Review of the regulation of owners
corporation managers
Owners Corporations Act 2006
Issues Paper
Consumer Affairs Victoria
How to have your say
Consumer Affairs Victoria is seeking your feedback and comments on the options discussed
in this paper as part of a targeted review of the regulation of owners corporations managers
in Victoria. Specific questions have been included throughout the discussion paper to help
you respond to the issues falling within the scope of the review.
You may wish to comment on only those matters of particular personal interest or on all of
the issues raised in this discussion paper.
Written comments and submissions should be provided by email (in Microsoft Word format)
or by post and should be forwarded no later than the close of business on 27 November
2013.
Closing date for submissions: 27 November 2013
Email:
cav.consultations@justice.vic.gov.au
Mail:
Owners Corporations Act Review
Regulation and Policy Division
Consumer Affairs Victoria
GPO Box 123
Melbourne VIC 3001
Important note: release of submissions
All submissions will be treated as public documents and will be available to other
stakeholders, on request, under the Freedom of Information Act 1982 or by being posted on
the Consumer Affairs Victoria website (consumer.vic.gov.au/ocmanagersreview).
Table of contents
1
Introduction............................................................................................ 1
1.1
1.2
1.3
1.4
Review of the regulation of owners corporation managers ............................................ 1
The owners corporations sector in Victoria ..................................................................... 2
Victorian regulation of owners corporations managers .................................................. 2
Interstate reviews ............................................................................................................ 3
2
Issues ...................................................................................................... 5
2.1
2.2
2.3
2.4
2.5
2.6
2.7
Appropriate length of management contracts ................................................................ 5
Unfair terms in management contracts ........................................................................... 8
Managers’ fees ............................................................................................................... 10
Managers’ conflicts of interest ...................................................................................... 11
Managers’ conduct ......................................................................................................... 14
Managers’ record keeping ............................................................................................. 18
Unsuitable managers ..................................................................................................... 19
Issues Paper – Review of Regulation of Owners Corporation Managers
1
Introduction
1.1
Review of the regulation of owners corporation managers
Impetus for the review
The Owners Corporations Act 2006 (the Owners Corporations Act) is the primary piece of
legislation governing the management, powers and functions of owners corporations in
Victoria, including the obligations of owners corporation managers.
Since it commenced on 31 December 2007, a number of management-related issues have
been raised by various stakeholders.
In response to these concerns, the Minister for Consumer Affairs, the Hon. Heidi Victoria
MP, has asked Consumer Affairs Victoria to review the provisions of the Owners
Corporations Act in relation to the following matters:

the appropriate length of management contracts;

unfair terms in management contracts;

managers’ fees;

managers’ conflicts of interest;

managers’ conduct;

managers’ record keeping; and

unsuitable managers.
The approach to the review
This discussion paper has been informed by recent correspondence, disputes and
complaints, as well as the approach taken to issues by interstate jurisdictions that have
significant owners corporations sectors, namely, New South Wales and Queensland. The
New South Wales discussion paper on owners corporations released by the Office of Fair
Trading in September 2012 also informs this paper.
In addition, Consumer Affairs Victoria met with representatives of the following
organisations to ascertain matters that may be relevant to each of the seven identified
issues:

Estate Agents Council:

Law Institute of Victoria;

Property Council of Australia (Victorian Division);

Real Estate Institute of Victoria;

Strata Community Australia (Victorian Division); and

Tenants Union of Victoria.
The matters identified by these organisations have been incorporated into this discussion
paper, which represents the first formal stage of the review.
The seven issues are discussed in section 2 of this paper. For each issue there are four subsections:
Page 1 of 21
Issues Paper – Review of Regulation of Owners Corporation Managers

discussion (based on the preliminary research outlined above);

current Victorian law;

interstate comparison (with Queensland and New South Wales); and

consultation questions.
Through the discussion paper, Consumer Affairs Victoria seeks a range of stakeholders’ views
on the issues and, if needed, the approaches to addressing the issues, including any
regulatory controls.
Stakeholder submissions on the issues will inform the identification and development of
options for consideration by the Minister for Consumer Affairs. If any regulatory controls are
proposed, a Bill will be introduced into Parliament in mid-2014.
1.2
The owners corporations sector in Victoria
The owners corporation sector in Victoria is significant and growing, particularly with the
construction over recent years of large apartment buildings in Melbourne.
According to the last annual report of Strata Community Australia (Victorian Division), the
peak body representing Victorian owners corporation managers:

there are about 88,000 owners corporations in Victoria – in residential, commercial,
retail, lifestyle resort, retirement village, car park, storage facility and industrial
developments – incorporating about 750,000 individual lots;

about 1.5 million people live in or are affected by an owners corporation;

the value of property under owners corporations is $50 billion; and
more than $1 billion a year is collected from lot owners and spent by owners corporations.1
In relation to owners corporation managers, the Owners Corporations Act can be regarded
as ‘light touch’ regulation, at least by comparison to the other states with major owners
corporation sectors, namely Queensland and New South Wales.
Unlike the legislation in Queensland and New South Wales, the Owners Corporations Act
does not explicitly provide for onsite letting agents and caretakers of common property.
1.3
Victorian regulation of owners corporations managers
Parts 6 and 12 of the Owners Corporations Act regulate owners corporation managers.
Together with the regulations made under the Owners Corporations Act, they (relevantly)
require managers to:

be registered with the Business Licensing Authority if acting for reward (known as a
professional manager);

have professional indemnity insurance sufficient to meet claims of up to $1.5 million;

be appointed using the approved form of contract (which reflects the manager’s
obligations under the Act but does not prescribe any terms) (known as a management
contract);
1
Strata Community Australia (Vic), Annual report 2012, available at
<http://www.vic.stratacommunity.org.au/Documents/Annual_Report_AGM_2012.pdf>.
Page 2 of 21
Issues Paper – Review of Regulation of Owners Corporation Managers

act honestly and in good faith;

exercise due care and diligence;

refrain from making improper use of their position to gain an advantage for themselves
or others;

