3 Selecting your executive committee

“The executive committee is elected at each annual general meeting (AGM)”[Strata living: What you need to know about living in your strata community(July 2011 FT045). NSW Office of Fair Trading, pp. 11].

For your executive committee to be effective it is hugely beneficial that it comprise people with the right motivation and enough expertise, experience and commitment to look after your investment and amenity well. Selection of executive committee members is by far the most important decision of your ongoing ownership rights. Get this correct and you should have a firm but inclusive management group solving issues with smarts and balance and overseeing a harmonious and flourishing building and living environment. Get it wrong and watch the problems emerge!

Relevant NSW Legislation: Strata Schemes Management Act (1996)

Schedule 2 Section 17: Counting of votes on election of executive committee

 

3.1 Skills and expertise

An executive committee, if possible, should contain people who will bring something more to the group than just a desire to protect their own interests. As long as there are no conflicts of interest the following skills are worthy of consideration (some of the below taken from Apartment Living 2004 by Sue Williams).

A 7 year incumbent executive committee chairman, who was also acting in a paid back office manager role, was not even aware that his 100+ residential building had by-laws! However, he did talk extensively about the ‘rules’ of the building, rules that he had unilaterally decided and instructed front desk staff to enforce. It came as a great shock to him when some of these ‘rules’ were questioned and he discovered that there were by-laws and an Act that he was supposed to follow. Unfortunately, for 7 years it seems none of the other 5 or 6 executive committee members were aware of the by-laws or legislation either. The building had stumbled along because the strata manager and building manager ensured most basic legal requirements were met. However, many ‘individuals’ rights had been trodden on extensively over the time.

A building or engineering professional is a good person to have on board because a big budget item is maintenance of the building. Many new blocks will contain a number of defects, which may cost into the millions to rectify and which have a deadline to be discovered and reported to the developer and/or builder.

An accountant or someone skilled or comfortable with budgets and money can be beneficial, as the annual budget of many new large apartment blocks can easily run as high as $3 million. Many people have never administered budgets of anything like as much money in their lives. That cash has to be spent wisely, and for the benefit of all owners.

A business professional is a good person to have on board. Someone who has dealt with a wide range of business issues will have the transferable skills needed to be able to deal with the issues arising in a strata building.

A lawyer can be a useful asset to any executive committee. Executive committees can get into any number of legal arguments with owners or subcontractors, developers or builders. Sometimes even the most unlikely issues can end up with legal threats being made by owners who have moved to apartments from houses and have no idea of the demands and obligations of communal living. Having someone who knows the basics of litigation and legal tactics can be very helpful to assist with by-law interpretation and to point out the need for new or different by-laws.

An administrator can also be a great boon. Meetings, particularly general meetings can be complex affairs, with motions, amendments and voting. It really helps to have someone who is experienced in meeting protocols, and who can deal with issues with confidence, and move along meetings to keep them to a strict timetable either as the chair or assisting. A competent strata manager should be able assist in this area.

A communication, negotiation or relationship expert. This could be the most vital and useful skill of all. No matter the quality and expertise of the individual members of an executive committee, if they don’t get along or progress decisions – then it will be a disaster. This skill can often be implicit – gained from years of dealing with people, decisions and disputes - or some people are just good ‘people people’. Or it could be explicit where a potential nominee has mediation skills, conflict resolution, personal development, therapy or psychology training.

Notwithstanding the above list, there may be executive committee members who are ideal candidates without these skills. They may be passionate about the building, or fixing issues and willing to do the work, to make the best decisions for the building and its owners and residents.  They may also have the time to spend on various matters. Time and passion are extremely valuable commodities. They may be retired, working part-time, a stay at home mum or dad (although this does automatically not mean they have any time) or just plain passionate.

Even if you have a professional building and property manager they are just ‘service providers’. All these skills are ideal and valuable it is up to you – the executive committee – to monitor, make good decisions and set the direction for you building.

