Selecting and Working With Your Strata Manager

This material has been prepared partly funded from the NSW Office of Fair Trading

This topic continually receives enthusiastic responses in the Owners Corporation Network of Australia’s interaction with its members and the public. There is a big thirst for detailed information that can help individuals in their procurement, interactions and issues with their key service providers.

A good strata manager can be your most trusted advisor and worth their weight in gold. However a poor one can be a drain on your time and energy, an expensive waste of money and at worst, a legal liability. It’s therefore vital that you approach the task of contracting and working with your strata manager with care and diligence. Not all owners corporations engage a strata manager especially smaller schemes. The executive committee needs to consider if they are willing to pay a strata manager for their assistance. If not the executive committee will have to achieve the statutory requirements themselves.

We will firstly cover the role of the strata manager and how the executive committee can work most effectively together with them. Next we will cover a tender process for appointing a strata manager. We will then provide a guide to understanding and negotiating a standard strata management contract.

 

Introduction

This material has been prepared partly funded from the NSW Office of Fair Trading

This topic continually receives enthusiastic responses in the Owners Corporation Network of Australia’s interaction with its members and the public. There is a big thirst for detailed information that can help individuals in their procurement, interactions and issues with their key service providers.

A good strata manager can be your most trusted advisor and worth their weight in gold. However a poor one can be a drain on your time and energy, an expensive waste of money and at worst, a legal liability. It’s therefore vital that you approach the task of contracting and working with your strata manager with care and diligence. Not all owners corporations engage a strata manager especially smaller schemes. The executive committee needs to consider if they are willing to pay a strata manager for their assistance. If not the executive committee will have to achieve the statutory requirements themselves.

We will firstly cover the role of the strata manager and how the executive committee can work most effectively together with them. Next we will cover a tender process for appointing a strata manager. We will then provide a guide to understanding and negotiating a standard strata management contract.

 

1 What is a strata manager?

The owners corporation comprises all owners in a strata titled building. The executive committee is an elected group of owners whose task is to oversee the functioning of the building. The owners corporation may contract a strata manager to perform day-to-day management and administrative tasks

A strata manager is another name for strata managing agent. The Property, Stock and Business Agents Act (2002) defines a strata managing agent as a person (whether or not such person carries on any other business) who, for reward (whether monetary or otherwise), exercises or performs any function of an owners corporation under this Act.

The strata manager looks after everything from ensuring the owners corporation processes comply with legislation through to regular garden maintenance and even more unusual things like assisting the extermination of a red back spider infestation from the common property roof space.

They cannot be an owner of a lot, the secretary or treasurer or a person who maintains or repairs any property for the maintenance and repair for which the owners corporation is responsible.

A strata manager is engaged by the owners corporation by a majority vote at a general meeting. Only a person who holds a strata manager licence under the Act can be appointed. A strata manager may carry out some or all of the functions, duties or powers of the owners corporation. At a very simple level, it’s generally the strata manager’s role, delegated by the executive committee, to collect levies, pay bills and issue compliance notices for breaches of by-laws.

Relevant NSW Legislation: The Property, Stock and Business Agents Act (2002)

Section 3: Definitions

Section 8: Agents required to be licensed

 

Relevant NSW Legislation: Strata Schemes Management Act (1996)

Section 9: Who else may be involved in managing a strata scheme?

Section 26: What is a strata managing agent?

Section 27: How is a strata managing agent appointed?

Section 28: What functions of an owners corporation can a strata managing agent exercise?

Section 29: Can a strata managing agent exercise the functions of the chairperson, secretary and treasurer or the executive committee?

 

Relevant NSW Legislation: The Strata Schemes Management Regulation (2010)

Clause 13: Restriction on delegation of certain functions

Set out below are guides to some common issues that owners and executive committee members may have about working with and engaging strata managers.

What is a Strata Manager?

Section 1

What can you expect from your strata manager

Section 2

Appointing a strata manager

Section 3

Guide to the proposal schedules

Section 4

Guide to the Standard Terms and Conditions

Section 5

Some relevant resources

Section 6

 

1.1 What is a Strata Manager?

Depending on the size and complexity of your building, you may have any number of people employed to help look after it. Even the smallest of buildings, however, will usually have a strata manager. Why? A strata manager has systems and processes that mean they can do the administrative requirements much more efficiently than even a keen and skilled owner/manager.

 If you don’t have too many lots and you want to save money, you might decide to take on some of the services yourself to save cash. However, temper this with a recognition that the knowledge and experience of the executive committee will need to be adequate. Perhaps a partial service arrangement is a good compromise. For instance, do you really need your strata manager to attend every executive committee meeting, which can be a substantial extra expense if your meetings are held in the evening and drag on for hours. Could you get by instead with just phoning him or her if you need advice on certain issues? Could one of your executive committee members take minutes instead of asking the strata manager to do so? Could you save on postage for things like photocopying meeting papers yourself and placing them in the mailboxes of resident owners? By doing these things yourself you may save money but increase risk and sacrifice quality and correct process! A strata manager may be able to wrap it up in far less time and with far more accuracy as they have the facilities and know how to run it efficiently.

1.2 When you have no choice but to have a strata manager

If things go wrong and a Strata Adjudicator is satisfied the owners corporation is not doing its work satisfactorily, or has failed to comply with an order, or failed to perform one or more of its duties or owes a judgement debt, the Adjudicator may appoint a strata manager. Otherwise it is up to the owners whether they employ a strata manager.

Relevant NSW Legislation: Strata Schemes Management Act (1996)

Section 32: Exercise of functions of strata managing agent appointed by an Adjudicator

Sections 162 and 183B: Agency Agreements

The Consumer, Trader and Tenancy Tribunal can appoint a strata manager to exercise all or specified functions of the owners corporation, where orders are usually made only if:

(a) the management structure of the scheme is not functioning or is a not functioning satisfactorily; or

(b) owners corporation failed to perform one or more of its duties or to comply with an order made under the Act.

 

2 What you can expect from your strata manager?

If you do contract a strata manager, how can you get the best out of them?

Communication between the strata manager and the owners corporation is vital. Often disharmony over building management can be traced back to poor communication and lack of clear instructions by the owners corporation to the strata manager. At other times, it is because the wrong strata manager has been contracted to do the job.

Most issues an executive committee or lot owner may have with their strata manager come back to misaligned expectations. This section will cover the extent of your strata manager’s obligations, skills and authority and avenues of escalating and resolving if expectations are not being met.

2.1 Administrator, decision maker, legal advisor or building manager

What do strata managers do? Your strata manager is mostly an administrator, they collect levies, pay bills and deal with compliance. They can also be useful guides on many process matters, drafting and financial reporting. But with some exceptions they have no special expertise in strata law or building management. Do not rely on them for legal advice, advice on important decisions or to manage your building. A good strata manager will not purport to provide advice they cannot substantiate. If they advise on an issue that is anything substantial or may have unpleasant consequences (either for the executive committee, the owners corporation, an individual owner or occupier) ask them to supply the relevant acts, clauses, legal cases, web pages or detailed examples.

Do not accept ‘unsolicited’ legal advice from your strata manager on important courses of action. For example a strata manager incorrectly advised an executive committee saying “it could not withhold consent to the application” and that “the committee may wish to reconsider its position following the threat of legal action.” On gaining expert legal advice both of these comments were found to be ill-founded

That said, some strata managers are attempting to differentiate themselves by offering advanced skills and experience in managing the buildings affairs. Because of the number and style of buildings they manage, good staff hiring and ongoing training and communications, they may have some very good knowledge and experience that you can dip into. Large strata managers often have legal experts on retainer. They may have other trusted service providers they can recommend, knowledge of the latest defect solutions or sample by-laws, building management templates, residents handbooks or operation manuals. If you have hired them for this purpose and they have proven they have the requisite skills, you may want these strata managers to be more hands on in their dealings and advice.

“Warring executive committees ... tight-fisted owners unwilling to pay to maintain their buildings ... plumbing emergencies in the middle of the night ... meetings that don’t reach a quorum ... legal stoushes. No one would seriously argue that strata managers don’t have a tough job.”