hold money on trust and account separately for the money held for each owners
corporation;

submit a report of their activities to the annual general meeting;

report to the owners corporation committee, as required; and

return owners corporation records within 28 days of termination of their appointment.
A person is eligible for registration with the Business Licensing Authority if they are over 18
years of age and not a represented person or an insolvent person under administration.2
Registration is automatically cancelled if the manager becomes a represented person or an
insolvent person under administration. Registration can also be cancelled if a manager does
not lodge their annual statement with the Business Licensing Authority and pay the annual
fee, or if they obtained their registration through false or misleading information.3
Some recent incidents concerning the conduct of some owners corporation managers have
raised the question of whether stricter controls of managers’ conduct are required.
1.4
Interstate reviews
Queensland
Queensland has the largest owners corporation sector in Australia, arising from the many
apartment buildings in numerous resorts, principally on the Gold Coast.
In Queensland, owners corporation managers (known as body corporate managers), are
regulated by the Body Corporate and Community Management Act 1997 and associated
regulations.
Body corporate managers are not required to be licensed or registered in Queensland.
The developer is responsible for selecting one of five sets of ‘regulation modules’ applicable
to the type and size of the owners corporations. If the developer does not make a selection,
the default module is the Community Management (Standard Module) Regulation 2008
(commonly known as ‘the Standard Module’).4
In early 2012, Queensland’s Department of Justice and Attorney-General released a
discussion paper, Management Rights in Community Titles Schemes, which considered the
role of ‘resident managers’ (onsite ‘managers’ providing letting services and caretaking
services). Queensland’s discussion paper did not discuss the regulation of body corporate
managers who perform the administrative work of owners corporations.
Submissions to the Queensland discussion paper closed on 8 May 2012.
2
3
4
Section 179 of the Act.
Sections 186 and 190 of the Act.
Body Corporate and Community Management Act 1997 section 21(2); Community Management (Standard Module)
Regulation 2008, section 3(2).
Page 3 of 21
Issues Paper – Review of Regulation of Owners Corporation Managers
New South Wales
In New South Wales, owners corporation managers, known as strata managing agents, must
be licensed under the Property, Stock and Business Agents Act 2002 (Property, Stock and
Business Agents Act). The Property, Stock and Business Agents Act regulates the
way strata managing agents conduct business. In particular, it sets requirements for
management contracts and prescribed Rules of Conduct.
A management contract must be in writing and include the required terms for a strata
managing agent to be entitled to claim commission or expenses for their services. The
management contract must include details of such matters as the period of the contract,
how and when it can be terminated, renewal of a fixed term contract and rebates, discounts
and commissions. Among other matters, under the Rules of Conduct, a strata managing
agent must exercise due care and diligence and act in the owners corporation’s best
interests and according to its instructions.
The New South Wales Strata Schemes Management Act 1996 sets out the framework for the
management of strata schemes by their owners and establishes a dispute resolution process.
In September 2012, the New South Wales Office of Fair Trading released a discussion paper
on options to reform the Strata Schemes Management Act. In relation to strata managing
agents, the paper considers the following matters relevant to the current Victorian review:

the term of the initial management contract awarded by the developer and the terms of
contracts made after the first annual general meeting;

terms in management contracts that hinder the termination of underperforming
managers;