3.2 Politics and motivations

It is insightful to compare a strata building's executive committee to a quasi-political process. Strata executive committees can be viewed as a 4th tier of government (behind federal, state and council): being elected, levying taxes (levies) and making laws (by-laws). As we all know, politicians do not have to have specific qualifications to run or be elected. Similarly and unfortunately too, there are no requirements under any Acts for executive committee members to be vetted, qualified or trained. Anyone - resident or non-resident owners, apartment renters, building staff, strata managers, real estate agents, developers, relatives and friends can be nominated and subsequently voted onto a building's executive committee - for better or worse.

A developer appointed, long-term building manager also served in the long term role of chair. Without explicit approval, this building manager employed his son's maintenance company to do gardening duties and also separately paid $60 three times a week for the use of his daughter-in-laws car (who lived and worked with the building manager in the building) to tow a rubbish bin trailer 50 meters. The once off annual cost of these payments could have purchased a vehicle and saved $10,000 p.a. ongoing.

There can be an extremely wide range of motivations, interests, knowledge and skills both within and between different executive committees. In deciding which candidate or group to vote for it would be expedient to first understand what motivates particular candidates for nominating to the executive committee. A brief list of possible motivations can include:

Possible motivations for being on an executive committee

Embrace (with hope)

  • Community service/expertise- those who recognise there is a gap in the expertise of the executive committee and wishes to help fill it.
  • Taking care of investment or building amenity- conscientious and concerned with their and others investments or the building they call home.
  • Money conscious- those who wish to keep an eye or have strong opinions on spending.
  • Changers / visionaries- great, as long as they have visions for a better building for 'all' and not just for them. Best to pair them with community service and expertise types.
  • Problem identifiers and fixers- Or depending on whether you agree with what they have identified as a problem, they may also be called "complainers", "scare-mongers" or "interferers".
  • New kids on the block- New owners who are asked to or wish to get involved without any clear 'political' motivation.

Beware

  • Incumbents/no-one else- have served before and there isn't anyone else offering to do the job.
  • Business as usual- happy with the way things are and wary of 'new agendas'.
  • Political pawns- many well meaning people have been persuaded by another person to support them without understanding their real agenda.
  • Developer's puppets- these are usually voted in at the first AGM. They are often non-owners such as the developer's lawyers, a developer appointed Building Manager or can be lot owners with vested interests or contracts with the developer. (e.g. a live-in building manager / estate agent). Needless to say, these are to be avoided where possible.
  • Service providers- this is extremely common and fraught with conflicts of interest. They comprise mainly building managers or their staff.
  • Tyrants/fiefdoms- again, surprisingly common but often unrecognised for years. Usually settles in the chair position and will be protecting some sort of vested interest (payment for service or psychological need). These types build intricate webs of loyalty and fear with both apartment owners and staff. The building is 'their' domain and they react very strongly to any persistent challenge or questioning. Lessees and external agents are seen as unimportant. They protect theirs and others secrets and usually have a 'catch-cry' or two that justifies their positions and wards of potential usurpers such as "security", "low levies", "scaremongering", "unprofessional", "years of experience", "out of my own time/pocket", "building policy". They are usually extremely inflexible and opinionated. For those unfortunates in the know or at the pointy end of disagreements, the building atmosphere can be like walking around on egg-shells.
  • Vested interests- similar to service providers, but can also include those with a commercial lot within the strata looking to get a Development Application stamped with the owners corporation seal or specific by-laws passed.
  • Fillers- happy to serve, can be easily persuaded to go with the flow, similar to political pawns but not as enthusiastic.
  • Status / perks- yes, believe it or not some nominees can envisage significant perks of serving on an executive committee. These can include parking or facility preferences, respect, preferential service, acknowledgment, inclusion in the community.

Of course, many executive committee members will have more than one motivation but there is usually one key underlying driving force.

