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 the proposal, selecting and appointing a new strata manager. The strata committee must invest time 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:

  • The 2016 Act contains provisions where the agency agreement cannot exceed a period of 3 years and automatically terminates on the expiry date. A strata manager can only be appointed for 12 months at the First Annual General Meeting.
  • The term of appointment of a strata managing agent may be extended by the strata committee for successive period of up to 3 months after it would otherwise expire (but not for any period that would extend beyond the date of the next annual general meeting) pending a decision as to the reappointment of the strata managing agent.
  • However, if the strata committee has extended the term of the appointment as noted above, then the strata committee must give the strata managing agent at least 1 month's notice if they have decided not to reappoint that agent or further extend the term.
  • If the agent is being dismissed during a minimum term 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 strata committee alone.
  • Written notice of the decision must be given to that agent via the minutes of a general meeting. 
  • 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: Strata Schemes Management Act (2015)

Section 49 & 50: 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 but cannot exceed 3 years. 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 ageneral meeting. A decision needs to be made whether to send the whole contract to every owner. 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 (2015)

Sections 49 & 50: 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 manager's 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 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 located close to your building
  3. Check on qualifications of the managers and their staff
  4. Arrange a personal visit to the selected offices, to interview the Principal and proposed manager
  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, if you select another company
  8. General meeting motion brought to owners to terminate incumbent and appoint new strata manager
  9. Majority vote for replacement strata manager
  10. Sign new Agreement 
  11. Transfer of files and data to new strata manager

3.4 Who do I get to tender?

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 shareholders, 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? 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 owners 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 similar to yours in size, location and facilities. Ask whether their 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.

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 agendas and minutes.
  • Attendance or not at committee meetings
  • Number of committee meetings attended
  • Taking and writing of meeting minutes
  • Reporting requirements and flexibility (especially financial)
  • Insurance placement and claims
  • 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
  • Website access for the committee or a web page for the building and its documents

You must have a clear picture of your committee and owners corporation 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 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 - if it's not a fixed fee service
  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 NCAT 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 3.12 for more detail)
  • charge out time for the strata manager to attend strata 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, cost of phone calls, emails, BAS and tax 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 strata 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 strata 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 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 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. 

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.

Strata Community Association also now accredits strata managing agents which may be a useful tool. Level 1 is the lowest to Level 3, Level 4 is for Fellow or Life Members. Visit the Strata Community Association NSW https://nsw.strata.community

 

3.7 How long a contract period?

See 3.1

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 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

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 with 3 years being the maximum term. 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 be unworkable problems).

3.8.3 Interviews / recommendations

Ask to interview both the specific strata manager who will be in charge of your owners corporation and the manager/owner of the company. Ideally have two committee members at the interview, or even ask the managers to attend a strata 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 Association 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 or ask about their electronic filing system
  • 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 manager 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?
  • What 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) belong to the Strata Community Association?
  • What qualifications does your organisation require from an employee in this position?
  • What amount of cover is held under the professional indemnity policy?
  • 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.
  • How would you proceed in the following situations
  • 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. Some time 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 and leaked 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 meantime 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 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 NSW 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 committee members 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 minutes and other information on-line, free of charge?
  • Can the company demonstrate a track record of happy clients over time?

You can always contact the professional associations such as the Strata Community Association 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, is to go to the NSW Fair Trading’s website and do a search on your proposed manager. Not only can you search the company, but also the individual 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. However their appointment term is only for 12 months and will expire at the end of the period. 

Relevant NSW Legislation: Strata Schemes Management Act (2015)

Section 26: 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 more easily compare and calculate your 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 at a specified rate and that that rate is acceptable to you.

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

Free website: 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 included in your insurance premium. 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 and this must be disclosed in the agency agreement in NSW. 

The commission in some strata management contracts is up to 20% of the total premium. For larger buildings this commission can amount to a significant sum. Often the strata manager just rings a broker who organises the quotes and also take a commission. Commissions also cover the managing agent completing insurance claims of a fixed duration stipulated in the agency agreement. 

The 2015 Acto now requires strata managing agents to provide no less than 3 quotations from different providers for each type of insurance proposed by the agent to the owners corporationor provide written reasons to the owners corporation if less than 3 quotations are provided. 



You do not have to pay a commission to the strata manager for placing your 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. However if you select an insurance broker where the agent has no authorised representative arrangement or distributor agreement, then the strata manager cannot deal and arrange your insurance policy. They can only undertake insurance claims which would be charged at the stipulated rate. 

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

Gerry Chia, Owners Corporation Network 

It is more transparent to have the strata manager’s fee to exclude insurance rebate.

Insurance commission must now be disclosed in the agenda of each annual general meeting.

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, 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
  • Strata Committee Meetings and General Meetings
  • 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.

Gerry Chia, Owners Corporation Network

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 a strata 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.

 

Strata Schemes Management Act 2015

Section 166: Strata Managing Agent to obtain insurance quotations