commissions received from service providers; and

professional management of large owners corporations.
Submissions on the New South Wales paper closed in November 2012. As at the date of the
publication of this paper, no announcement has been made as to the outcomes.
Page 4 of 21
Issues Paper – Review of Regulation of Owners Corporation Managers
2
Issues
Many owners corporations use paid professional managers to assist with finances,
insurance, administration, meetings and maintenance.5
An owners corporation may appoint a manager to carry out any powers or functions it is
able to delegate (matters that require an ordinary resolution and that do not require a
general meeting). The owners corporation usually delegates powers to a manager in a
management contract or instrument of delegation. This enables the manager to make
decisions on behalf of the owners corporation. The appointment must be in writing or
through a written contract.
2.1
Appropriate length of management contracts
This issue involves both the appropriate length of any fixed term of a management contract
and the process for renewal. Some management contracts, including initial and subsequent
contracts, can be entered into for long terms, and have automatic rollovers or extensions if
no cancellation notice is issued to the manager.
2.1.1 Discussion
Fixed term
At least until the lots in a development are sold, the developer has control of the owners
corporation. It is not uncommon for the developer, during this period, to enter into a longterm management contract, often with an associated entity.
Where the lots retained by the developer attract a majority of lot entitlements, its ability to
control the owners corporation, and therefore management contracts, extends beyond the
initial period.
Some stakeholders have suggested that developers enter into long-term contracts to
maintain control of the premises in case it takes several years to sell all the units; or to
ensure that the developer can deliver on promises made to purchasers regarding service
standards.
However, other stakeholders query whether it is in the best interests of other members, and
future members, for a developer to bind the owners corporation to a long-term
management contract. Some stakeholders also suggest that binding members to long-term
management contracts is not always in the interests of developers as an unsatisfactory
arrangement may harm the developer’s reputation.
Even where a developer does not have voting control, owners corporations sometimes enter
into long-term management contracts.
This can be because long-term contracts allow managers to engage in planning around
workforce capacity and other matters. Some stakeholders suggest that the workload in the
first few years of managing a new development is substantial and that a longer initial
contract gives the manager time to establish a well-functioning owners corporation.
5
Alternatively, some owners corporations may be self-managed on a voluntary basis by a committee or a lot owner who
has been delegated powers.
Page 5 of 21
Issues Paper – Review of Regulation of Owners Corporation Managers
Other stakeholders have suggested that some of the additional work in the first few years
can be taken into account when determining the appropriate fees, so that a longer-term
contract is unnecessary.
Process for renewal
The appointment of a manager may be terminated by an owners corporation not renewing
the management contract.
The management contract published by Strata Community Australia (Victorian Division)
requires the owners corporation to give 28 days notice of its intention not to renew the
contract, failing which the contract rolls over or extends for a further year, with the same
notice requirement applying subsequently.
Some stakeholders have suggested that it may be in the best interest of owners corporations
for the renewal process to be regulated by the Owners Corporations Act rather than left to
the contract, for example, by a limit on the length of time a manager can continue to
operate after an automatic extension of the contract. This would ensure that an owners
corporation has the opportunity to properly consider the re-appointment of a manager.
Other stakeholders have noted that automatic rollovers or extensions may sometimes be in
the owners corporation’s best interests as it can be difficult to establish quorums at
meetings to renew a contract. It has also been suggested that it is difficult to determine fees
for a shorter rollover period (such as a month) because managers’ charges are based on a
full year’s work.
An automatic rollover or extension may also be a convenient and effective arrangement
where an owners corporation wishes to continue with the engagement of their current
manager.
2.1.2 Current Victorian law
The Owners Corporations Act currently imposes general obligations that indirectly affect the
appropriate length of management contracts.
Section 68 requires a developer who owns a majority of lots to act honestly and in good faith
and with due care and diligence in the interests of the owners corporation.
This obligation only applies to a developer in the initial stage of the owners corporation, that
is, while the developer controls the owners corporation simply by owning a majority of the
lots. The obligation does not apply where, after the developer has sold a majority of the lots,
it retains lots to which a majority of lot entitlement is attached (it is lot entitlement that
essentially governs voting entitlement).
Section 5 requires an owners corporation to act honestly and in good faith and to exercise
due care and diligence. Similar obligations are imposed on members of the committee under
section 117 of the Owners Corporations Act.
Depending on its size, an owners corporation has different responsibilities and duties under
the Owners Corporations Act.
Small owners corporations, that is those with two-lot subdivisions, are exempt from many of
the legal requirements placed on owners corporations, such as the requirements for notices
of fees, insurance, record keeping, registers and the procedures for meetings and decision
making. Large owners corporations, that is those with 100 lot subdivisions or that collect
more than $200,000 in annual fees in a financial year (called ‘prescribed owners
Page 6 of 21
Issues Paper – Review of Regulation of Owners Corporation Managers
corporations’) have additional responsibilities including establishing a maintenance fund,
having financial statements audited annually and five-yearly valuations of buildings required
to be insured.
2.1.3 Interstate comparison
Queensland
In Queensland, the maximum length of a management contracts is three years, or one year
for small owners corporations (six lots or fewer).6
New South Wales
Currently in New South Wales, the term of the initial management contract awarded by the
developer is limited to the first annual general meeting.7
The New South Wales discussion paper canvasses views on further limiting the term of the
initial management contract. It also considers limiting the term of contracts made after the
first annual general meeting to five years and prohibiting automatic renewals.8
2.1.4 Consultation questions
1
Should there be more specific provisions in the Owners Corporations Act regarding the
appropriate length of management contracts?
2
If so, should management contracts entered into by the developer expire at the first
annual general meeting?
3
Should subsequent management contracts have a maximum length? If so, what should
that be?
4
Should the length of subsequent management contracts differ for large and small
owners corporations? If so, how should ‘large’ and ‘small’ owners corporations be
differentiated?
5
Should contract terms that allow an owners corporation manager to renew the
contract at its option be prohibited?
6
Should automatic renewals for a further term, where the owners corporation does not
serve a non-renewal notice, be prohibited? If so, and if the contract expires without
any agreement for renewal, should the Owners Corporations Act provide for a shortterm rollover (for example, on a monthly basis)?
7
Should the obligation under section 68 of the Owners Corporations Act be extended to
developers who maintain control of an owners corporation by holding a majority of the
lot entitlements?
6
7
8
Community Management (Standard Module) Regulation 2008, section 118; Community Management
(Accommodation Module) Regulation 2008, section 114; Community Management (Commercial Module) Regulation
2008, section 83; Community Management (Small Schemes Module), section 62; Community Management (Specified
Two-Lot Schemes) Regulation 2008, section 13.
Strata Schemes Management Act 1996, section 113(1).
New South Wales Office of Fair Trading, Making NSW No. 1 Again: Shaping Future Communities: Strata & Community
Title Law Reform Discussion Paper, pages 17-18.
Page 7 of 21
Issues Paper – Review of Regulation of Owners Corporation Managers
2.2
Unfair terms in management contracts
2.2.1 Discussion
Owners corporation managers may seek to insert certain contractual clauses to ensure the
stability of their businesses and to protect their investment in the event that they sell their
business.
However, the manager’s need for business security must be balanced with the need for
owners corporations to have flexibility in terminating the contracts of underperforming
managers.
Without limiting the generality of this issue, the particular terms in management contracts
that are in issue are terms that:

require steps to be taken by the owners corporation that are not required by the Act, for
example, a special or unanimous resolution, or the calling of a general meeting, where
the Owners Corporations Act permits an ordinary resolution or voting by a ballot;