Gerry Chia Secretary, Owners Corporation Network of Australia

Always remember that your strata manager is contracted to the owners corporation. They can offer advice and direction, but final authority lies with the owners corporation or executive committee that makes the decisions.

2.2 What you should expect from your strata manager?

The first step in knowing what to expect from your strata manager is to understand the contract duties as set out in the schedules of your strata management agreement (see Guide to the proposal schedules4).

In addition looking after your building, your manager probably has many other strata buildings to manage, all of which are a call on their time They will work with other departments within their company (e.g. marketing, secretarial, accounts, finance) to provide you with the contracted services. They often have a more junior assistant helping them with their portfolio who will be able to deal with your queries in their absence.

A strata manager must keep the owners corporation informed as to what they are doing. They must give details of trust accounts and financial transactions when asked in writing by the owners corporation. The owners corporation and its executive committee can still carry out its duties even if it has delegated them to a strata manager.

Relevant NSW Legislation: Strata Schemes Management Act (1996)

Section 28 (6): What functions of an owners corporation can a strata managing agent exercise?

Section 31: Strata managing agent to record exercise of functions

Section 33: Information may be required relating to strata managing agent's trust account

Section 34: Information may be required relating to other accounts of the strata managing agent

Section 35: Information may be required relating to money received by the strata managing agent from the owners corporation

Section 36: Information may be required relating to transactions entered into by a strata managing agent for an owners corporation

Section 37: Procedure for requiring information from strata managing agent

 

2.2.1 What to expect from your strata manager: as an owner

Queries- If you have a query you could write to the executive committee directly, or you could write to the strata manager and ask them to have it tabled at the next executive committee meeting.

It is always worth asking your strata manager to answer the question first, but ask the question in such a way that the strata manager can respond easily e.g. “I would like an a copy of xyz  – can you provide this information to me or should I come into the strata offices to view the records or request it at an executive committee meeting?”. Whatever the ability or obligations of the strata manager to meet your request, out of courtesy you should expect a reply that will give you some direction in resolving the issue.

Viewing the records- An examination of the strata records is often truly enlightening. As an owner you or your representative can book time to view any or all of the strata records at the strata office. There is usually a nominal hourly cost for this service, as specified in the relevant act or regulations.  Currently in NSW it is $30 and an additional $15 for each half-hour or part of half-hour after the first hour of inspection If you are an executive committee member the strata manager should not impose the fee as you are an appointed executive doing research as you see fit.

There will be a number of different files such as ‘Service Contracts’, ‘Financials’, ‘Correspondence’, ‘Current Issues File’, Invoices’, ‘Meetings’, Strata Roll’, ‘By-Laws’, ‘Proxies’. These will go back a year or so, if you want earlier archived documents you need to ask the strata manager to leave them out for you (but be prepared for a large number of boxes to be there when you arrive!). Don’t be afraid to ask your strata manager for the information if you can’t find it – especially their ‘current file’ which may sit on their desk and not in the records provided to you. All the correspondence between the executive committee, the strata manager and any service provider or lawyers should be available for viewing. If something is missing the Act allows you to request that it be produced within 10 days. You are entitled to write notes or copy anything and take this copy away. Note, copying and documents by taking a photo with a camera or good quality mobile phone is fast, efficient and free.

 

Relevant NSW Legislation: Strata Schemes Management Act (1996)

Section 108: Inspection of records of owners corporation

 

Relevant NSW Legislation: The Strata Schemes Management Regulation (2010)

Schedule 1: Fees

 

 

2.2.2 What to expect from your strata manager: as an officer / executive committee member

Liaison person– The executive committee often has a contractually designated ‘contact or liaison person’ through whom all communications with the strata manager should be filtered (usually the secretary). It is preferable that communications be funnelled through this person, but your strata manager will usually respond to every executive committee member out of courtesy, even if they don’t have to.

Inspecting records– an executive committee member can inspect the strata records without cost as part of their obligations and duties.

Communications– Do not copy your strata manager with every communication or issue as it’s being discussed and resolved. All emails the strata manager sends and receives on behalf of the owners corporation are part of the strata record and available for any prospective purchasers to view.

Budgeting– Your strata manager should be able to put together a preliminary annual budget and required levy estimate. The treasurer should then review this line by line and adjust as appropriate.

Spending– Depending on the agreement terms your strata manager can procure services, monitor and report on spending. If you have no building manager or caretaker the strata manager would be the person who ensures these things are done if it is specified in their contract.

Manuals– If you are creating any building manuals (operations manual, procedures manual, residents handbook) the first point of call is to ask your strata manager - they often have a 90% complete manual template and can tailor the last 10% for your building.

Establishing good service provider contracts– Strata managers may have templates or samples of good service provider contracts that they can share.

By-law samples– Your strata manager and his company may have come across useful by-laws in their other clients schemes and may pass them onto you for ideas if you ask.

Special projects– You can also engage your strata manager in various projects and research over and above that in the contract. However, understand that work not included in the contract may be charged out at full commercial rates per 15 minute time increment.

2.2.3 What you should not expect from your strata manager

A strata manager cannot be given the power to:

  • delegate their powers, authorities, duties or functions to others
  • make a decision on a restricted matter (ie. a matter that needs a special or unanimous resolution or which the owners corporation has decided must go to a general meeting)
  • set levies.

[Strata living: What you need to know about living in your strata community (July 2011 FT045). NSW Office of Fair Trading, pp. 24].

A strata manager cannot go beyond their contracted duties. If the owners corporation wish to extend the contracted duties the contract will have to be updated and approved by an ordinary resolution at a general meeting.

A strata manager cannot transfer the management of the scheme to another strata business without the approval of the owners corporation.

Relevant NSW Legislation: Strata Schemes Management Act (1996)

Section 27 (3): How is a strata managing agent appointed?

 

2.3 Improving performance

Communicating with your strata manager is important. If you are experiencing performance issues, identify exactly what the situation is and what you would like to change. Differing expectations can often be overcome by having an open dialogue. However, in the end your ability to enforce an improvement will depend on the terms of the specific agreement.

It is worth spending time and thought in setting up a good set of contract terms before you sign. For examples contract terms could be sought to include Key Performance Indicators, although they are difficult to set and measure as they need to be accurately recorded. There are some that you can consider that will just be obvious in observing actions and outcomes. Things such as responding to and sending correspondence, following-up executive committee actions items, paying suppliers on time, being helpful to owners, providing transparent and understandable scheme reports (mainly financial), understanding what goes into your various expense categories etc.

Further considerations are covered in Selection criteria 3.8.3

 

2.4 What if I have a complaint?

If you have an issue with your strata manager, try to find out as much as you can before complaining. Ask questions first, rather than tell or demand, then escalate where necessary or appropriate: It may be a misunderstanding, it may not be in their powers, they may be on holiday, they may have been instructed by the executive committee, they may be right and you may be wrong! Ask why they did or didn’t do something, or why they believe they are correct. Ask for the appropriate legislation or regulations explaining their answer. Ask other strata managers for their opinion, they should be delighted to assist where they can as they may be first in line in a tender situation. Check out the Owners Corporation Network of Australia’s website and forum, relevant legislation and their contract terms. If you feel there are legitimate grounds for concern then escalate your complaint to:

  1. Your executive committee:They may have some additional information that will shed light on or resolve your concerns.
  2. The strata manager’s supervisor:It is always worth asking to speak with the manager’s supervisor – just so that you can explain your concern and see if it can get resolved or answered at this level first.
  3. An external accountant or advisor:Depending on the issue it may be worth getting a second opinion. For legal and process issues ask a legal expert or solicitor, for financial questions ask an accountant to peruse the finances.
  4. Strata Governing Bodies/Institutes/Licensing Authoritiese.g. Strata Community Australia. Most of these licensing bodies have a code of conduct and a complaints resolution system.
  5. Department of Fair Trading:Strata managers are legally appointed as an agent of your owners corporation. This places quite significant legal responsibilities on them. If they are not fulfilling their responsibilities appropriately then the relevant government department in your state would likely be interested.
  6. Terminate and retender the role:If they are still within the contractual period you will need to consider this move carefully. See section 2.6: Dismissing a strata manager. If it is past any contractual period usually only 3 months written notice is required. See Dismissing a strata manager2.6.
  7. Consumer Trade and TenancyTribunal: This is administered by the Office of Fair Trading in NSW. An Adjudicator can make decisions on disputes with a strata manager. An Adjudicator may appoint an alternative nominated person as your strata manager to carry out:
    • all the functions of an owners corporation
    • all the functions of the executive committee and/or the chairperson, secretary or treasurer
    • only some of those functions.

