In Queensland there are set processes for this to occur, as well as mediation being an option. The caretaker’s contract should be consulted as well to ensure what terms, if any, are relevant to this situation. It might be there is a relatively easy fix to the problem, or there might be some broader issues at play that need resolution.
There is a provision under Queensland strata legislation for ‘hazard’ in relation to use of a lot or common property. I can’t comment definitively if this situation qualifies as a ‘hazard’ or not, so you may want to seek qualified advice about that.
There is absolutely no question that Resident Managers DO NOT provide value for money. A review of tasks that need to be done are mostly contracted out and paid for by the owners. For example: fire safety, pool maintenance, tennis court maintenance, outdoor furniture maintenance, gardening, waste bin cleaning, tree maintenance – the list goes on. In the main Resident Managers are nothing more than over paid bin men. Simple as that. If the opportunity arises contract what remaining duties there are out. Our bloke is paid $45 per hour for 77 hours a week – yes that’s right 77 hrs. This was done by a so called expert in management rights and believe it or not – the owners past it. Alas I only came on the committee after this and tried my best to get rid of him. Couldn’t – so I sold and left.
I agree with Daniel that a caretaker might be in a position of not wanting to renew the contract. So the caretaker either sells or does not ask for extension.
I also agree with Daniel that human nature is the same no matter on what side of this particular equation you are – owner or caretaker – either can operate in selfish manner. Both committees and caretakers, however, have a Code of Conduct and are obliged to act in the best interests of all owners. You are able to change the committee each year, but you only change caretaker when their contract expire.
That is why the 3 year, short-term contracts would be so beneficial for both parties in vast majority of schemes. If it works, the incumbent caretaker have a great home advantage for winning the next contract; if it doesn’t, parties can simply part their ways when the contract ends.
There are many benefits of such arrangements in schemes where long-term MRs do not exist any more.
The current MR regime simply does not balance the rights of owners and their ability to flexibly manage the scheme as they see fit. The protection of developer profiting from sale of MRs, the long-term tenure of MR that is not reversible once established, and an ease of achieving extension are grave deficiencies of the current legislation that pits caretakers against owners and creates toxic environment in people’s homes.
It is high time that the government listened, and all stakeholders supported the positive change that delivers balanced outcome for owners and allows them to achieve all established Secondary Objects of the legislation for managing their schemes.
After all, we must not forget that it is a collective of owners who underwrites the entire strata industry, by investing in units, and paying levies that in turn pay for all the service providers and support the tourism industry. A time has come to afford them the consumer protection they deserve.
What a sad indictment on how dissatisfied persons try to manipulate the system to suit their own agenda. Just as you claim there are terrible caretakers you need to be aware that there are also terrible BC committees who operate in selfish and detrimental ways to their complex. You also fail to mention that there is the real possibility at the end of the contract that the Caretaker may not be interested in a new contract. You could then face the real possibiliity of having to operate with an off site manager with all the associated problems that arise from that scenario
THERE IS ANOTHER WAY – TREAT YOUR CARETAKER WITH DECENCY AND NEGOTIATE WITH REASON AND ATTEMPT TO GET A RESOLUTION THAT BENEFITS BOTH PARTIES.!
Can this be any stronger argument why Bodies Corporate should seriously consider moving to a position where they are not locked into long-term management contracts for the 25 years? The question is not about the conduct of your current RUM…it is really about the possible conduct of the next RUM, and the next RUM and so on, over the next 25 years. It is so much easier dealing with poor performers if they know you can get rid of them in the near future.
Step 1: Get PROFESSIONAL ADVICE sooner rather than later re saying NO! to Premature Top-ups
Step 2: Say NO! to Premature Top-ups UNLESS there is compelling reason to do so.
Step 3: Be CONFIDENT that you won’t have to wait for those 25 years to elapse before the RUM realizes they have to negotiate sensibly with the Body Corporate