require the owners corporation to –


approve an assignment of the management contract, or

deem approval of an assignment; or

allow assignment without the owners corporation’s consent;
hinder the termination of underperforming managers, such as long notice periods or
(high) fixed financial penalties.
Contract terms about termination
The Owners Corporations Act permits an owners corporation to terminate a management
contract by an ordinary resolution either through a ballot, including a postal ballot, at a
general meeting or by a resolution by the committee.9 In contrast, some management
contracts seek to limit the way a manager can be terminated.
For example, the management contract published by Strata Community Australia (Victorian
Division) states that the contract can be terminated by the owners corporation through an
ordinary resolution but only at a general meeting. Other contracts require that the manager
can only be terminated through a special or even a unanimous resolution, and at a general
meeting. Some stakeholders consider that a general meeting is required for termination
because it is inappropriate for a committee alone to remove a manager.
Early termination payments
While the Owners Corporations Act provides for an owners corporation to terminate a
management contract before it expires, termination without cause will normally give the
manager a right at law to recover any loss or damage suffered by the early termination. The
law requires the manager to mitigate any loss or damage by taking reasonable steps to find
alternative sources of income.
However, a contract can fix the amount that the owners corporation must pay the manager
on an early termination. For example, a management contract may require the owners
corporation to pay out the balance of fees payable under the contract for early termination,
or pay a fixed amount per lot. At law, these amounts are valid, regardless of the actual loss
9
Alternatively, any authorised delegate can remove an owners corporations manager without advising lot owners.
Page 8 of 21
Issues Paper – Review of Regulation of Owners Corporation Managers
or damage the manager suffers, only if they are a genuine pre-estimate of that loss or
damage.
Whether or not these amounts are valid is usually beyond the understanding of owners
corporations but their mere presence in the contract may discourage them from terminating
the contracts of underperforming managers.
In contrast to such terms, one stakeholder reports that because their management contracts
are generally not longer than one year, if a relationship with a manager is poor, termination
is negotiated and a small fee charged to prepare the final accounts and hand over
management. The Strata Community Australia (Victorian Division) standard contract has a
general fee for all terminations.
Assignment of management contracts
The trigger for assignment of a management contract is usually the sale of the manager’s
business: the business cannot be sold without transferring the management contracts to the
purchaser. Where a manager has contracts with multiple owners corporations, the value of
the business will depend on the transfer of all contracts.
The general position at law is that, unless the contract states otherwise, the consent of the
owners corporation is required for an assignment of the management contract but that the
consent should not be unreasonably withheld. For large management business, such as
those that manage 100 or more owners corporations, it can be difficult to get consents from
all owners corporations. On the other hand, it is important for owners corporations to be
able to vet the choice of the new manager.
Currently, different approaches to assignment are taken in industry in response to these
tensions. While the management contract published by Strata Community Australia
(Victorian Division) requires an owners corporation to approve the assignment of a
management contract to a professional manager of good standing with their association,
other management contracts allow assignment without the owners corporation’s consent.
Applicability of the Australian Consumer Law
A management contract is not a ‘consumer contract’ for the purposes of the provisions of
the Australian Consumer Law voiding unfair terms in consumer contracts.10 A ‘consumer
contract’ is a contract under which, among other requirements, goods or services are
supplied to an individual, that is, not to an incorporated body such as an owners
corporation.
Therefore, if the issue of unfair terms in management contracts is to be dealt with, it must
be through the Owners Corporations Act.
2.2.2 Current Victorian law
Section 119 of the Owners Corporations Act requires management contracts to be in the
approved form. However, that form, produced by Consumer Affairs Victoria, does not
require the exclusion of any particular terms or the inclusion of any particular terms apart
from the obligations currently in the Act.
Part 11 of the Owners Corporations Act empowers the Victorian Civil and Administrative
Tribunal to resolve a dispute relating to the exercise of a function by a manager by varying
any term of the contract or declaring a term void.
10
Part 2–3 of the Australian Consumer Law.
Page 9 of 21
Issues Paper – Review of Regulation of Owners Corporation Managers
2.2.3 Interstate comparison
Queensland
In Queensland, the assignment of a manager’s engagement requires the consent of the body
corporate, but this does not apply to the regulation modules for commercial schemes
(business premises), and small schemes (six lots or fewer).11
New South Wales
The New South Wales discussion paper canvasses feedback on a possible prohibition on
contractual terms that hinder the termination of underperforming managers, such as those
requiring long notice periods or early termination payments.12
2.2.4 Consultation questions
8
Should contract terms that require a step not required by the Owners Corporations Act
be prohibited?
9
Should terms that limit an owners corporation’s ability to prevent an unwanted
assignment of the management contract be prohibited?
10
If so, should an owners corporation be allowed to refuse consent to an assignment
only on reasonable grounds? Should it prima facie be unreasonable to refuse consent
to an assignee who is of good standing with an approved body, for instance, Strata
Community Australia (Victorian Division)?
11
Should terms that require an excessive period of notice for the early termination of a
management contract be prohibited? If so, what is a reasonable period of notice?
12
Should terms that require a pre-determined amount to be paid to the manager on
termination be prohibited?
13
Should the Victoria Civil and Administrative Tribunal have a clear power to deal with
unfair terms in management contracts, that is, without the need to show that there is a
dispute ‘relating to the exercise of a function by a manager’?
2.3
Managers’ fees
2.3.1 Discussion
This paper does not intend to question the appropriateness of fees charged by managers,
but to inquire whether any particular process should be put in place to ensure that owners
corporations enter into appropriate management contracts.
One such process could be a restriction on the length of contracts (see 2.1 above).
Alternatively, consideration could be given to the excessive commission provisions of the
Estate Agents Act 1980 (Estate Agents Act). Under section 56A of that Act, the Director of
Consumer Affairs Victoria can investigate any dispute between an estate agent and a client
concerning the amount of commission or outgoings. To promote awareness of this provision,
an agency authority, the equivalent of a management contract, must include a statement
11
12
Community Management (Standard Module) Regulation 2008, section 122; and Community Management
