Termination of an Owners Corporation Manager’s Contract of Appointment

Termination of an Owners Corporation Manager’s Contract of Appointment

How can an Owners Corporation Manager’s appointment be terminated?

The Owners Corporations Act 2006 (the Act) currently provides no guidance as to how a Manager’s appointment can be terminated or revoked as it stipulates only that an Owners Corporation may revoke the appointment of a Manager.

Rather, the termination of a Manager is dealt specifically in the Contract of Appointment (COA) entered into between the Manager and the relevant Owners Corporation. Accordingly, it would be imperative that the COA is considered by the terminated or terminating party to ensure that termination has validly occurred.

The standard forms of the COA that we usually see provide for termination in the following instances:

  1. At any time provided the other party has committed a fundamental breach of the terms of the Appointment and fails to rectify such breach within a reasonable time after receiving written notice of the breach;
  2. By the Owners Corporation after the initial term provided that an ordinary resolution has been passed at a general meeting to terminate the Appointment by giving 28 days notice to the Manager
  3. By the Manager after giving 3 business days notice if the Manager is of the opinion that the Owners Corporation is acting unlawfully or with disregard  for  the  safety  of  persons  on  the Owners Corporation Property
  4. By the Manager after the initial term by giving 28 days notice in writing

 

If the Manager’s appointment is terminated then the following conditions/obligations will generally apply:

  1. The Owners Corporation is to remunerate the Manager:
    1. Pro-rata for services performed up the end of the Appointment; and
    2. For any Additional Services rendered; and
    3. For any outstanding Disbursement Fees;
    4. For work required to effect the termination and transfer of the records including the cost of preparation of additional financial statements
  1. The Manager must within 28 days of lawful termination return to the secretary of the Owners Corporation all records and funds relating to the Owners Corporation held by the Manager

 

Can the committee terminate the appointment of a Manager?

The standard COA stipulates that the Owners Corporation may terminate the COA after the initial term provided that an ordinary resolution has been passed at a general meeting to terminate the appointment by giving 28 days’ notice to the Manager.

the Owners Corporation Act gives power to the Committee to exercise all the powers and functions that maybe exercised”

Whilst the requirement for an ordinary resolution to be passed at a general meeting is stipulated in the COA, it is not so stipulated in the Act. Rather, the Act gives power to the Committee to exercise all the powers and functions that maybe exercised by the Owners Corporation except for those that require a unanimous resolution, special resolution or a resolution at a general meeting.

Even though the standard COA requires that a ordinary resolution be passed at a general meeting, this will have no effect unless the Owners Corporation resolves by ordinary resolution at a general meeting that the termination of the Manager must be determined by ordinary resolution of the Owners Corporation at a general meeting.

The decision of Hakim Investment Holdings Pty Ltd v Owners Corporation No. 6 PS633275D (Owners Corporations) [2020] VCAT 730 is the most recent VCAT decision that has confirmed that where there is no resolution or delegation to the contrary, the committee will have the power to terminate the appointment of a Manager.

 

What if the Contract of Appointment is not validly terminated?

In the recent decision of Marcus v Turnbull Cook Body Corporate Management Pty Ltd (Owners Corporations) [2020] VCAT 298, Senior Member Vassie [at 14] made it clear that an Owners Corporation does not need to obtain a Tribunal order for revocation of the manager’s appointment, or to prove that the manager has been in breach of contract or in breach of a provision of the Act. It may simply decide to revoke the appointment and exercise its statutory right of revocation, even though by doing so it may itself be in breach of contract.

So, what happens if the Owners Corporation breaches the COA or if the COA is not validly terminated?…

If the COA is not validly terminated in accordance with the provisions of the COA, a Manager will have the right to make claim against the Owners Corporation for damages. However, this will not be an easy task as evidenced by the decision of Owners Corporation No 2 PS338183E v Strata Plan Pty Ltd [2015] VCAT 1148 (29 July 2015) (“Strata Plan decision”)  where the Manager in that instance also sought damages for early termination under the COA.

The lessons learnt from the Strata Plan decision were inter alia that:

  1. The Management Contract does not provide for any compensation to be paid to the Manager for Termination of the Management Contract;
  2. It would be a significant account exercise to determine what damages should be claimed; and
  3. The Manager is required to mitigate its loss and is expected to replace the lost contract within a short period of

 

Can a Manager  remove  the funds of an  Owners Corporation  for  wrongful termination?

In this case of Your Body Corporate Pty Ltd v Owners Corporation 1 PS540313Q (Owners Corporations) [2019] VCAT 1772, the Manager claimed that it was entitled to retain $192,465.00 for damages for wrongful termination of its management contract and services provided. In that decision, Member Rowland found that the Manager had repudiated the contract when it removed the funds from the Owners Corporation’s account and thus the Owners Corporation was justified in terminating the contract for that reason. Further, the Managers’ conduct in removing the funds was deemed to be unconscionable conduct in contravention of Australian Consumer Law and were therefore held to be personally liable for damages.

 

Can a Manager withhold the funds and records of an Owners Corporation?

In Jenkins v OCVM Commercial Pty Ltd (Owners Corporations) [2019] VCAT 1078, the respondent Manager  refused  to  return  the  records  and  funds  of  the  Owners Corporation because it contended that the resolution to revoke its appointment was void.

“A demand for delivery up of the records and funds of an owners corporation must be complied with immediately”

Member Rowlands made it clear that Section 127 does not entitle the manager to retain the records and funds on the grounds that a termination has not taken place.  A demand for delivery up of the records and funds of an owners corporation must be complied with immediately, unless there has been a termination of appointment, in which case, the manager has up to 28 days to return the records and funds. A breach of section 127, attracts a penalty of up to 60 penalty units [60].

 

Lessons Learnt

The termination of a COA can occur in various ways which are usually set out in the COA itself. In most instances, the committee will have the power to terminate the Manager’s appointment. The VCAT decisions discussed make it clear that the Manager does not have the right to hold onto the records or funds of the Owners Corporation even where they believe that they have been wrongfully terminated. What the Manager does have the right to do is sue the Owners Corporation for that wrongful termination to claim damages. However, as evidenced by the Strata Plan case, making a claim for damages is no easy task.

 

For assistance on any Owners Corporation or Building Law matters, please contact Emilia Panayiotou at CLP Lawyers on 9042 2070 or at emilia@clplawyers.com.au

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The information contained in this article is for general guidance and reference purposes only and is not a substitute for legal advice. Please consult CLP Lawyers to obtain legal advice relevant to your personal circumstances before making any decision or taking any Action. We cannot be liable for any loss resulting from any Action taken or reliance made by you on any information contained in this article.

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