 

Relevant NSW Legislation: Strata Schemes Management Act (1996)

Section 139: Order for settlement of dispute between adjoining strata schemes

 

3 Appointing a strata manager

When appointing a new strata manager there are a number of distinct steps in the process that need to be understood:- dismissing or terminating the incumbent, tendering, reviewing proposal, selecting and appointing a new strata manager. The process involves time invested by the executive committee to research, negotiate, and fine tune the contract to get the best value and most transparent agreement.

3.1 Dismissing an incumbent strata manager

Some points to consider if terminating are:

  • For agreements entered into after 1 September 2005, the Property, Stock and Business Agents Regulation 2003 provides that the agreement must not contain a provision that to renew the agreement for a subsequent fixed term of more than 3 months unless the agreement also provides for termination by giving 3 months’ notice at any time during the subsequent term. What this means is that strata management contracts will roll-over automatically after the first fixed period, and can be terminated with for 3 months notice under the clause above. 
  • If the agent is being dismissed during a minimum tern contractual period, advice should be sought in regards to the termination conditions, balance of the agreement, repudiation, including payments etc which are detailed in the agent's contract. Termination of a contract may occur where there is poor performance by a strata manager.
  • A strata manager can only be dismissed, or have a delegation changed by a simple majority resolution at a general meeting of the owners corporation. It cannot be done by the decision of the executive committee alone.
  • Written notice of the decision must be given to that agent.
  • Obstacles a scheme may face in the process of terminating an agreement may include difficulty in convening a meeting, obtaining strata roll and documents from the strata manager, liens and refusal to hand over the scheme’s records.
  • It would be unwise to terminate a strata manager’s agreement before an agreement with a new strata manager has been settled. Otherwise the owners corporation could find itself without a strata manager. Remember the Agreement with the new strata manager will have to be approved by owners in a general meeting.
  • When intending to terminate a strata manager, it is more courteous and tactical to run a general meeting without the help of the existing agency (i.e. for the secretary to set a date, time and do the mail out themselves, with the help of the new agency for the wording of necessary motions. The Secretary is able to do this – the strata agency only runs meetings under delegation of authority.). It also makes sense for the committee to communicate to all owners about the reasons for the change and about the new recommended agency.
  • To be efficient, when the committee puts a motion to terminate a strata agency, it would usually also include its own motion to engage a particular new agency. That way the whole process is carried out at one General Meeting.

Even if the outgoing strata manager is cooperative, you can expect considerable disruption to processes as a new working relationship is established.

Relevant NSW Legislation: The Property, Stock and Business Agents Act (2002)

Schedule 14: Clause 3: Renewal of agreement for fixed term

 

Relevant NSW Legislation: Strata Schemes Management Act (1996)

Section 27 (2): How is a strata managing agent appointed?

 

3.2 Appointing a new strata manager

The appointment and giving of powers to a strata manager can only be decided by a majority vote at a general meeting. Only a person who holds a strata manager licence under the Act can be appointed. The length of the appointment should be negotiated by the parties. Owners corporations should make themselves aware of the terms of any agency agreement they enter into.

Both the instrument in writing and the appointment are to be authorised at the general meeting. A decision needs to be made to send the whole contract to every owneror whether it is sufficient for the appointment to be authorised at the general meeting with the written instrument to follow. Better is to include the whole document with the notice of meeting and send it out to all owners. There is reluctance, particularly in large schemes, to print and dispatch 20 pages. The alternative is to provide a copy that can be examined by owners prior to the meeting at which the resolution is passed.

Relevant NSW Legislation: The Property, Stock and Business Agents Act (2002)

Section 8: Agents required to be licensed

Relevant NSW Legislation: Strata Schemes Management Act (1996)

Section 27 (1): How is a strata managing agent appointed?

 

 

3.3 Re-tendering for a strata manager

Every few years it is worth exploring what the strata management market has to offer your strata. Even if you are happy with your managers cost and service it is just good policy to go through the tender exercise to confirm that you are getting value for money. Ask your incumbent strata manager to also submit a proposal which you may find be an improvement on your current agreement. Basic process steps include:

  1. Make a detailed list of your requirements
  2. Run a tender and gather proposals from recommended managers who are located close to your building
  3. Check on qualifications of the managers and their staff
  4. Arrange a personal visit to the selected offices
  5. At this interview discuss all items in the proposal you have received
  6. Decide on the most appropriate proposal
  7. Give notice in writing to the incumbent
  8. General meeting motion brought to owners to terminate incumbent and appoint new strata manger
  9. Majority vote for replacement strata manager
  10. Transfer of files and data to new strata manager

3.4 Who do I get to propose?

When considering appointing a strata manager, owners corporations should consider the size of the building. Some strata managers have more experience at managing apartment blocks of eight rather than blocks of 100. Others may only manage residential blocks and not a mix of commercial and residential properties.

If you’re a big, new building, it’s pointless approaching a small strata management company that only looks after walk-up blocks of 12 units. They’d likely be totally out of their depth with your building – and, generous as you may feel, you don’t want to provide their learning experience at your expense.

Reducing Costs:

In the year 2011, it’s amazing how few owners corporations dispatch their agendas and minutes by email. At a time when a huge amount of business correspondence is done by email, including notices by public companies to share holders, do strata managers have shares in pulp mills? Strata, like every other industry, has a duty to reduce its carbon footprint and give better value to its clients – or could it just be that the industry pockets huge mark-ups at 50c per page for copying and exorbitant costs for mailing? But everyone could benefit from email. Strata companies will enjoy huge savings on labour and materials and could, through a fee structure set on electronic mailing, share these with owners.

In my owner’s corporation of 228 lots, we have approximately 170 owners who have elected to receive all agendas and minutes by email, including those relating to AGMs and EGMs. We all win!

Gerry Chia Secretary, Owners Corporation Network

By the same token, if you’re a small, older-style building, you’d be wasting your time and money by going to a large company which is designed to manage 300-unit-plus complexes. Find out which companies manage buildings in your area which are similar to yours in size, location and facilities. Ask whether their executive committees are happy with their price and service. Get referrals from others through the membership of the Owners Corporation Network of Australia.

Ask at least three strata management firms to quote plus the incumbent.

Remember to do a careful check of the terms of the existing contract especially for giving notice.

When considering appointing a strata manager, owners corporations should consider the size of the building. Some strata managers have more experience at managing apartment blocks of eight rather than blocks of 100. Others may only manage residential blocks and not a mix of commercial and residential properties.

The basic duties of a strata manager are very similar contract to contract, strata to strata. It is mainly the pricing structures that vary between quotes and strata managers. There are however a number of variables that you may want to specify or look for in your request for tender.

  • Creating meeting agendas
  • Distribution of agenda’s and minutes.
  • Attendance or not at executive committee meetings
  • Number of executive committee meetings attended
  • Taking and writing of meeting minutes
  • Reporting requirements and flexibility (especially financial)
  • Insurance claims reporting
  • Financial budget drafting
  • Service provider procurement
  • Work-order process and approval
  • Records filling and systems
  • Access device / key distribution
  • Archiving options
  • Qualifications and expertise
  • Strata manager assistant
  • Services provided by others that the strata manager need not provide
  • Web site access for the executive committee or a web page for the building and minutes

You must have a clear picture of your executive and owners corporations needs before approaching potential candidates. You probably have a pretty good idea of what you need that’s not going well - as that may be the impetus for looking around, but take the time to think about the whole service provision.

Cost is another factor the owners corporation needs to consider. When comparing costs it is essential to a make sure the comparison is with a similar property.

