Management Contracts that are 25-Year Shackles

Management Contracts that are 25-Year Shackles

Imagine you’ve interviewed for a job and the call comes: “you got the gig … we’re sending over a 25-year contract.”

Twenty-five years? That’s half the length of a working life. However, believe it or not, there are strata contracts for that long in Australia today.

First, let’s backtrack a little. Until the new NSW strata laws were enacted in 2016, strata managers could sign contracts with strata schemes for 10 years with an option of another 10 on top.

Since these contracts were approved at the first AGM by people who had never met each other, let alone the strata manager who was paraded in front of them (usually by the developer) there was occasionally a disconnect between what was promised and what was delivered.

The 2016 laws changed that to a much more sensible and equitable arrangement. NSW strata managers are now limited to the first year of a new strata scheme’s life, followed by a maximum of three years per contract thereafter.

The strata manager who had helped the developer to set up all the bureaucratic systems for the yet-to-be formed owners corporation is usually given the first shot at the job, which is only fair. They then have a year to prove themselves before the owners get to decide on a longer contract … or not.

The days of 10 years plus 10 will also soon be a thing of the past in Victoria where a three-year limit on strata management contracts is likely to be imposed when their new strata laws come in.

However, building facilities managers – the people who manage the physical challenges in larger blocks – have no three-year “shape up or ship out” limits on their contracts, either in NSW or Victoria.

In the former the limit is 10 years, in the latter the limit is whatever the developer thinks they can get away with when they sell the contract to the building manager or owners corporation (strata) manager.

Yes, sell, because it seems NSW is the only one of the three eastern states where it is clearly forbidden to pre-sell contracts to service providers, when the people expected to pay for them have no say in their terms and conditions.

Which brings us to Queensland. There, developers pre-sell the caretaker management rights to their new buildings to operators who could range from mum-and-dad businesses who become a part of their community, to large companies with little personal connection to the buildings they service.

The one thing they have in common is that the apartment owners have no say in the terms of the contracts and little hope of rescinding them if the managers turn out to be duds.

Ten years ago, the last time the Queensland government took a serious look at the caretaker management industry, they estimated it cost apartment owners about $200 million a year in direct fees and rental commissions.

The industry’s value, guesstimated at about $5 billion, is propped up by contracts starting at 25 years with a 10-year option on top.

The whole caretaker management system in Queensland, and the inflated costs that are shifted to owners, is worth a closer look at a later date.

Further south, things are better but could still be improved. I am a relatively recent convert to the belief that the benefits of having strata and building managers from the same company can outweigh the potential pitfalls.

Just give them all the same contract structures and it would make as much sense as anything does in this crazy world.

 

Jimmy Thomson edits the strata living advice website Flat Chat.

Jimmy

Strata Management Company
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