(Accommodation Module) Regulation 2008, section 120.
New South Wales Office of Fair Trading, Making NSW No. 1 Again: Shaping Future Communities: Strata & Community
Title Law Reform Discussion Paper, pages 20-21.
Page 10 of 21
Issues Paper – Review of Regulation of Owners Corporation Managers
advising a client that they may make a complaint about commissions to Consumer Affairs
Victoria.
2.3.2 Current Victorian law
The Owners Corporations Act does not contain any provisions bearing on this issue.
2.3.3 Interstate comparison
Queensland
In Queensland, the owners corporation committee must obtain at least two quotations if the
cost of the manager’s engagement will exceed either a spending limit previously set by the
owners corporation, or in the absence of such a limit, a limit set by a statutory formula. 13
This requirement does not apply to the regulation modules for commercial schemes
(business premises) and two-lot schemes.
New South Wales
Large strata schemes (more than 100 lots) that are spending over $30,000 in relation to one
item or matter must obtain at least two quotations.14
2.3.4 Consultation questions
14
Is the problem of owners corporations entering into management contracts with
excessive fees sufficiently addressed by appropriate controls on the length of
management contracts?
15
If no, should an owners corporation be required to obtain at least two quotations
before entering into a management contract?
16
If so, should that only be if the cost of the engagement exceeds a pre-determined
spending limit, in default, a limit set by the Act? If so, what should that statutory limit
or formula be (for example, multiplying the number of lots by a certain dollar value)?
17
Should Consumer Affairs Victoria have the power to investigate excessive commissions,
as per the Estate Agents Act?
2.4
Managers’ conflicts of interest
2.4.1 Discussion
Commissions
This issue focuses on commissions received by managers under services contracts they
arrange on behalf of the owners corporation.
Owners corporations enter into contracts with third parties for a range of services such as
insurance, security, gardening, maintenance and repairs. For arranging these contracts,
managers frequently receive commission, rebates or discounts from the service providers.
13
Community Management (Standard Module) Regulation 2008, section 153; Community Management
(Accommodation Module) Regulation 2008, section 151; and Community Management (Small Schemes Module),
section 87.
14
Strata Schemes Management Act 1996, section 80B and Strata Schemes Management Regulation 2010, clause 14.
Page 11 of 21
Issues Paper – Review of Regulation of Owners Corporation Managers
The most common source of commissions for managers is understood to be insurance
contracts.
Some stakeholders consider that insurance commissions inflate the price of premiums and
thus the cost of insurance for owners corporations, and influence managers to place
insurance policies with the insurer that offers the better commission, rather than choosing
the best policy for an owners corporation. For these reasons, they support insurance
commissions being prohibited, or at least, disclosed.
Industry stakeholders advise that arranging insurance and undertaking related activities such
as maintaining claims histories, collecting and paying premiums, and attending to the
administration of claims, may mean that a manager is providing financial services. Therefore,
some managers may be an authorised representative of an insurer that holds an Australian
financial services licence.
It is also said that insurance commissions may comprise up to 20 per cent of a manager’s
income.15 In these circumstances, it is argued that prohibiting insurance commissions will
either increase management fees (to compensate for lost income) or reduce the insurance
services provided by managers. In the latter situation, owners corporations may have to buy
those services from a broker or other intermediary thereby offsetting any fall in premiums.
In any case, it is argued either that premiums will not fall because commissions are
considered to be funded from the profits of insurers, and therefore, do not add to the cost
of premiums paid by owners corporations managers; or that they will not fall by any
substantial amount.16
Insurance commission arrangements are considered to be distinct and different from
commissions or rebates related to the granting of other service contracts by a manager on
behalf of the owners corporation.
However, in principle, the receipt of commissions and the awarding of contracts to itself or
its associates potentially involves a manager in a conflict of interest because the contracts
they arrange may not be in the owners corporation’s best interest, including that they may
result in higher prices being paid or lower-quality services being supplied than might
otherwise have been the case.
This raises questions as to whether the Owners Corporations Act should address conflicts of
interests in more detail and whether it is desirable or necessary to do so given that there are
offences in the Victorian Crimes Act 1958 regarding the receipt or solicitation of secret
commissions by agents of a corporation.17 Additionally, the Commonwealth Corporations Act
2001 regulates the provision of ‘financial services’, and sets out licensing requirements for
providers of financial advice in Part 7.6.
2.4.2 Current Victorian law
The Owners Corporations Act contains only general provisions about conflicts of interest.
Section 122 of the Owners Corporations Act requires managers to act honestly and in good
faith, to exercise due care and diligence and not to make improper use of their position to
gain an advantage for themselves or others. It has been suggested that a manager who fails
15
Strata Community Australia (Victorian Division), Policy Position, Version 3, 15 April 2013, page 60.
16
An article by CHU Insurance Agency in StrataLife, Spring 2013, Insurance Commissions: The myths and facts, states,
page 41, that ‘Commissions are paid on base premiums, and represent <10% of the total insurance cost.’
Crimes Act 1958, section 176.
17
Page 12 of 21
Issues Paper – Review of Regulation of Owners Corporation Managers
to disclose a commission may be in breach of the obligation to act in good faith.
Part 11 empowers the Victorian Civil and Administrative Tribunal to resolve a dispute
relating to the exercise of a function by a manager by revoking the manager’s appointment
or by imposing conditions or restrictions on the manager.
Additionally, at common law, the relationship between an agent and a principal is wellrecognised as one that gives rise to fiduciary duties on the part of the agent.18 In addition to
duties that have been codified in the Owners Corporations Act – such as the duty to act in
good faith and the duty to act with care, skill and diligence – the common law imposes on
agents an obligation not to be in a position of conflict and not to obtain any unauthorised
benefit from the relationship. 19
2.4.3 Interstate comparison
Queensland
In Queensland, managers must provide written disclosure of commissions, payments and
other benefits, and written disclosure of their relationships with suppliers.20
Additionally, managers’ conduct is governed by a statutory code set out in Schedule 2 of the
Body Corporate and Community Management Act 1997.
The Code of Conduct (the Code) is taken to be included in the terms of the management
contract, and in the event of an inconsistency between a provision of the Code and another
term of the contract, the provision of the code prevails.21
Contravention of the Code also entitles the owners corporation to terminate the contract.22
The Code, among other things, requires managers to:

act in the best interests of the owners corporation;

keep the owners corporation informed of significant developments or issues;

refrain from accepting appointments from other owners corporations that would place
them in a conflict of interest; and

take reasonable steps to ensure that goods or services they obtain for or supply to the
owners corporation are competitively priced.
Additionally, the committee must obtain at least two quotations if the cost of engaging a
service contractor will exceed either a spending limit previously set by the owners
corporation, or in the absence of such a limit, a limit set by a statutory formula.23
18
19
20
21
22
23
See, for example, Parker v McKenna (1874) LR 10 Ch App 96 at 119; and Hospital Products Ltd v United States
Surgical Corp (1984) 156 CLR 41 at 68 (Gibbs CJ).
See, for example, Breen v Williams (1996) 186 CLR 71 at 113 (Gaudron & McHugh JJ).
Community Management (Standard Module) Regulation 2008, sections 133-135 ; Community Management
(Accommodation Module) Regulation 2008, sections 131-133; Community Management (Commercial Module)
Regulation 2008, sections 92-94; Community Management (Small Schemes Module), sections 69-71. There are no
equivalent provisions under the Community Management (Specified Two-Lot Schemes) Regulation 2008.
Body Corporate and Community Management Ac 1997, section 118(1).
Community Management (Standard Module) Regulation 2008, section 131; Community Management
(Accommodation Module) Regulation 2008, section 129; Community Management (Commercial Module) Regulation
2008, section 90; Community Management (Small Schemes Module), section 68. There is no equivalent provision
under the Community Management (Specified Two-Lot Schemes) Regulation 2008.
Community Management (Standard Module) Regulation 2008, section 153; Community Management
(Accommodation Module) Regulation 2008, section 151; and Community Management (Small Schemes Module),
Page 13 of 21
Issues Paper – Review of Regulation of Owners Corporation Managers
New South Wales
As acknowledged in the New South Wales discussion paper, there are few provisions in the
Strata Schemes Management Act dealing with conflicts of interest. For example, a strata
managing agent cannot use a proxy to vote on a motion from which they may gain a
material benefit.24
However, section 57 of the Property, Stock and Business Agents Act, requires strata
managing agents to identify all rebates, discounts and commissions they will or may receive
from a service provider, such as an insurer, in their management contract.
The New South Wales discussion paper notes that there have been calls for the law to either
prohibit the receipt of commissions altogether, or for a requirement that they be fully and
openly disclosed at the time any decision on the matter is taken. 25
2.4.5 Consultation questions
18
Is the power of the Victorian Civil and Administrative Tribunal, together with the
existing obligations under the Owners Corporations Act, sufficient to deal with any
problem?
19
If no, should there be express prohibitions on the receipt of commissions or on
entering into transactions involving a conflict of interest?
20
Should there be a presumption that where a manager receives a commission or awards
a contract to itself or an associate, it has breached the section 122 obligation unless
the owners corporation approves the transaction, after full disclosure by the manager?
21
Should there be some further, particular obligations on managers, to supplement
section 122, such as:

an obligation to provide prior written disclosure of any benefits to be received from
contractors or of any relationship with a contractor; and/or

an obligation to take reasonable steps to ensure goods and services they obtain or
supply are at competitive prices?
22
2.5
Should there be a mandatory tendering process for all contracts above a predetermined limit; in default, above a limit set by the Owners Corporations Act?
Managers’ conduct
2.5.1 Discussion
This issue focuses on two, quite separate types of conduct:

inappropriate conduct in owners corporation elections and voting on resolutions; and

fraudulent conduct in dealing with owners corporations’ moneys.
24
25
section 87. This requirement does not apply to owners corporations operating under the Commercial Module
(generally business premises) or the Two-lot Schemes Module.
Strata Schemes Management Act 1996, Schedule 2, clause 11.
New South Wales Office of Fair Trading, Making NSW No. 1 Again: Shaping Future Communities: Strata & Community
Title Law Reform Discussion Paper, page 16.
Page 14 of 21
Issues Paper – Review of Regulation of Owners Corporation Managers
A related issue is the extent to which the current Victorian provisions regarding professional
indemnity insurance sufficiently address issues to do with fraud or other inappropriate
conduct.
Elections and voting
Given managers’ knowledge of and interest in the operation of their owners corporations
and the committees, members often seek their advice or opinion on matters involving
elections and voting on resolutions.
For example, a common and ongoing issue that many owners corporations face is the low
number of people who volunteer to serve on committees. The New South Wales discussion
paper notes that it is often the same group of people offering to serve each year, resulting in
little or no competition.26 Some stakeholders, therefore, have commented that it is an
appropriate use of the manager’s influence to encourage people to join the committee or to
attend a vote.
However, because managers occupy an influential, sometimes powerful position in owners
corporations, there is the potential for them to use that position to influence the outcome of
elections and voting on resolutions, the more so where they have obtained proxies from
(often, inactive) members.
The New South Wales discussion paper notes concerns about a practice referred to as ‘proxy
farming’, where individuals gather large numbers of proxy votes through harassment or
intimidation. However, it may also be possible for managers to influence outcomes of