3.3 No conflicts of interest

One key rule of thumb that will hold you in good stead in determining who to nominate or vote for an executive committee position is:

NO CONFLICTS OF INTEREST ON THE EXECUTIVE COMMITTEE

This includes: no service providers, links to developers or their representatives, building managers, real estate agents or staff, no company owners, staff or their families who are contracted or paid in any way by the owners corporation. Be wary of commercial or residential lot owners who are after significant development application approval or by-law changes. They may all have agendas that could colour their ability to objectively make decisions.

A strata’s actual executive committee conflicts of interest by-law

SPECIAL BY-LAW: EXECUTIVE COMMITTEE APPOINTMENTS

1. The owners corporation cannot appoint a committee member, or a company or other business that a committee member has a significant financial interest in or is renumerated as an employee directly or indirectly, to provide any goods or services for a fee to the owners corporation without the approval of Owners at a General Meeting.

2. Subject to Special By-law 11(1) this by-law does not apply to re-imbursement of expenses.

SPECIAL BY-LAW: EXECUTIVE COMMITTEE DISCLOSURE

An executive committee member shall disclose to the executive committee any personal, business or financial relationship to a service provider, if that service provider is being considered or has been selected to provide goods or services to the owners corporation.

Avoid at all costs voting anyone on to the executive committee who is purely an opportunistic speculative investor. They may not be interested in resolving any problems, like defects, that crop up in a building, only in trying to keep them a secret for as long as it takes them to sell their apartment at a profit. Of course there is always a role for conscientious investors. In fact many committees are made up of mainly non-resident owners intent on improving both the value and amenity of the building.

The NSW Strata Schemes Management Act (1996) requires anyone nominated for election to the executive committee to disclose any financial, business or family connections they may have with the original owner or caretaker. But unfortunately there is no requirement to disclose any other conflicts.

It is not legislated, but good practice and common sense not to nominate or serve on ana executive committee if you are getting paid or aiming to get paid by either the owners corporation or its individual members (e.g. letting agents paid by owners direct). If currently serving it is appropriate to resign from the executive committee before providing any proposal for services. Despite the obvious pitfalls it is unfortunately very common for executive committee members to have both stark and subtle conflicts of interest. Many people are surprised to learn that the legislation does not stop a committee member from having minor or even major conflicts of interest. There are many buildings where the chair or other committee members are being paid significant monies from the scheme levies as building managers, contractors or developers. As well, sales or letting agents who have been sold expensive exclusive contracts by the developer often serve on the executive committee even in the position of chair. Inevitably, whether or not decisions are made to further those interests there may be the perception of conflict.

Don’t believe everything you hear

A 7 year serving chair regularly implied both verbally and in written documents sent to all owners that he served on a voluntary basis “I have helped you where I can…. again freely and in my own private capacity” (annual chair address)“I don’t know where they get $30,000 from”…“malicious lies”…..“they speak through their ass” (executive committee meeting). A cursory review of the strata records indicated that he neglected to mention that he is had been charging owners for his ‘back office services’ for the past 4 years –the most recent financial year figures were $29,338.73 (excl GST) or $32,272.60 (incl GST).

If both husband / wife or parent / child are keen to be active, both should not nominate for the executive. If keen the other could help in other ways such as on a working group. Ask the person who is requesting your proxy or vote if they have any conflict interest or receive any payment or benefit for the strata or do any of their friends or relatives. Of course there are occasionally a few acceptable exceptions to these ‘rules’ – but beware and ask lots of questions.

Relevant NSW Legislation: Strata Schemes Management Act (1996)

Schedule 3, Section 3A: Disclosure of certain interests by candidates for executive committee elections and acting members

 

3.4 Gathering information to help decide who to vote for

After excluding conflicts of interest, there are a number of ways to gather information on who may best represent the interests of the building.

3.4.1 Ask around

Make an effort to talk to some fellow owners, neighbours or people you see around the building in advance of an annual general meeting. Who is sensible and on your wavelength? Ask if they want to nominate for the executive committee.

Ideally, attend a few executive committee meetings beforehand and see how the current committee handle themselves – especially if a tricky question arises or a disgruntled owner appears. Off-line ask both sides exactly what the issues are, where and what are their facts and sources.