The cost of managing a property with a pool, gym and outdoor gardens and its own building manager will be very different to the cost of managing a simple block of eight apartments with no amenities. Generally speaking where a building manager is engaged, the duties of – and fees charged by - the strata manager will be less.

You can put together a detailed tender asking the strata companies to quote only on the requirements and services you and your executive committee think they will need. This list will include the above variables as well as all the standard duties that are usually provided.

Alternatively a very useful strategy is to ask the potential candidates for their best proposals, rather than be too specific with the request for tender service details.  This option will allow you to see the best offers. but you should not lose sight of the duties you have identified that you need performed. 

The minimum key information that you must insist strata managers provide is:

  1. Their reputation and experience (ask for references!)
  2. The background, knowledge and experience of the individual manager/s to be given responsibility for your building
  3. The proposed annual management fee and escalation percent
  4. Disbursement rates for things like printing, photocopying, phone calls etc
  5. The proposed term of Appointment – 1, 2 or 3 years?
  6. Would a longer term agreement mean a lower annual price?
  7. Additional Services offered and the cost of these services
  8. Insurance commission percent
  9. How many times will the manager visit the building?
  10. Location of the manager
  11. Technology system the manager uses – this impacts greatly on the reports and information you receive and the service efficiency a manager provides

Make sure you receive a written proposal from the strata manager that provides all of the above information. Before they provide this proposal, give the manager a good understanding of what your requirements are. For example, do you want a manager that does everything, or do you have an active committee that likes to organise repairs and maintenance for example? Does your committee hold their own meetings or do you want the manager to attend them?

It’s vital the strata manger understands the proposed level of involvement. Otherwise their quote will be unnecessarily high or too low to support sustainable service quality. 

One strata management company got caught out with a low margin, fixed fee contract. The strata got involved in a number of legal disputes which required substantial distributions of large CTTT applications and rulings. None of which was able to be charged by the strata manager. So expect to pay extra for exceptional circumstances or additional meetings – even for a fixed fee contract.

3.5 Fixed or variable pricing?

It is, of course, very important to compare apples with apples. If you are not savvy, some proposal pricing can be extremely confusing, uncertain and misleading. There are two basic pricing structures: fixed or variable.

3.5.1 Variable fee arrangement

A variable price means a fixed annual base price with additional costs for all sorts of items. You will also be paying for the strata manager’s time to accurately record these activities so they can charge you for them.

Many strata managers base their retainer fee on the number of lots of a strata plan. So for example if you have around 200 lots you may expect the base retainers being quoted were around the $25,000-$35,000 mark plus GST. However there will be numerous additional costs on top of this:

  • insurance rebate, i.e. around 15%-20% of the insurance premium (see section 3.12for more detail)
  • charge out time for the strata manager to attend executive committee or general meetings
  • disbursements for sending minutes and agendas at a typical rates of 50c per page for photo copying, several dollars for each lot per mailing, costs of phone calls, emails, strata max license fees, BAS lodgement fees, time, archiving, storage, letters etc.

Owners have no control over these costs, and which in total with the insurance rebate might total as much as the retainer.

3.5.2 Fixed fee arrangement

A fixed price should mean an all inclusive annual service price. For example the fixed fee may include 10 executive committee meetings per year of 2 hours duration, all disbursements, and all strata manager work in the normal course of running the scheme. Inevitably there will be  a few unanticipated cost add-ons such as a disputes or legal cases, over runs on executive committee meetings, or additional meetings, and these need to be covered by a schedule of rates

How much in administration costs and time would a strata company save if it didn’t have to track and bill time and disbursements? Imagine by how much the business could be streamlined. One major player catering for large prestigious buildings has been doing this for years and we wonder why they don’t all have an all-up fixed fee arrangement for the normal range of prescribed services. That way executive committees can budget for an agreed amount, with no hidden extras and maximum transparency. Again, both sides save on costs and end up with a much happier relationship.

Gerry Chia Secretary, Owners Corporation Network

Asking all proposers to provide a fixed price means you get similar tender pricing for easy comparison and also far better understanding of the ultimate cost. A fixed price gives a strata manager an incentive to communicate with owners in the most cost effective way and encourages email distribution of documents.

However, if a proposer is unsure of how much work they will have to do to manage your scheme then they will likely add a margin onto the fixed price. So be realistic with the information you provide them with.

Note: even if you ask for a fixed price quote and are purported to be given one – make sure you go through the costs schedules and check that there are NO hidden or obscure variable costs. Ask for an assurance in writing that the quoted headline fixed price of $XX as stated on the proposal will be the final charged price – with no extras. Most strata management companies are ethical and transparent – however there may be some that rely on the contract complexity and lack of time or expertise of those evaluating them to slip additional costs through.

3.6 Qualifications

Are qualifications important?

Be aware that there are low barriers to becoming a strata manager. There are ‘registered’ strata managers and ‘licensed’ strata managers. The difference between the two is the level of qualification.

To act as a Cert III registered strata manager (under the supervision of a licensed strata manager) the minimum qualification is a 5 day induction course. Requires completion of 3 units of competency from the CPP3037 Certificate III Property Practice (Operations). Approximate cost is $855.00.

A licensed strata manager requires Nationally Recognised Certificate IV in Property Services (Operations) which costs around $4,000 and takes 13 days full time or two years part time.

However, this does not mean that an inexperienced strata manager will not serve you well. In fact they may be keener to learn and give you the best service they can than one who has nothing to prove. However, knowing the qualifications and experience of your proposed strata manager will enable you to negotiate your price, manage expectations and indicate when to ask for further clarifications.

Strata managers can also be members of the Strata Community Association a national representative body for strata managers. It is not compulsory but registration with a responsible body does provide for some greater assurance of quality such as required training, ‘codes of conduct’ and dispute resolution or a complaint process.

Remember however, you may get what you pay for.

3.7 How long a contract period?

Strata managers prefer contracts for two or more years so as to be financially secure and spread their costs. Strata managers’ costs are usually greater in the first year of managing a scheme, so they will naturally be wary of only being signed up for one year and you may pay more for the privilege.
to ensure good governance: It is very easy for one owner with an agenda or a minor misunderstanding to derail an otherwise good working relationship between a strata manager and a strata scheme. Strata managers are not immune to the arrows of strata politics, and may be easy scapegoats. To ensure that there is time to communicate, resolve and rectify minor issues or misunderstandings a longer term contract is desirable for good governance.

On the other hand if you contract for a longer term and your strata manager does not provide the expected level of services you have a problem. Between one to three years are common and practical initial terms (where you cannot terminate except under exceptional circumstances) and then continue month-to-month afterwards with a 3-month in writing notice period.

3.8 Evaluate the proposals

Once you have the proposals in your possession you should take the time to actually read them page by page, line by line. Once you know the basic structure and content they are not as complicated as they may first look. Most strata managers use a basic template and adjust it to suit the particular tender or quote requirements.

3.8.1 Compare the proposal pricings

There is no substitute for careful examination of the proposals. Strata companies can deliver quotes which vary significantly, so look closely at what services they are offering for that price, and what you will be paying extra for. Some companies may give an all-inclusive price. With others, you pay extra for every phone call they make, and every stamp they buy. This can make the second manager far more expensive than the first, even though at first glance it looks like a real bargain. Sorting all these differences out and working through each quote can be difficult, but it’ll be well worth the effort in the long-run. It could be useful to hire in someone to do this for you if you don’t have the time or expertise.

Don’t just rely on their proposal without understanding every line or possible charge.