elections and votes through conduct falling short of harassment or intimidation, such as
unfairly influencing or exerting pressure on lot owners.
Sometimes, a manager’s influence can be used to protect its interest in maintaining the
management contract. Even if the manager is simply trying to ensure the best outcome for
the owners corporation, partisanship for one side or the other can create or exacerbate
tensions within the owners corporation.
Fraudulent conduct
The problem of fraudulent conduct has been highlighted by some recent incidents involving
‘rogue’ managers who, for example, billed members for costs of utilities they did not use or
who billed the owners corporation for more than was actually spent, often in collusion with
the contractor.
With the increase in the number of very large owners corporations in Victoria, the volume of
funds that managers deal with has similarly increased, even since the policy underpinning
the Owners Corporations Act was developed in the early 2000s. This raises questions about
the incidence of fraudulent conduct, how it can be minimised and what, if any,
compensation should be available to owners corporations for managers’ fraud.
Of course, fraud is primarily addressed by the criminal law, particularly where a manager
simply steals the owners corporation’s money, but there is a role for the Owners
Corporations Act in ensuring that managers deal with owners corporation money
appropriately (see 2.6 below on record-keeping).
Some managers use separate bank accounts to keep moneys from the multiple owners
corporations they manage, while other managers keep pooled accounts and use modern
26
New South Wales Office of Fair Trading, Making NSW No. 1 Again: Shaping Future Communities: Strata & Community
Title Law Reform Discussion Paper, page 13.
Page 15 of 21
Issues Paper – Review of Regulation of Owners Corporation Managers
software packages to assist them in accounting separately for moneys from different owners
corporations.
Some of the owners corporations whose moneys are in a pooled account may be in surplus
and some in deficit. One manager is reported to have used its pooled account to purport to
lend money to owners corporations in deficit, at low interest rates. In fact, all the manager
did was to use money from the pooled account, in effect, from the owners corporations in
surplus, to fund the ‘loan’.
Another problem with pooled accounts is the interest earned, which belongs to each owners
corporation in proportion to its contribution to the pool. Some managers may not be
properly accounting to the owners corporations for their share of the interest or may be
converting it to their own use.
Some stakeholders have suggested that the experience of smaller owners corporations may
be different from that of larger owners corporations because the Fidelity Guarantee in
common strata insurance policies for small owners corporations protects them from
fraudulent conduct by the manager and the committee.
Professional indemnity insurance
Some stakeholders have suggested that prescribed owners corporations (consisting of more
than 100 lots or levying annual fees in excess of $200,000 in a financial year) 27 should be
required to have professional managers, who are required by section 119 of the Owners
Corporations Act to have professional indemnity insurance sufficient to meet claims of $1.5
million (such insurance does not cover claims arising from the manager’s fraudulent
conduct).
However, other stakeholders suggest that, in practice, most prescribed owners corporations
already have professional managers, and the required level of professional indemnity
insurance is significantly less than the level of cover many owners corporations have in
practice.
2.5.2 Current Victorian law
The Owners Corporations Act places some limitations on the practice of ‘proxy farming’. For
example, section 89 prohibits any person from requiring or demanding that a lot owner give
that person, or any other person, a power of attorney or a proxy. Section 87 of the Owners
Corporations Act allows a lot owner to appoint a proxy to vote on the lot owner’s behalf, but
the proxy lapses after a period of 12 months where an earlier period is not specified.
In more general terms, section 122 of the Owners Corporations Act requires managers to act
honestly and in good faith, to exercise due care and diligence and not to make improper use
of their position to gain an advantage for themselves or others; and to account separately
for the money held for each owners corporation by the manager (note that it does not
require managers to keep separate accounts).
Part 11 empowers the Victorian Civil and Administrative Tribunal to resolve a dispute
relating to the exercise of a function by a manager by revoking the manager’s appointment
or by imposing conditions or restrictions on the manager.
27
Owners Corporations Regulations 2007, clause 5
Page 16 of 21
Issues Paper – Review of Regulation of Owners Corporation Managers
In addition, professional managers, because they are acting in trade or commerce, are
subject to the prohibitions in the Australian Consumer Law on misleading, deceptive and
unconscionable conduct and false or misleading representations.
2.5.3 Interstate comparison
Queensland
Queensland does not require managers to be licensed or registered, or to have professional
indemnity insurance.
In relation to voting, Queensland imposes limitations on the practice of ‘proxy farming’. For
example, under the standard module regulations, an individual cannot hold proxies for
general meetings representing more than five per cent of total lots, or if there are less than
20 lots in a scheme, a person must not hold more than one proxy.28 For accommodation
schemes (predominantly rental premises) with more than 20 lots, an individual cannot hold
proxies representing more than 10 per cent of total lots. 29
Small schemes (six lots or fewer) and commercial schemes (business premises) are not
subject to these limitations.
Additionally, Queensland’s statutory Code of Conduct requires managers to:

have a good working knowledge of the legislation as it relates to their functions;

act honestly, fairly and professionally;

exercise reasonable skill, care and diligence; and

refrain from engaging in fraudulent, misleading or unconscionable conduct.
Examples of unconscionable conduct in the Code are:

taking unfair advantage of the person’s superior knowledge relative to the owners
corporation;

requiring the owners corporation to comply with conditions that are unlawful or not
reasonably necessary; and

exerting undue influence on, or using unfair tactics against, the owners corporation or lot
owners.
New South Wales
The New South Wales discussion paper considers Queensland’s approach to limiting proxy
votes, and other approaches including:

banning the solicitation of proxies;

imposing shorter expiry periods on proxies (for example, after one meeting); and

the South Australian model of absentee votes, requiring voting papers to be sent to
absentees after the meeting allowing them to vote ‘for’, ‘against’ or ‘abstain’, similar to
the system for voting on motions at general meetings of public companies. 30
28
29
30
Community Management (Standard Module) Regulation 2008, section 107.
Community Management (Accommodation Module) Regulation 2008, section 105.
New South Wales Office of Fair Trading, Making NSW No. 1 Again: Shaping Future Communities: Strata & Community
Title Law Reform Discussion Paper, pages 11-12.
Page 17 of 21
Issues Paper – Review of Regulation of Owners Corporation Managers
2.5.4 Consultation questions
23
Is the power of the Victorian Civil and Administrative Tribunal, together with the
existing obligations under the Owners Corporations Act, sufficient to deal with any
problem?
24
If not, should managers be prohibited from attempting to influence the outcome of a
vote or election? If so, should that be an outright prohibition or only a prohibition on
unfairly attempting to influence the outcome of a vote or election or on exerting
pressure to influence the outcome of a vote or election?
25
Should there be a specific restriction on proxies held by the manager where the
manager has an interest in the outcome of the vote, for example, should a manager be
excluded from holding proxies unless the proxy specifies how the manager holding the
proxy is to vote?
26
Would any problem better be addressed, at least for larger owners corporations, by
requiring them to engage only professional managers?
27
Should pooled accounts be prohibited and managers required to keep separate
accounts for each owners corporation they manage?
28
Should the Owners Corporations Act require managers to contribute to a Fidelity Fund
to compensate owners corporations for managers’ fraud?
29
Is the current prescribed minimum cover of $1.5 million for any professional indemnity
claim sufficient?
2.6
Managers’ record keeping
2.6.1 Discussion
The owners corporation itself has extensive record-keeping obligations under the Owners
Corporations Act. However, many managers hold significant amounts of money on behalf of
the owners corporation in their discharge of the owners corporations’ functions.
This issue focuses on whether the Act’s record-keeping obligations for managers are
sufficient, in particular whether managers are required to keep sufficient records of receipts
and expenditure of owners corporation money and of their exercises of delegated authority.
The keeping of sufficient records is obviously desirable in the interest of transparent
governance but so is the need, given the range of owners corporations, to ensure that any
one-size-fits-all solution does not burden too many managers with unnecessary
requirements.
2.6.2 Current Victorian law
Section 122 of the Owners Corporations Act restates the common law position that
managers holding owners corporation money do so as trustee. It also requires managers to
account separately for the money held for each owners corporation they manage.
Section 126 requires managers to report to the annual meeting on their ‘activities’ (which
would include their dealings with owners corporation moneys).
Page 18 of 21
Issues Paper – Review of Regulation of Owners Corporation Managers
Part 11 empowers the Victorian Civil and Administrative Tribunal to resolve a dispute
relating to the exercise of a function by a manager by revoking the manager’s appointment
or by imposing conditions or restrictions on the manager.
2.6.3 Interstate comparison
Queensland
Under the Code of Conduct that applies to managers in Queensland, managers must, on
request from the owners corporation, demonstrate that they are keeping the owners
corporation records as required under the legislation.
Additionally, it is an offence for a manager not to comply with the obligation to ensure there
are written receipts for payments out of the administrative or sinking fund.
New South Wales
Additionally, strata managing agents must make a written record of every exercise of a
delegated owners corporation function and serve a copy on the owners corporation.31
2.6.4 Consultation questions
30
Is the power of the Victorian Civil and Administrative Tribunal, together with the
existing obligations under the Owners Corporations Act, sufficient to deal with any
problem?
31
If not, should managers have the same record keeping obligations as the owners
corporation?
32
Should they simply have an obligation to record all receipts and expenditure of owners
corporation money?
33
Should owners corporations have the power to require managers to provide inspection
of whatever accounts are kept by the manager, including providing copies?
34
Should managers be required to keep a record of each exercise of a delegated function
and serve a copy on the owners corporation?
2.7
Unsuitable managers
2.7.1 Discussion
This issue focuses on whether some managers should not be permitted to manage owners
corporations, in particular, those found guilty of offences involving violence, drug trafficking
or fraud/dishonesty.
Managers hold an influential, responsible and privileged position in owners corporations.
Overwhelmingly, they have not abused that position. However, as some recent incidents
have shown, the position can be abused.
31
Strata Schemes Management Act 1996, section 31.
Page 19 of 21
Issues Paper – Review of Regulation of Owners Corporation Managers
In some respects, managers occupy a similar position with their clients as do estate agents.
For example, stakeholders have suggested that managers deal with significant sums of
clients’ moneys, and some owners may have as long a relationship with their owners
corporation manager as they may have with an estate agent who is managing rental
properties.
To ensure that only appropriate people hold estate agents’ licences, under the Estate Agents
Act an applicant is ineligible if they have, within the previous 10 years, been found guilty of
any offence involving fraud, dishonesty, drug trafficking or violence that is punishable by
imprisonment for three months or more. Additionally, a licence is automatically cancelled 30
days after a licensee has been found guilty of any such offence, if the licensee has not sought
permission to continue to work from the Business Licensing Authority. Those disqualified
have a right to appeal to the Victorian Civil and Administrative Tribunal.
If managers do, in fact, occupy a similar position in relation to their clients as estate agents,
this raises the question as to whether a similar disqualification process is needed for
managers, bearing in mind that unlike estate agents, many managers operate in a voluntary
capacity.
If registered (professional) managers are comparable to estate agents, there are questions
as to how and if the Owners Corporations Act should deal with the manager’s officers and
employees. The licensing regime under the Estate Agents Act deals with the individual
officers and employees of an estate agency as well as any corporate vehicle, whereas the
registration regime under the Owners Corporations Act contains no jurisdiction over officers
or employees of registered managers.
Consideration is currently being given to a national licensing scheme for a number of
property occupations, including owners corporation managers. The current proposal is for a
licensing scheme for owners corporation managers (to be called ‘strata managing agents’)
with eligibility criteria, including personal and financial probity and mandatory training. A
decision on national licensing is due by the end of 2013.
2.7.2 Current Victorian law
Section 119 of the Owners Corporations Act requires an owners corporation, if it intends to
engage a professional manager, to engage one registered with the Business Licensing
Authority. The registration scheme for managers under Part 12 makes ineligible anyone who
is under 18, a represented person,32 or an insolvent person.
Registration can be cancelled if the manager does not lodge an annual statement and pay
the annual fee, becomes a represented person or insolvent, or obtained registration through
false or misleading information.
2.7.3 Interstate comparison
Queensland
Queensland does not require managers to be licensed or registered, or to have professional
indemnity insurance.
32
A person subject to a guardianship or administration order under the Guardianship and Administration Act 1986.
Page 20 of 21
Issues Paper – Review of Regulation of Owners Corporation Managers
However, Queensland’s statutory Code of Conduct requires managers to:

have a good working knowledge of the legislation as it relates to their functions;

act honestly, fairly and professionally;

refrain from attempting to unfairly influence the outcome of a committee election;

exercise reasonable skill, care and diligence;

act in the best interests of the owners corporation;

keep the owners corporation informed of significant developments or issues;

refrain from engaging in fraudulent, misleading or unconscionable conduct;

refrain from accepting appointments from other owners corporations that would place
them in a conflict of interest; and

take reasonable steps to ensure that goods or services they obtain for or supply to the
owners corporation are competitively priced.
New South Wales
Strata managing agents in New South Wales are, like estate agents, subject to the licensing
regime in the Property, Stock and Business Agents Act, which requires, among other things,
that they demonstrate that they are a fit and proper person to hold a licence, and are not a
‘disqualified person’.33
A ‘disqualified person’ includes, among other things, a person convicted for an offence
involving dishonesty that was recorded in the last 10 years.34
2.7.4 Consultation questions
35
Should there be a criminal record check for managers, including officers or employees?
36
If so, should the test reflect that in the Estate Agents Act? If not, what are appropriate
disqualification provisions?
37
Should the test extend to voluntary as well as professional managers?
33
34
Strata Schemes Management Act 1996, section 26; Property, Stock and Business Agents Act 2002, section 14.
Property, Stock and Business Agents Act 2002, section 16.
Page 21 of 21