With the introduction of the Strata Legislation all Strata Agency Agreement are required to be renewed. This is a timely opportunity for Owners Corporations to make sure they don’t get caught out.
Here’s what to be careful of:
1. LONG TERM CONTRACTS
The legislation will now seek to impose a maximum three year initial term rather than an unlimited term as previously allowed. Guardian Strata’s approach has always been to not lock their clients into long term contracts as we believe good service will keep clients.
2. FIXED PRICE
While the new legislation does not dictate whether a new agency agreement is based on a fixed price approach the Owner Corporation Network has always recommended that Strata managers adopt this method of billing. By adopting other methods which are based on variable management fees from month to month, you could easily be caught by surprise. Guardian Strata has always adopted a fixed price approach to their management fees and disbursements.
3. TRADES PEOPLE
The new legislation prohibits any strata manager from receiving benefits that may constitute a conflict of interest. The notion of conflict of interest was not specifically included in the previous legislation. While it is legal to state that a strata manager receives commission from trade’s people, we believe this constitutes a conflict of interest in the new legislation. You should be wary of any strata manager that has this disclaimer included in their agency agreement. In the event that there is not full disclosure by a strata manager that they receive commissions, their behaviour will soon alert you that there might be something not quite above board. For example, where the strata manager forces the owners corporation to use particular trades people rather than anyone that they wish should raise cause for concern. Guardian Strata’s approach is that we do not receive commissions from any supplier other than insurance companies and in that context, we allow Owners Corporations the selection of any trades person they desire povided they are properly licensed and insured.
4. PERFORMANCE GUARANTEES
While the new Strata legislation doesn’t specifically make performance guarantees a requirement, in many industries and commercial agreements service level guarantees are a norm. When renewing your strata agency agreement you should request that these service levels are documented and most importantly what financial penalties that strata manager is willing to incur as a result of non-performance. Guardian strata provides these performance guarantees in all their contracts.
5. SCOPE OF SERVICES
The new legislation is promoting a greater level of transparency for strata managers across a number of different areas. Management fees and disbursements being one. As it relates to this, while a fixed price contract appears to include unlimited support for owners corporations it is rarely the case. The expectation of owner’s corporations of unlimited support on a fixed price contract is unrealistic. It is important for Owners Corporations to understand what is included in the scope of services and ensure that the potential additional service costs are minimal. Guardian Strata main additional service items are appearances at Office of Fair trading and the Tribunal (NCAT).
6. INSURANCE COMMISSIONS
The new legislation requires that a minimum of three quote are obtained for every renewal. Over that last few years this should have been the practice by strata manager’s in any event. There have been a number of new competitors coming into the market making the insurance market more competitive. Guardian Strata have been following this practice for the last few years anyway, before it was included as a requirement in the new legislation.
If you sign a long term strata agency agreement it is often said by the incumbent strata manager that you can terminate the agreement for any reason by providing 90 days’ notice. This is partially true, however the reality is that if you are in the initial period of the contract of lets say 2 years and you wish to terminate within 6 months of the initial contract period the Owners Corporation will be required to pay out the remainder of the contract in a similar way to the way a telephone contract works. Don’t be fooled by strata managers who provide only one element of the truth.