It can be very difficult to compare proposals if one has disbursement costs charged at scheduled rates and another has a fixed up front amount. However, if this is the case then you will have to try and estimate the actual cost of disbursements charged at the specified rates. Follow up their quotes with a phone call asking questions on any point you’re not sure of such as what might they expect ‘various stationery charges’ to add up to for a year? You may be able to do this by looking at past charges or going through the schedules and estimating the time spent (see Detailed schedule check list4.7). An example could look like this:

TABLE 1: Strata Manager Proposals: Cost Comparison

Component

Incumbent 1

Proposal2

Proposal3

Proposal4

Initial Contract Period

Current

1 year

1 year

1 year

1 year

Costs Estimate Totals

 

 

 

 

 

      Variable Costs Contract

$48,500

 

 

 

 

      Fixed Costs Contract

 

$36,500

$48,000

$28,500

$26,500

Costs Estimate Components

 

 

 

 

 

      Fixed/ Base Costs

$27,000

$16,000

$45,000

$24,000

$24,000

      Fixed Disbursement Allowance

 

$10,000

 

 

 

      Insurance Commission

$6,500

 

 

 

 

      Disbursements + Incidentals

$15,000

$10,500

$3,000

$4,500

$2,500

Costs Estimate Assumptions

 

 

 

 

 

      ECMs included

 

5

5

5

5

      Additional ECMs /GMs

 

$350

$350

$500

$250

Costs Escalation

 

 

 

 

 

      Annual Increase

3%

3%

CPI d

CPI d

CPI d

      Cost in 10 years

$65,000

$45,000

$48,000

$35,000

$33,000

  • ‘$0’ excl GST
  •  Estimates based on actual charges and 'Detailed Schedule Comparison' assumptions
  • ECM refers to Executive Committee meetings, GM refers to General Meetings
  • CPI estimate of 3.18% = Ave CPI since 2000 from http://www.osr.nsw.gov.au/taxes/lease/rates/cpi/

Note: Many agreements have a 5% annual price uplift as standard, this means that management fees may outstripped inflation. This figure – as with everything else – can be negotiated.

For comparison, some components of costs can be captured and estimated from historic annual Income and Expenditure reports. See below for example of the incumbent’s annual costs roll-up.

TABLE 2: Incumbent strata management recent full year costs (variable cost contract)

Management Fees ($0’s, excl GST)

Contract Fees

27,000

Commission on Insurance

6,500

External Agent Costs

2,500

Incidentals -Additional Fees

2,000

Incidentals -Risk Assessment

1,000

Disbursements

9,500

                Postage

1,500

                Microencoding Levy Notices

1,200

                Photocopying

1,000

                Accounts Printing

1,200

                Strata Admin. Photocopying

600

                Microencoding Cheques

400

                Additional report Printouts

20

                Telephone

1,500

                Compile ltr

100

                Key Administration Fee

200

                Digital Imaging / Archiving

2,00

Total

48,500

Note: Actual figures taken from strata expenditure accounts

3.8.2 Negotiation time

Once you have the proposals and comparisons you can then use the best price and service to negotiate with the others to match the offer. You will be surprised how a bit of competition can sharpen a provider’s pencil. You can then compare, contrast and further negotiate to match price and services. At this stage you can specify any additional requirements that you wish to vary.

It is also worth getting quotes from all for a fixed fee for a one year term and then asking what the cost savings would be for longer terms. You can generally negotiate strata managers costs and services if they are keen for the job – but ethically you should only do so if you are comfortable that you will retain them for longer (unless there prove to unworkable problems).

3.8.3 Interviews / recommendations

Ask to interview both the specific strata manager who will be in charge of your business and the manager/owner of the company. Ideally have two executive committee members at the interview, or even ask the managers to attend an executive committee meeting for the interview. Have some set questions to ask and a specific situation or two and ask how they would handle it. Minute the interview and basic answers and then complete a comparison table.

To assess the suitability of a strata manager, you can ask a few selected questions from this list that seem relevant or interesting:

  • Are you a Strata Community Australia member? Why or why not?
  • Is the strata manager licensed and certified?
  • Ask to go into the strata office and view their record system and archive access.
  • Ask for multiple references from each.
  • Ask if they follow a code of ethics.
  • How do you maintain your strengths? How are you addressing your weaknesses?
  • How many strata plans and other schemes of community title do you manage? How many residences?
  • What is the optimum number of schemes/residences, if any, that you consider a strata management company should manage? Why? What structure and mechanisms do you have in place to maintain and improve the level of service you provide to customers?
  • How do you ensure existing customers are not affected by new business?
  • Do you plan to stop growing once you reach the optimum number of schemes/residences?
  • How many schemes/residences has your company gained and lost over the last 12 months, 3 years, 10 years?
  • What is your ratio of strata managers to plan/residences?
  • Please provide some examples of how your company's expertise has managed to save customers money.
  • How do you ensure customer satisfaction is maintained?
  • What statistics do you maintain on customer satisfaction? Can we have access to them?
  • hat performance guarantees can you provide?
  • Does your company operate a formal employee performance evaluation scheme?
  • If so, please provide representative text used in the employee evaluation process relating to the goals for (external) customer satisfaction and the metrics used to evaluate them from relevant positions.
  • If not, please describe how you evaluate staff performance in relation to customer satisfaction.
  • What processes do you have in place to resolve conflicts between the interests of the company and interests of your customers?
  • Does the employee who will be responsible for our building a) hold a strata management license b) a member of the Strata Community Australia?
  • What qualifications does your organisation require from an employee in this position?
  • Does your organisation have professional indemnity insurance?
  • How do you select contractors?
  • Do you require and check that contractors hold insurance cover?
  • How do you monitor contractors?
  • What in-house expertise do you have to assess whether quotes from contractors are appropriate and reasonable?
  • How have you proceeded when you have found work by contractors to be overpriced and substandard?
  • Please provide some examples as to how your company has saved an owners' corporation from being exploited.
  • Consider the following situations and explain how you would proceed as a strata manager.
  • A resident rings you to report that water is leaking from their ceiling. They later report that their light will not work and their ceiling is damaged. Sometime later you find the cause of the water leak was tenant in a unit above forgot to turn the tap off when running a bath and the water over flowed onto the bathroom floor and somehow managed to leak into the unit below.
  • An owner complains that his car is scraping on the roadway as he enters and exits the driveway. He wants the driveway altered to fix his problem and requests that you seek quotes. In the mean time you find out the ‘someone’ has placed a plank of wood in the gutter which seems to solve the problem.
  • Please provide some examples of how you have prevented an owners' corporation being charged for work they are not responsible for or how you have later recovered funds from the responsible party?
  • Do they have the right experience to manage the building?
  • Are they well-resourced to meet service expectations?
  • Are they willing to provide referees?
  • Did they communicate effectively with us on our enquiry?
  • Can they show copies of their licence and proof of indemnity insurance?
  • Do they undertake ongoing training?
  • Does the person who will manage your common property on a daily basis hold a strata manager’s licence?
  • Does the proposed manager have any personal support staff to help manage his/her portfolio?
  • Do members of the proposed manager’s support team (including accounting and records management staff) hold a Certificate of Registration or a Licence from the Office of Fair Trading?
  • Does the proposed manager have other properties of similar size, with similar asset and geographic characteristics in his/her portfolio?
  • Does the proposed company have a newsletter that is distributed to all owners on a regular basis?
  • Do all executive committee members who have an email address receive a regular newsletter covering matters of relevance to the committee role?
  • Does the company have a dedicated compliance section?
  • Can levy payments be made direct to your trust account by mail, internet, telephone, Bpay, DEFT, or at any post office (including credit card for internet and phone payments)?
  • Can your owners access annual general minute minutes and other information on-line, free of charge?
  • Can the proposed company demonstrate a track record of happy clients over time?

You can always contact the professional associations such as the Strata Community Australia and ask them about your proposed manager. They will generally know things such as how long they have been in the industry and what experience they have. 

3.8.4 Selection criteria

The table below is a sample of what you can use to summarise comments or rating of relevant criteria for each proposer.

TABLE 2: Relevant Selection Criteria

Component

Incumbent

Proposal2

Proposal3

Proposal4

Cost

 

 

 

 

Service

 

 

 

 

Company (size, history, reputation)

 

 

 

 

Specific Strata Manager

 

 

 

 

Number of strata plans per strata manager

 

 

 

 

Service/Performance

 

 

 

 

Interviews/Feedback

 

 

 

 

Transition/Switching costs

 

 

 

 

...

 

 

 

 

Distinctive Services:

 

 

 

 

                Scanning

 

 

 

 

                Email

 

 

 

 

                Reporting

 

 

 

 

                EC member training

 

 

 

 

                Recording, reporting system

 

 

 

 

                Various manual templates

 

 

 

 

                Website hosting

 

 

 

 

                ...