3.4.2 Examine the strata records

An examination of the strata records is often truly enlightening. As an owner (or their representative) you 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.

Relevant NSW Legislation: Strata Schemes Management Act (1996)

104 Certain records to be retained for prescribed period

An owners corporation must cause the following to be retained for 5 years or such other period as may be prescribed by the regulations:

(a) the records, notices, orders, minutes of meetings and accounting records required to be kept under this Division,

(b) its financial statements,

(c) copies of correspondence received and sent by the owners corporation,

(d) notices of meetings of the owners corporation and its executive committee,

(e) proxies delivered to the owners corporation,

(f) voting papers relating to motions for resolutions by the owners corporation and to the election of office holders and the executive committee,

(g) records served on the owners corporation by the strata managing agent relating to the exercise of functions by the agent,

(h) such other documents as may be prescribed by the regulations.

Section 108: Inspection of records of owners corporation

 

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

Schedule 1 Fees

 

3.4.3 Past performance

If things are running smoothly with the incumbent executive committee their past performance, campaigning, popularity, relationships and policies may be important deciding factors. Unfortunately, for strata however, there is far less accountability, transparency and interest than in other forms of political appointments.

Unlike traditional politics, in many executive committee elections there is often no alternative voting choices or options to the incumbents or their nominees.

Incumbents often build up a reservoir of good will and ‘apathy’ votes. If the building is running well and harmoniously there may be no opponents or nominees that feel strongly enough to campaign for election against any incumbents. And some buildings are just thankful that anyone puts their hand up. However, even buildings where on the surface things seem to be smooth and in control, there can be deep issues and problems with the functioning and decision making of the executive committee. Little things will often give this away – if you are a resident then letters from disgruntled occupiers may appear in your letterbox, the chair may distribute a ‘political’ address beating his chest and putting down any opposition. There may be rumours or heavy handed tactics used on residents. Aspects of the building may be being operated for the benefit of the committee, management and staff rather than the owners and occupiers (e.g. facilities, parking, access and hours of operation).

3.4.4 Giving your proxy

If you don’t intend to attend the annual general meeting you may be asked or decide to give someone your proxy for them to vote on your behalf for an appointment of executive committee members. Even if you do attend the annual general meeting  you may still want to sign a proxy so that another can act and vote on your behalf during the meeting.  You can sign a proxy and also attend the annual general meeting with your proxy holder. You can choose on the night and motion by motion to either vote yourself or have your proxy holder vote for you. On the proxy form there is a section where you can specify exactly what they have to vote for on your behalf or leave it open ended and they can make their own decisions. It is here that you would specify any nominees, if known, .that you may wish them to vote for or not vote for. You can give your proxy to your strata manager, but unless you have specified exact voting options they should not use it to vote for anything based on their own opinions.

Unfortunately, you cannot exclude or ‘contract out’ service providers from being given proxies.  You can restrict them asking for or actively procuring proxies in their service contracts (especially worth doing for building management or concierge as they have the most interaction with owners). However, most professional building managers and strata managers have their own policies not to procure proxies, and in the event of being given an unsolicited proxy they will not use it to vote based on their ‘own opinion’, but instead abstain from voting on any motion unless there are specific instructions included on the proxy.

Note: In large schemes proxies must be lodged with the secretary or strata manager no later than 24 hours before a meeting.

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

Form 2 – Proxy appointment in Schedule 8 (Clause 28 (2)):*1 This form authorises the proxy to vote on my/our behalf on all matters. OR *2 This form authorises the proxy to vote on my/our behalf on the following matters only: [Specify the matters and any limitations on the manner in which you want the proxy to vote.]

