VIC: Q&A Changing Owners Corporation Management Companies

This Q&A is about what to do when you are coming up to the end of your owners corporation management contract in Victoria.

Table of Contents:

• QUESTION: What is the correct process for an owners corporation to replace its current manager with a new one when the contract ends?
• QUESTION: Our strata manager is engaged on a standard 3-year contract. Each AGM includes a resolution to renew the three-year term, which gets up every year. Is this legal?
• QUESTION: I have built a townhouse in Victoria. I understand our strata managers manage the common areas. Do they carry out any other duties? Does the OC manager’s insurance policy cover my building and other residential property in the scheme?
• QUESTION: Can the committee make the decision to terminate our owners corporation manager or do we need an AGM?

Question: What is the correct process for an owners corporation to replace its current manager with a new one when the contract ends?

Our committee does not wish to reappoint the current owners corporation manager for another 12 months at the forthcoming AGM. We have identified an alternative manager who could take over at the end of the current manager’s contract, which expires about a month after the AGM.

Do we need a majority of owners at the AGM to vote in favour of terminating the current OC manager for this motion to be passed?

Answer: While the AGM may seem the natural forum to terminate (or not renew) an incumbent, and appoint a new manager, this is actually a power that the committee usually holds at all times.

There are several important considerations that should take place before a decision to change your owners corporation manager is made.

Firstly, identifying the contract end date is important and its great that the committee is aware of the expiration of the current engagement.

Secondly, it’s also important to note that the AGM is not the only time that an owners corporation may make the change and appoint a new manager. The Owners Corporations Act 2006 touches on the powers to appoint in several places, either directly or indirectly and it is worth considering all of them to avoid any confusion later on.

• Under section 11 subsection 5 of the Owners Corporations Act 2006, the committee is delegated the ‘all powers and functions’ of the owners corporation other than a power or function requiring a unanimous resolution, a special resolution or a matter requiring a resolution at a general meeting.
• A resolution for the appointment of a manager is not required to be made at a general meeting, does not require a special resolution nor a unanimous resolution – rather, it only requires a resolution of the owners corporation, i.e. a resolution of the owners corporation committee.
• While Section 71 subsection 2 lists the item that must be included on the AGM agenda to the “appointment of a manager, if applicable”, this is not a clause that restricts the appointment to ONLY taking place at an AGM. The owners corporation (via its committee, usually) can make that appointment at any time. The purpose of S71(2) can be taken to mean that is an owners corporation does not have a manager, and must have one – such as a tier 1 owners corporation – then that must be a matter to be dealt with at the AGM.
• And lastly Part 6 – Managers, of the Act and specifically s119 covers the appointment and removal of managers. Within this portion of the legislation the particulars of appointment are covered, and there is no requirement here that the appointment of a manager take place at an AGM.
• There is one particular outlier situation that MAY require appointment to take place at an AGM. If the previous AGM passed a motion to NOT delegate the power of appointment or termination of a manager to the committee, then, yes, it WILL be limited to an AGM only.

So, while the AGM may seem the natural forum to terminate (or not renew) an incumbent, and appoint a new manager, this is actually a power that the committee usually holds at all times. The committee may pass the required resolutions to terminate and appoint either by a ballot (typically an email-ballot), or by a meeting (digital or in-person, either is fine). Your alternative manager will likely have copies of the required motions and be able to assist with the correct convening and minuting of a meeting or conducting the ballot.

The third consideration and natural question is ‘why not do it at the AGM?’ Well, there are several practical implications;

• While the committee may have identified an alternative manager of choice, the committee does not make decisions at the AGM. Each owner is voting as either ‘one lot, one vote’, or if a poll is called, by lot entitlements. E.g. if at a 22-lot owners corporation, there are 5 committee members attend the AGM, and 7 or 8 other owners attend and don’t feel the need to change – voting against the committees preference, then the change will not take place. This is less likely, but it still presents as a pathway of uncertainty.
• The AGM also needs a quorum (per s77 of the Act this is 50% of all owners) available via attendance, or represented by proxy, for the decisions to have effect. If the threshold of the quorum is not met (i.e. less than 50% of owners represented), then per s78 the resolutions of the meeting are interim resolutions. They may be effectively challenged for 28 days by a special general meeting being convened, and only on day 29 do they become resolutions. Per s78(4), and the accompanying explanatory Note within the Act, ‘The effect of subsection (4) is that an interim resolution cannot be acted on for 29 days after it is made but if notice of a special general meeting is given within that 29 day period, the interim resolution cannot be acted on until the resolution is confirmed at that meeting (which must be held within 28 days after the notice is given) or if the meeting is not held, until the end of that 28 day period.’ So, if a quorum is NOT achieved, then the decision to change managers does not take effect until day 29 after the meeting, and may be subject to challenge. Again, this presents a pathway of uncertainty.
• If the AGM is held, the manager will be (effectively) terminated mid-meeting, or possibly at the end of the meeting depending on the order of agenda items. This in itself can be somewhat uncomfortable for both parties. Should the agenda item be mid-meeting (and more often or not, the appointment of a manager IS located in the middle of the agenda items), it is not unheard of for the manager to close up the meeting and advise that they cannot continue due to the termination. There exists a debate about the validity of this step, but it is certainly not unheard of. Presuming the meeting continues, the manager is then tasked with producing and distributing the minutes, no later than 14 days of the meeting. There’s a practical clash at play here – once the termination resolution and new manager appointment is passed, s127 of the Act requires that records and funds must be returned to the owners corporation within 28 days. Understandably, many managers will move quickly to close their functions and provide the books, records and funds at earliest opportunity. How then to complete the minutes concurrently? It’s a major action that should be taking place concurrently to the account being closed and prepared for transfer.