 

 

 

 

Before you appoint a strata manager, make sure you request a copy of the manager’s proposed management contract and check this against the one you finally sign. Do not rely on what is said in a sales proposal because sometimes costs or services are different to the contract you eventually sign.

Another helpful tip, especially for jurisdictions such as NSW where managers must be licensed, go to the Department of Fair Trading’s web site and do a search on your proposed manager. You can not only search about the company, but also about the individual that is proposed to be your manager. 

3.9 Special considerations applicable to a scheme’s first strata manager

If you’ve bought off the plan, the strata manager that the developer has brought to your first annual general meeting to be approved will have been employed to set up accounts, records and insurance, and to call the meeting itself.  You really have no choice but to appoint them as it is unlikely at this stage an alternative will be presented.

Now may come a point of contention. How long do you sign them up for at the first annual general meeting? The developer’s strata manager has the knowledge of the building, its records, plans, structure, operations – but they have not been chosen by the owners.

Knowing that you can give 3 months notice at any time after the initial contractual period the question remains as to how long should an initial period be?

Some schools of thought say that your very first strata manager should be confined to a three-month or, at most, a 12-month contract. Short initial contracts allow the service provider to be evaluated before committing to a longer term. The benefit of a short initial term is to be able to obtain recommendations from other buildings and tender competitive quotes before the end of the term. Of course, include the existing strata manager in the tender process.

It is probably not sensible to sign them up for 2 or more years without being able to canvass all the options and comparing alternatives quotes. At the end of the process, you may end up contracting the same company but you should not automatically hand over a long term contract for such a vital role as the smooth running of your building to a firm you have not examined and specifically selected. Even if the strata firm has been working and recommended from another building there will be differences in size, needs, costs and specific manager.

In the unlikely event that you have been able to do a complete background check and investigation of  the strata manager (i.e. been able to have a tender process where they are measured against stated criteria and interviewed) you may feel more confident signing them up for a longer term.

Relevant NSW Legislation: Strata Schemes Management Act (1996)

Section 113: Initial period restrictions – An owners corporation cannot appoint a strata manager for a period extending beyond the holding of the first annual general meeting

3.10 Tendering pitfalls and tips

You need to satisfy yourself in respect of the following;

Standard agreement: Ask for the proposals to use the latest version of the Strata Community Association Strata Agency Agreement.

Comparisons: Convert the Schedule B charges to $per hour as they are often presented in units of 15min or 30 mins) so as to be more easily able to compare and calculate you expected total costs.

Travel costs: Check to make sure that travel to your building (if that is where any meetings are to be held) is covered or are at a specified rate and that that rate is acceptable to you.

Copies of by-laws:Check to make sure that the issue of copies of your by-laws is dealt with at a stated rate whether as an Agreed Service, Administration Service or Additional Service.

Free web site: Check if this is available for the strata including owners log in, strata details, comments sections etc

Insurance commission: Many strata managers are paid an ‘insurance commission’ for the placement of your building insurance. This commission is charged to your strata as part of the insurance amount (via the broker). So in reality ‘you’ are paying this commission to your strata manager.

When comparing different strata management fee structures be ‘extremely careful’ about how each management company treats insurance commissions. As it is generally quite significant, if one strata manager does not quote the amount in the headline management fee but as a commission, then their fee amount will be lower than one who does not charge a commission. It is best to ask for quotes to exclude any insurance commissions for easy comparison.

The commission in some strata management contracts is up to 20% of the total premium amount. For larger buildings this commission can amount to tens of thousands of dollars per annum for making a few phone calls and sending a few emails. Often the strata manager just rings a broker who organises the quotes and also take a commission. As commission is paid as a percentage of the premium there is no incentive to minimise premiums, in fact the incentive is to maximise it.

You do not ‘have’ to pay a commission to the strata manager for placing your strata building insurance. However, the strata manager usually takes this commission amount into account in their management charges. This commission is often viewed as a ‘subsidy’ to your strata management fees but in reality it is not a subsidy as you pay it whether it is classified as a commission or as a direct charge for management. So if you ask your strata manager to stop claiming it or to use a different broker to whom you have no obligation to pay a commission (see Strata Management Agreement Schedule C) they may well have an argument that the fee they charge for management should be increased by the amount of the commission they are giving up

One Community Association of 4 stratas and approx 550 lots) appointed an insurance broker themselves to look after their combined insurance portfolio and, which resulted in substantial cost savings as well as much better quality of cover. They pay the broker a fixed fee, so they are completely impartial on their recommendation of cover, and the premium, and add on costs such as fire levy, and stamp duty, which are both quite substantial, are on the net premium rather than on a premium inflated with a strata manager’s rebate and brokerage commission.

It is more transparent to have the strata manager’s fee to be without insurance rebate.

By stopping a somewhat ‘hidden’ insurance commission, total management costs become far more transparent as they are explicitly included in the correct accounting line item i.e. Strata Management Fees, - rather than have a hidden and confusing cross-subsidy. If you can’t or don’t want to get out of paying an insurance commission – at the very least ask for the commission to be explicitly estimated and stated on the front page of the schedule. Also ask for it to be paid on the premium calculated before Fire Services Levy, Stamp Duty and Broker Commission.

Hidden charges: Do not assume that just because you ask for a ‘fixed price’ quote that you are getting one. Even with a fixed price proposal there some proposals may have additional charges on-top-of the fixed price.

For example, if your strata has over 100 lots and there are admin or allowance charges or $5 - $10 quoted that are applicable on a per lot per month basis - you can see that tens of thousands of dollars can be charged over and above the supposed ‘fixed price’ that makes the headline.

You need to read your schedules and ask explicit questions about anything that is not crystal clear. For example look out for additional charges in both variable and fixed price quotes:

  • Storing boxes of records (per box per month)
  • Admin fee per lot per month
  • Producing reports from the financial system
  • External Agent costs
  • Insurance commission
  • Access Key administration fees
  • Risk assessment reviews
  • Micreo-encoding cheques or levy notices
  • Archiving boxes off-site
  • Digital imaging of records
  • BAS /Tax preparation
  • ECMs and GMs
  • Placing insurance claims
  • Fixed Disbursement Allowance (per lot per month)
  • Printing (per lot per month)

How are records stored? Do you understand and are you happy with the costs of records storage, boxes, files, scanning, computer access and ease of electronic searching?

How often is archiving done? Where are the archives stored? How long will it take to access them if needed?

How often is scanning done? Are the documents destroyed? How are the electronic archives structured and accessed? How do owners get a copy (print-out cost per page, electronic data stick transfer)?

A non-owner building manager whose management company is trying to introduce serviced apartments in a residential building and who is not supported by many owners used his proxies and influence to get a close relative appointed as the building’s new Strata Manager. No disclosure was made of the relationship at the time and many owners were understandable unimpressed. The new strata manager seem unfortunately far too interested in this strata’s EC decisions and consequently, whether unfairly or not, is now under a cloud of suspicion.

What computer system is used? Can it produce one-off reports (e.g. accrual)? Can it produce the reports you want? Do the accounts show dollars including or excluding GST?

Conflicts of interest: Surprisingly, potential conflicts of interest do happen in the appointment of a strata manager.  Like any service provider appointment do not consider them if they have financial or personal relationships with an executive committee member or significant owner or service provider. Of course, there may be established friendships or recommendations from owners in other buildings, which are genuine. But the manager still needs to go through a tender, proposal and evaluation process. Even more scrutiny needs to be applied if there is any personal link. For example, if your strata manager was related by family ties to your building manager – it could create actual or perceived conflicts.

4 Guide to the proposals

The Institute of Strata Title Management Agreement 2008 is a currently widely used agreement. An updated version by the new representative body, Strata Community Association Agreement was released in 2012.

  • Strata Management Agency Agreement 2012
  • Building Management Committee Agency Agreement 2012
  • Community Scheme Management Agency Agreement 2012
  • Company Title Management Agency Agreement 2012

These new Agency Agreements have involved substantial engagement and input from the Owners Corporation Network of Australia.