 

3.4.5 How many members on your executive committee?

At the annual general meeting executive committee voting process, nominations for the executive committee will first be tabled. If a nomination is seconded it has to be accepted and included in the vote. Then a vote is taken as to the number of executive committee member places. In NSW there are a maximum number of nine executive committee places. There are a number of different viewpoints on the answer to this question. Some are listed below:

  • The more the merrier and lets share the load.
  • Having members who may not attend meetings will mean a regular lack of a quorum (minimum of half attending).
  • We want an odd number of executive committee members so that we can resolve issues by a vote if need be.
  • We only want those whom we have pre-arranged to nominate and serve. No surprises.
  • We know each other and are a coherent team – we don’t want any more unless we know who they are and what they represent and can bring to the table.
  • We want to pre-fill all nine spots so no-one unknown will unexpectedly nominate and be upset that we knock them back.
  • We want a small number of trusted members who all share the same vision.
  • We want as wide a mix and number of skills and opinions as possible.

What viewpoint you agree with will depend on the history of the scheme, the leadership of past executive committees and the available nominees. Your answers may change over time.

Relevant NSW Legislation: Strata Schemes Management Act (1996)

Section 108 (3) (h) 108 Inspection of records of owners corporation

 

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

Part 5 – Election of executive committee of owners corporation

Schedule 1 Fees 9: For making records available for inspection under section 108 of the Act

 

3.5 The very first executive committee

Here we will discuss the very first executive committee i.e. the one voted in at the very first annual general meeting. In the next section we will cover more general advice. The first executive committee is extremely important as it has the power to decide, appoint and lock-in service providers on long-term contracts which can set the scene for the many years to come.

One new large strata scheme found itself have a situation where developer/strata manager/building manager are all same identity due to general meeting resolution. The Developer called for the general meeting to follow on the same day immediately after the First annual general meeting. The agenda for the general meeting was to appoint developer's related company as the building manager on a 10 year contract under.

The first executive committee is elected at the first annual general meeting of the owners corporation which is held within 2 months of when one-third, or more of the apartments have been sold by the developer to individual owners. Even though the developer only gets 1/3 of its voting rights. it is effectively in control at that stage.

At this meeting nominations are usually done by asking the assembled new owners who’d like to stand, and then asking everyone present to either agree on those who’ve volunteered, or vote, if the number of volunteers exceeds the number of places. Most new owners do not understand the importance of a good executive committee in maintaining the value of what maybe the most significant capital investment of their lives. Most people don’t know each other so the situation can be exploited by “mates” who can effectively take over the running of your building. At this stage it is possible for the developer’s representatives to be nominated, including any developer appointed building manager. It is here that you should keep an ear out for the disclosure by nominees of any relationship with the developer. Beware of these nominations as they represent clear vested interests. These service providers or their representatives should not be considered.

The best approach is to go to the first annual general meeting ready not just to get on to the executive committee but also to encourage others to do the same. Challenge every person who stands for the executive committee by asking them to state whether or not they are an investor or, if an owner occupier, how long they plan to live in the building. Also, ask them to declare whether they have any links with the developer or anyone else involved in your building and to provide the detail of any financial, business or relationship links. Ask them why they want to be on the executive committee, and what they believe they can bring to the management of the building. Ask them if they have any experience and what are their plans for researching, tendering and appointing and service providers, especially strata managers, building managers, caretakers and legal representatives.

Relevant NSW Legislation: The Strata Schemes (Freehold Development) Act (1973)

Schedule 2, Section 18: Counting of votes on motions

 

3.5.1 The very first executive committee meeting

At the first executive committee meeting be very wary of approving long-term contracts. It may cost a little more to agree on short term contracts for key service provider  roles (1 year or less), but it will give you the opportunity to evaluate their quality and time to research the market alternatives and negotiate properly after the initial contract period is up.

Agree on motions to collect and check off all required and relevant paperwork and documentation from the developer, strata manager and council. Finally, if you only do one thing at these first meetings, resolve to research and appoint a building defects consultant. If any committee member is against this then you need to strongly question why.

Relevant NSW Legislation: Strata Schemes Management Act (1996)

Schedule 2, Part 2, Regulation 18 (3) Counting of votes on motions