Key takeaways:
- Owners corporation management agreements are standard form contracts. Under the Australian Consumer Law, unfair terms are prohibited and carry civil penalties since November 2023.
- Victorian legislation caps management contracts at three years and prohibits automatic renewal clauses. Older agreements may still contain provisions that predate these protections.
- The quoted management fee is rarely the full cost. Hidden charges, onerous special conditions, and restrictive termination clauses can significantly increase what your owners corporation pays and limit your ability to make a change.
Many Melbourne Committees assume that all owners corporation management agreements are broadly the same. Unfortunately, that is not always the case.
At Strata Management Consultants, discussions about unfair contract terms in owners corporation management agreements are common. Over the years, we have reviewed hundreds of management agreements from across Victoria and regularly see clauses that place owners corporations at a disadvantage. Some of which may be unenforceable under the Australian Consumer Law.
The most frequently encountered problems include:
- lengthy management contract terms
- automatic rollover or extension clauses
- additional fees and charges for routine services
- onerous special conditions
- termination provisions that favour the manager rather than the owners corporation
Knowing what to look for is the first step to protecting your owners corporation. Here is what Victorian Committees should watch for.
What are unfair contract terms in owners corporation management agreements?
Under the Australian Consumer Law, a contract term is considered unfair if it creates a significant imbalance in the parties’ rights and obligations, is not reasonably necessary to protect the legitimate interests of the party who would benefit from it, and would cause detriment to the other party if relied upon.
Owners corporation management agreements are standard form contracts, which means they fall within the scope of the unfair contract terms protections. A Committee that identifies an unfair term can apply to VCAT or a court to have it declared void.
Not every management agreement contains problematic provisions, but Committees should carefully review any proposed contract before signing, particularly the clauses covered in this article.
1. Lengthy contract terms for owners corporation management
Historically, there were two common ways that owners corporation managers secured lengthy management agreements:
- Obtaining an appointment through the developer before purchasers had settled on their apartments or townhouses, meaning incoming owners inherited a contract they had no part in negotiating.
- Having owners sign management agreements at an AGM without sufficient time to review the terms and conditions.
We have seen matters proceed to VCAT where there was disagreement about how management agreements were signed and approved.
Victorian legislation now provides stronger protections. Under the OC Act 2006 (Vic), a developer-appointed third-party manager’s contract generally expires at the first meeting of the owners corporation. The Act also limits management contract terms to a maximum of three years, meaning no manager can lock in an owners corporation for an unreasonably long period from the outset.
Even so, Committees should still review contract terms carefully before entering into any management agreement. A fair and reasonable management contract may run for several years, but Committees should question any arrangement that unnecessarily limits their future flexibility.
As respected strata commentator Jimmy Thomson has described them, lengthy management agreements can function as “management contracts that are 25-year shackles.” While contracts of that length are far less common today, the principle remains relevant. Long-term agreements should always be approached with caution.
2. Automatic rollover or contract extension clauses
Automatic renewal clauses were once common in owners corporation management agreements, providing that a contract would roll over for another full term unless the owners corporation gave written notice within a specified period.
Following legislative reforms and strengthened consumer protections, these clauses are now prohibited in new contracts under section 119A of the OC Act 2006. However, some older agreements may still contain rollover provisions that predate those changes.
Committees should not assume that a contract automatically expires at the end of its stated term. For any existing agreement, always check:
- whether automatic renewal provisions apply
- how much notice must be given to prevent a rollover
- when that notice must be provided
- whether the renewal provision remains enforceable under current law
These questions matter in practice. We recently reviewed a situation where an owners corporation manager argued that a contract signed more than a decade earlier had automatically rolled over for a further three-year term. The Committee disagreed.
Situations like these highlight why management agreements should be reviewed regularly rather than filed away and forgotten.
3. Additional fees and charges for owners corporation services
One of the most common issues we see is the gap between the management fee quoted during the appointment process and the total fees the owners corporation ultimately pays. Many management companies promote a low annual fee to win the appointment. The real cost is usually found in the fee schedule attached to the agreement.