The solution may be to reverse the timing of events. As noted, the committee has the authority to terminate the manager and revoke the appointment. In order that the owners corporation is taking the path of least variables and greatest certainty, it may be better for the termination to be made at committee level, and the AGM to be deferred and held post-handover and post-onboarding of the new manager. This is also enables new manager to have a great opportunity to introduce themselves directly to owners, hear what the general feedback, concerns and needs are beyond committee-level, and begin to create the relationships with all members within the owners corporation. If this switch of events is settled upon, just be sure to advise the incumbent (soon to be ex-) manager of your decision to postpone the AGM. This may be concurrent to the notification of non-renewal/termination, or separate, but will avoid the risk of a cancelled AGM which can be confusing or frustrating to those owners not on committee.

Alex McCormick
SOCM
alex@socm.com.au
P: 03 9495 0005

This post appears in Strata News #758.

Question: Our strata manager is engaged on a standard 3-year contract. Each AGM includes a resolution to renew the three-year term, which gets up every year. Is this legal?

Answer: Deciphering whether the strata manager’s contract is extended or renewed depends on the specific language of the resolution and subsequent contractual actions.

The manager’s resolution to restart their three-year term every year at your AGM could either be considered as seeking to extend the current contract or simply renewing the contract each year.

Extending a contract means increasing the duration of an existing contract without altering its terms. This is not permitted by the Owners Corporations Act 2006, which limits the maximum term of a manager’s contract to 3 years under Section 119(1D). The approved form of the contract of appointment also provides that the start and end dates must be clearly specified.

Renewing a contract entails terminating the original agreement and entering into a new contract. Section 119A(1)(b) of the Act prohibits the automatic renewal of the contract at the manager’s discretion. Instead, both parties must agree to discharge the original contract and enter into a new one.

Under Section 122 of the Act, the manager is obligated to act honestly and in good faith, ensuring they do not misuse their position for personal gain or exert undue influence on members of the owners corporation. There is no suggestion of untoward behaviour in the original query.

Deciphering whether the strata manager’s contract is extended or renewed depends on the specific language of the resolution and subsequent contractual actions. Adherence to the Act and ensuring transparency and mutual agreement are critical in these circumstances.

Fabienne Loncar
Moray & Agnew Lawyers
E: floncar@moray.com.au
P: +61 3 8687 7319

This post appears in Strata News #709.

Question: I have built a townhouse in Victoria. I understand our strata managers manage the common areas. Do they carry out any other duties? Does the OC manager’s insurance policy cover my building and other residential property in the scheme?

Answer: Your owners corporation manager is appointed by the owners corporation to manage the common property of your owners corporation and provide services to you as per the contract of appointment.

Your owners corporation manager is appointed by the owners corporation to manage the common property of your owners corporation and provide services to you as per the contract of appointment (“COA”) under section 2.1. Your manager’s duties include:

• accounting,
• arranging insurance,
• maintaining and keeping the documentation pertaining to your owners corporation,
• convening your Annual General Meeting,
• arranging minor repairs and maintenance of the common property,
• providing guidance to the owners corporation to enable the owners corporation to perform its duties and functions and to generally implement the decisions and instructions in accordance with the contract.

Further duties known as additional services may be performed and are set out in schedule 2.2 of the COA.

The manager holds professional indemnity insurance as required by section 119(5) of the_ Owners Corporations Act 2006 (Vic). This is separate from the insurance for your building.

Your owners corporation has a separate insurance policy. It will outline the coverage specific to your owners corporation (excluding personal contents). A copy of your policy and the product disclosure statement is available (or can be made available) either on the owners portal or can be sent to you upon an email request.

Sim Firns
The Knight
Email
P: 03 9509 3144

This post appears in Strata News #664.

Question: Can the committee make the decision to terminate our owners corporation manager or do we need an AGM?

We’d like to change our owners corporation manager. Can the committee make the decision to change as long as there isn’t a signed current delegation under section 11 of the Owners Corporation Act? If so, can the committee terminate the manager with 28 days’ notice at any time or do we have to hold an AGM? Does an ordinary resolution ballot need to take place?

Does an owners corporation manager have the right to object to the termination by the committee and proceed to ask each owner for their vote and provide their signature (pseudo ballot)?

Answer: A committee has the power to terminate an owners corporation manager.

Provided that the delegation of authority to the committee is not restricted to prevent the termination and appointment of a manager, a committee has the power to terminate a manager under section 119 of the Owners Corporations Act.

No annual general meeting or special general meeting is required. However, if there is a contract of appointment signed by the owners corporation, the owners corporation may be in breach of the contract of appointment if the contract was not terminated in accordance with its terms (i.e. midway through a term for convenience rather than a breach).

It is important that legal advice is obtained so the owners corporation can assess the risks of termination and the potential for a claim for breach of contract. Some owners corporations restrict the appointment and termination of a manager under section 82 of the Act, in which case a manager can only be terminated at an AGM or SGM.

A manager has no right to call a ballot unless authorised to do so under section 83 of the Act.

Phillip Leaman
Tisher Liner FC Law
E: ocenquiry@tlfc.com.au
P: 03 8600 9370

This post appears in the June 2023 edition of The VIC Strata Magazine.

Have a question about what to do when you are coming up to the end of your owners corporation management contract in Victoria or something to add to the article? Leave a comment below.

This article is for reference purposes only and is not intended to be a comprehensive review of the developments in the law and practice or to cover all aspect of the subject matter. It does not constitute legal or other advice and should not be relied upon this way. Readers should take legal or other advice before applying the information containing in this publication.

Read next:

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