Prior to this 2012 agreement was the Institute of Strata Title Management Agreement 2008 (see Section 6Institute of Strata Title Management Agreement).  The main changes are:

  • Eliminating wording that is already present in the legislation;
  • The amendment for the termination clause to comply with the Property Stock and Business Agents ACT 2002 (NSW); and
  • A general modernisation and streamlining of the agreements overall.

It is worth considering renegotiating updating to the 2012 agreement and agreeing to a reasonable term because:

  • The new agreement has fairer terms and conditions than the older one.
  • Many old agreements have a 5% annual price uplift as standard, this means that management fees may have outstripped inflation.
  • Most complaints about strata managers are due to a mismatch of expectation and contractual requirement. Rolling on without having a two way conversation about the next period of management is not in anyone's interest.

However this will mean that you will be locked-in again for the minimum term of the new contract rather than the legislated 3 month writing in notice period after the old contract minimum term expires.

4.1 Guide to the Standard Terms and Conditions

The Strata Management Agency Agreement 2012 version has 12 terms and condition clauses:

1.      Warranties and acknowledgment

2.      Appointment of and delegation to agent

3.      Fees and charges

4.      Review of fees and charges

5.      Terminating the agreement

6.      Liability of the agent

7.      Transfer of the agreement

8.      Service of notices

9.      GST

10.  Work Health & Safety

11.  Definitions

12.  Interpretation

4.2 Guide to the Schedules

Whilst ideal it may not be feasible to write your own contract. However it is far easier to use the strata manager’s draft contract as a base and make as many changes, deletions, additions as you can negotiate. The proposals you receive will likely have many pages with lists and inclusions/exclusions, activities and dollars.

The schedules, apart from the list of items in A1 (which reflects the duties under legislation), are unique to every company and can even change between contracts from the same strata manager.

Cover pages:     Details important information not provided in the schedules or the terms and conditions.

Schedule A:      Are the duties that absolutely must be carried out as required by Strata Schemes Management Act (1996) and Property Stock & Business Agents Regulations (Schedule 6 Clause 6). Agents make an election here as to whether they accept a delegation or otherwise.

Schedule A2:    More clearly defines how agents agree to meet the obligations accepted in Schedule A1 and whether they are part of a standard charge or an additional charge.

Schedule B:       Sets out the additional charges for either unit costs or hourly charges.

Schedule C:       Sets out any other financial benefits received by the agent in this contractual relationship.

Schedule D:      Are the disbursements and associated fees.

You need to be clear about what is in the ‘Agreed Services’ what constitutes ‘Additional Services’ as detailed in Schedule’s A1 and A2 and the fees and charges set out in Schedules B, C and D. Note, because the contracts that strata companies supply are templates used for all their proposals, Schedules B and D are usually just lists of standard charges and fees – it is up to you to determine whether they are relevant to your quote or not. For example many charges and fees may not be relevant if you have obtained a ‘Fixed Price’ or ‘All Inclusive’ proposal (however see the Tendering pitfalls and tipssection 3.11for some words of caution).

There is no magic to getting a good understanding it just warrants careful reading. For example, Schedule A might include attending the annual general meeting and at a stated number of executive committee meetings as part of an inclusive price, but require that they be held at the strata manager's offices during ordinary business hours. Whereas, Schedule B might detail the fees for attending meetings outside office hours at an hourly rate.

4.2.1 Cover pages

The first few pages of a standard proposal will detail important particulars that may vary contract to contract such as:

  • The name and address of the strata and the strata manager
  • Particulars
  • Item 1: Professional Indemnity
  • Item 2: commencement date
  • Item 3: minimum term
  • tem 4: review date
  • Item 5: percentage increase p.a.
  • Item 6: agreed services fee p.a.
  • Item 7: fee payment method
  • Item 8: manner of accounting
  • Signatures of the strata and the strata manager and owners seal.

4.2.2 Schedule A1

Lists are the duties that absolutely must be carried out as listed by Strata Schemes Management Act (1996) and Property Stock & Business Agents Regulations, 2003 (Schedule 6 Clause 6). Agents make an election here as to whether they accept a delegation or otherwise and the ‘Extent of Authority’ of the agent in acting for the owners corporation. There are generally 3 options for each item.

1.      Full authority with no limitations

2.      No Authority

3.      Full Authority Subject to Limitations as Disclosed in Schedule A2

Relevant NSW Legislation: The Property, Stock and Business Agents Act (2002)

Schedule 6 Clause 6: Confirmation of specific instructions-strata manager or community strata manager

(1) Before or at the time of entering into an agency agreement under which the agent will exercise the functions of a strata manager or community strata manager, the agent must prepare for inclusion in the agency agreement written confirmation of the extent of the agent’s authority to undertake the following duties in connection with the exercise of those functions and any limitations on the agent’s authority to undertake those duties:

a)     undertaking the financial management of funds and books of account,

b)     holding documents and maintaining records relating to the scheme (for example, the strata roll, notices, and minutes of meetings),

c)     arranging building inspections and reports,

d)     effecting repairs to and maintaining common property or engaging appropriately qualified tradespersons to do so and limitations on expenditure that may be incurred by the agent without obtaining the principal’s approval,

e)     paying disbursements and expenses incurred in connection with the agent’s management of the scheme,

f)      arranging insurance cover for the scheme,

g)     serving notices to comply with a by-law,

h)     managing the sinking fund and the administrative fund,

i)      undertaking steps necessary to recover any money owing in relation to levies,

j)      representing the owners corporation or association in tribunal or court proceedings,

k)     paying accounts in relation to the scheme (for example, accounts for water charges, council rates and maintenance),

arranging and undertaking administrative duties in relation to annual general meetings and other general meetings.

 

4.2.3 Schedule A2

This schedule more clearly defines how agents agree to meet these obligations and whether they are part of a standard charge or an additional charge. Provides agent specific commentary about how they will or will not meet the items listed in Schedule A1. It is important to understand this schedule as it is here that an agent may include / exclude activities you may want him to perform and where they specify fees they will charge! For each of the items above Schedule A2 should specify:

1.       Details of how the agent will meet the functions

2.       Any limitation to the authority

3.       Fee method - Agreed or Additional (see Schedule B and D for rates)

4.2.4 Schedule B

Schedule B sets out the additional charges for either unit costs or hourly charges. If any items in schedule A2 specify additional fees for their performance then this is what you will be charged for them. There are usually a large number of items in this schedule ranging from $/hour for staff members time to the cost of photocopying, stamps and telephone calls.

4.2.5 Schedule C

Sets out any other financial benefits received by the agent in this contractual relationship. Discloses details of any providers who pay a rebate, discount or commission to the agent are listed. Usually it lists the strata company's insurance commission agreements.

4.2.6 Schedule D

This schedule specifies the disbursements and associated fees. These are generally administrative activities and stationary charges.

Be on the look-out for any charges that are classified as an ‘Allowance’, ‘Per Lot’ or a ‘Per Month’ charge. If there are any here check whether they apply to your proposal or not as they can add up to significant costs. For example, if your strata 150 lots a seemingly small $5 per month per lot ‘Fixed Disbursement Allowance’ applies will amount to $9,000 per year on top of whatever other costs are charged!

4.2.7 Detailed schedule check list

Below is a comprehensive list of the types of duties, functions and charging that you would see in Schedules A1, A2, B and D. It also references the section for each duty and function as described in the Property Stock & Business Agents Regulations (Schedule 6 Clause 6). This can be used as a template to fill in and compare each proposal. To complete the template fully you may need to discuss and agree line items that are unclear from the contract. The completed list can be agreed upon and attached as part of the contract for clarity. 

Schedules A1 and A2

 

Schedules B and D

 

5 Some relevant resources

There are many great sources that describe the various functions of a strata manager and provide advice on how work with them. Below is a list of some useful resources.

a)      NSW: Strata Schemes Management Act (1996)contains a broader range of powers both administrative and proprietorial in nature. View or download a copy here: www.austlii.edu.au/au/legis/nsw/consol_act/ssma1996242/

Relevant NSW Legislation: Strata Schemes Management Act (1996)

Chapter 2 – Management of strata schemes

Part 1 – Introduction

Section 9:  Who else may be involved in managing a strata scheme?