Committees should carefully review all items in the fee schedule, including:
- meeting attendance fees
- insurance administration fees
- maintenance coordination fees
- debt recovery administration charges
- document and records fees
- project management fees
- additional secretarial services
A management agreement that appears competitive at $21,000 per year can ultimately cost well over $40,000 once additional charges are applied.
Before signing any agreement, ask the following questions:
- Which services are included in the annual fee?
- Which services attract additional charges?
- How often are those charges likely to apply?
- Are there any fees that increase automatically over time?
Many Committees do not discover the true cost of a management agreement until well after it has been signed.
If the fees in your management agreement do not add up, it may be time to consider your options. Find out how to change a strata manager in Victoria.
4. Onerous and unfair special conditions
If you have a management agreement in front of you, turn to the special conditions section.
In many standard owners corporation management agreements, this is where additional obligations and protections for the manager are inserted. Not all special conditions are unreasonable, but some can significantly alter the practical effect of the agreement in ways that are not immediately obvious from the front page fee proposal.
Examples worth scrutinising include:
- expanded limitation of liability clauses that reduce the manager’s accountability for errors or omissions
- additional termination penalties that make it costly for the owners corporation to exit the agreement
- restrictions on access to records that limit the Committee’s oversight of management activity
- extended notice periods that delay the owners corporation’s ability to act
- additional fees triggered by specific events such as disputes, insurance claims, or maintenance works
Special condition wording can appear harmless on first reading. It is often only when a dispute arises that the practical consequences become clear.
This is why Committees should never rely solely on the quoted fee when evaluating a management agreement. The special conditions section is where the real terms of the arrangement are often found.
5. Termination provisions in owners corporation management agreements
Management agreements are typically drafted by lawyers acting for management companies. As a former mentor once told me:
“Whoever pays the piper picks the tune.”
It should not surprise owners corporations that many management agreements contain provisions designed to protect the manager’s position rather than the owners corporation.
Termination clauses are among the most consequential sections of any management agreement. Before signing or acting on a contract, Committees should understand:
- how notice of termination must be provided
- whether notice periods apply and how long they are
- whether termination fees or penalties exist
- whether conditions must be satisfied before termination can occur
Some termination provisions may be difficult to enforce if they conflict with section 119A of the OC Act 2006, the Australian Consumer Law, or other statutory rights available to owners corporations. A clause that appears binding on its face may not be enforceable in practice.
For a detailed legal discussion on this topic, Emilia Panayiotou of CLP Lawyers has written extensively about the termination of owners corporation manager appointments.
Understanding your contractual rights and obligations before taking action can save considerable time, cost, and frustration.
How Committees can protect their owners corporation
Owners corporations are not without options. Taking a careful and informed approach to management agreements can significantly reduce the risk of disputes, unexpected costs, and long-term lock-in.
Before signing or renewing any management agreement, Committees should:
- read the entire agreement, not just the fee proposal
- review all special conditions carefully, not just the standard terms
- understand the termination provisions and what exit rights the owners corporation holds
- assess the full fee schedule, including charges that apply beyond the annual management fee
- compare multiple providers before making a decision
- seek independent advice where the terms are unclear or the stakes are high
The cheapest proposal is not always the most cost-effective option, and the largest management company is not always the best fit for a particular owners corporation. What matters most is whether the agreement is fair, transparent, and aligned with the needs of your Committee and lot owners.
Taking the time to review contracts carefully before signing can help avoid years of frustration and unnecessary expense.
Looking to Change Your Owners Corporation Manager?
Unfair contract terms, hidden charges, and restrictive termination clauses can make changing managers more difficult than it needs to be.
Strata Management Consultants works exclusively for owners corporations across Victoria. We help Committees review management agreements, understand their contractual rights, and manage the process of changing owners corporation managers with as little disruption as possible.
We have carefully assessed the management companies we recommend, so you are not starting from scratch.
If your owners corporation is ready to explore its options, we would be glad to help.
