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