      The owners corporation may be assisted in the carrying out of its management functions under this Act by any one or more of the following:

      (a) the executive committee of the owners corporation established in accordance with Part 3,

      (b) a strata manager appointed in accordance with Part 4,

      (c) a caretaker appointed in accordance with Part 4A.

Part 3– Others involved in management--the executive committee [Sections 16 – 25]

Section 16: Owners Corporation to appoint executive committee

Section 17: What happens if executive committee is not appointed?

Section 21: Executive committee's decisions to be decisions of owners corporation

Section 22: What are the functions of the secretary of an owners corporation?

Sections 23: What are the functions of the treasurer of an owners corporation?

Sections 24: Who can exercise functions relating to the finances and accounts of the owners corporation?

 

Division 1 – Appointment of strata managing agent

Division 2 – Functions of strata managing agent

Division 3 – Accountability of strata managing agent

Sections 26 thru 40

 

Schedule 3 – Constitution of executive committee of the owners corporation and meetings of executive committee

Part 1 – Provisions with respect to the constitution of an executive committee - and the appointment of the chairperson, secretary and treasurer.

Part 2 – Provisions relating to meetings of executive committee

b)     The Property, Stock and Business Agents Act (2002) An Act to provide for the regulation of property, stock and business agents: http://www.austlii.edu.au/au/legis/nsw/consol_act/psabaa2002385/

c)      Australasian Legal Information Institute[Austlii]This database contains selected decisions of the Consumer, Trader and Tenancy Tribunal of New South Wales from 2002: www.austlii.edu.au/au/cases/nsw/NSWCTTT/

d)      The NSW Office of Fair TradingA very useful booklet Strata living: What you need to know about living in your strata community (July 2011 FT045). It briefly covers all the important areas of strata living. It is highly recommended that this booklet be a first stop to gain an overview of strata living. It is available hardcopy and online: www.fairtrading.nsw.gov.au/pdfs/About_us/Publications/ft045.pdf

A web page Fact Sheet called Managing agents and caretakers: http://www.fairtrading.nsw.gov.au/Tenants_and_home_owners/Strata_schemes...

e)      Strata Community Associationis the peak body for strata managers in Australia

Code of ethics for strata managers:http://nsw.stratacommunity.org.au/page/about-us/code-of-ethics/

Strata management qualifications:

http://nsw.stratacommunity.org.au/page/members/member-news/qualifications-for-registration-as-a-strata-managing-agent/

http://nsw.stratacommunity.org.au/page/education/certificate-of-registration-/

f)       Flat Chat ForumJimmy Thomson’s web site has a forum for strata manager issues discussion: https://www.flat-chat.com.au/forum/strata-managers

g)      Dynamic Property Services choosing a manager checklist: http://www.dps.net.au/choosemngr.html

h)     Stratamanhas a useful website on all things strata: http://www.strataman.com.au/StrataManagement.html

Appendix 1: Institute of Strata Title Management Agreement 2008

Terms and Conditions

The Institute of Strata Title Management Agreement 2008 is a currently widely used agreement. An updated version by the new representative body, Strata Community Association Agreement was released in 2012. Ask your strata manager to update the agreement to the latest agreement, however this will mean that you will be locked-in again for the period if the new contract’s term rather than an automatic 3 month writing in notice period. The 2008 version has 14 terms and condition clauses:

  1. Warranties and acknowledgment
  2. Appointment of and delegation to agent
  3. Fees and charges
  4. Review of fees and charges
  5. Terminating the agreement
  6. Indemnity by owners corporation and liability of the agent
  7. Point of contact
  8. Transfer of the agreement
  9. Service of notices
  10. GST
  11. Occupational Health & Safety
  12. Off Set
  13. Governing law
  14. Definitions

Read through the terms and conditions of the contract. It is not inviolable there are a number of positive and some negatives clauses that can be adjusted with negotiation. You can negotiate many of these. Below are some suggestions for departing the standard Institute of Strata Title Management agreement 2008-03 Version 3. In this sample set, the following sections have some deletions and clauses agreed in their place, all clauses not specified remained as per the standard.

1. Warranties and acknowledgements

1.3 deleted

4. Review of fees and charges

4.1 The agreed services fee, the additional services rates and the charges will be reviewed on the relevant review date to an amount agreed between the parties (not being less than the amount payable at the review date).

4.2 If the parties cannot agree before the review date, the agreed services fee, the additional services rates and the charges payable on and from the relevant review date will be increased to the greater of:

(a) A + (A multiplied by the percentage increase); or

(b) (A x B)/N

5. Terminating the agreement

5.2 The agreement will terminate on the expiry date if a party gives to the other party no less than 3 months' written notice before the expiry date (time being an essential term).

5.4 A notice under clause 5.2 or clause 5.3 can only be given by the owners corporation if authorised by an appropriate resolution of the owners corporation.

6. Indemnity by owners corporation and liability of the agent

6.2 The agent is excluded from all liability for any claim, liability or Loss in any case in relation to or arising directly or indirectly out of the services or additional services or arising from any cause of action including negligence and including, without limitation:

(a) inherent defect or danger in the owners corporation’s property whether as designed or constructed;

(b) loss arising from the owners corporation’s failure to supply adequate information, advice or direction when requesting work to be performed by the agent;

(c) loss arising from the services provided by 3rd parties including those instructed by the owners corporation or the agent; and

(d) loss arising from the handling of goods, products or chemicals, but except to the extent that the liability is caused or contributed to by the agent’s negligence, dishonesty or fraud.

6.4, 6.5, 6.6 Deleted.

8. Transfer of the agreement

[8.1 The agent cannot transfer the agreement without written consent of the owners corporation, which consent shall not be unreasonably withheld.]

8.2, 8.3, 8.4, 8.5, 8.6, 8.7 deleted

11. Occupational Health & Safety

[11.1 The parties covenant and agree that they will each comply with their respective obligations under the Occupational Health and Safety Act 2000 and the Occupational Health and Safety Regulation 2001 and any amendment or replacement of that Act or Regulation from time to time (OH&S Act and Regulation)]

[11.2 Subject to the provisions of the OH&S Act and Regulation, the owners corporation acknowledges that, as regards the owners corporation, the appointment of the agent under this agreement does not constitute the appointment of the agent as a principal contractor within the meaning of regulation 210 of the OH&S Regulation.]

11.3, 11.4, 11.5 deleted

12. Off-Set

12.1, 12.2 deleted.

13. Governing law

[The agreement is governed by the law of New South Wales]

 

Some specific example explanations

8. Transfer of the agreement

Make sure you strike out the clause on many Institute of Strata Title Management contracts that say your strata company is free to sell on its contract with you to another company. However, you may wish to retain the clause in some form as long as you are able to exercise reasonable powers to refuse. This would mean that in the event of a sale you could go through a tender process and choose the best tenderer – whether or not it was the new company or an alternate one.

11. Occupational Health & Safety

In the 2007/08 version of the ISTM Agreement, a new clause 11 and a number of new definitions were added dealing with Occupational Health and Safety.  The extent, tone and effect do not fit with the drafting of the rest of the agreement.  The effect of this new clause 11 is not only completely one-sided but may give rise to obligations on the part of the owners corporation which it otherwise might not have.

The fact is that if you have a liability under the Occupational Health & Safety Act 2000 and the regulations, you cannot contract out of that liability.

One alternative is to delete the whole of clause 11; the other is to substitute a new clause 11 which acknowledges the liability of both parties but does so in a way that does not expose the owners corporations to unnecessary risk.  In either case, the definitions of construction work, high risk construction work, Non-Standard Work and Standard Work should be ruled through in the definition clause.

In drafting an alternative clause 11, I have sought to simply recognise that each party will bear the liability that it has under the OH&S Act and do the things that it is required to do under the OH& S legislation.

Bearing in mind that the pre-2007/2008 versions of the ISTM Agreement had no clause 11 or its equivalent, the deletion of clause 11 (and the associated definitions) will do two things:

It will put both parties in the position they would have been vis-a-vis OH&S legislation prior to this version of the ISTM Agreement; and

If either party has a liability under the OH&S legislation, which they cannot contract out of, they will have that liability anyway.