26 November 2013
Review of the regulation of owners corporation managers
Owners Corporations Act 2006
Issues Paper
Submission
Owners Corporation Act Review
Regulation and Policy division
Consumer Affairs Victoria
GPO Box 123
Melbourne Vic 3001
Email: cav.consultations@justice.vic.gov.au
Introduction
Consumer Affairs Victoria (CAV) is currently undertaking a review of the provisions under the Owners
Corporations Act 2006 that regulate the conduct of owners corporations managers.
The Minister for Consumer Affairs has asked CAV to review the provisions of the Act in relation to:
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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 purpose of the review is to identify and develop options for consideration by the Minister for
Consumer Affairs.
As part of this review, the Minister for Consumer Affairs has approved the release of an issues paper
for public consultation. The purpose of the issues paper is to seek stakeholder feedback on the
above issues, and if needed, the approaches to addressing the issues, including any regulatory
controls.
The issues paper is available at: http://www.consumer.vic.gov.au/ocmanagersreview
This submission is to be read in conjunction with the issues paper and point numbering matches the
issues paper. References to legislation refer to the Owners Corporations Act 2006 (the OC Act).
1
General
The Real Estate Institute of Victoria Limited (REIV) welcomes this review but also believes that a
review of the entire Owners Corporations Act 2006 is warranted. The Act has been in force for
almost 6 years and the REIV believes that some sections of the Act require clarification.
2
Issues
2.1
Appropriate length of management contracts
Consultation Questions:
1
Should there be more specific provisions in the Owners Corporations Act regarding
the appropriate length of management contracts?
No. Management contracts are normal commercial agreements between parties and
existing consumer laws provide adequate protection.
2
If so, should management contracts entered into by the developer expire at the first
annual general meeting?
No. It is normal for a developer to appoint a manager at the first AGM to ensure the
owners corporation is fully operational before the first settlements occur. Section 68
set out the obligations of the developer and it could be argued that by not appointing
a manager, a developer may not have acted in good faith and with due care and
diligence in the interests of the owners corporation. A manager’s workload in the first
few years of managing a new development is substantial and long term contracts
provide certainty to a manager and confidence to employ adequate staff.
3
Should subsequent management contracts have a maximum length? If so, what
should that be?
No. Should there be a decision to regulate, a maximum term should not be less than 5
years.
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?
No.
5
Should contract terms that allow an owners corporation manager to renew the
contract at its option be prohibited?
Yes.
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 short-term rollover (for example, on a monthly basis)?
No. The REIV would support a requirement for managers to provide to an owners
corporation notice of the date of expiry of the contract. This could be provided up to
15 months prior to expiry noting that most owners corporations only meet annually
and the period between meetings must not exceed 15 months. If notice is not
provided and a contract rolls over, the new period could be limited to 12 months from
the date of notice being provided or until a resolution of the owners corporation to
accept the new term.
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?
Yes. The term under section 68(3) should be extended to 10 years.
2.2
Unfair terms in management contracts
8
Should contract terms that require a step not required by the Owners Corporations
Act be prohibited?
No. The parties should be free to contract on terms that are not included in the Act.
Section 82 enables certain decision of an owners corporation that may be determined
by ordinary resolution to only be taken at a general meeting. This section is often used
to ensure that all owners have a say in a change of manager and it is reasonable to
have similar provisions in management contracts. The resolution to terminate a
manager should be limited to a normal resolution (mirroring the OC Act) with a
requirement for a special or unanimous resolution excluded.
9
Should terms that limit an owners corporation’s ability to prevent an unwanted
assignment of the management contract be prohibited?
No. Managers should have the right to assign management contracts within the scope
of relevant clauses in the contract.
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)?
It should be 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); the Real Estate Institute of Victoria Limited; CPA Australia;
Institute of Chartered Accounts; and National Institute of Accountants.
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?
Yes.
For non-prescribed owners corporations – 1 month.
For prescribed owners corporations – 3 months.
12
Should terms that require a pre-determined amount to be paid to the manager on
termination be prohibited?
No. Provided that clauses are fair and VCAT should have power to determine what is
fair.
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’?
Yes.
2.3
Managers’ fees
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?
Yes. There is no need for additional regulatory control.
15
If no, should an owners corporation be required to obtain at least two quotations
before entering into a management contract?
No. This option is already available to owners corporations.
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)?
Not applicable.
17
Should Consumer Affairs Victoria have the power to investigate excessive
commissions, as per the Estate Agents Act?
No. There is significant competition with owners corporation managers when
tendering for managements ensuring competitive pricing.
2.4
Mangers’ conflicts of interest
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?
Yes.
19
If no, should there be express prohibitions on the receipt of commissions or on
entering into transactions involving a conflict of interest?
No.
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?
Full disclosure by managers of relationships that provide income to the manager must
be disclosed. This is usually done in the management contract but can also be by
written disclosure to the owners corporation or at a general meeting. Any failure to
disclose would presumably be seen as a breach of s.122.
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?
Yes. The REIV supports an expansion of s.122 to make it clear that reasonable steps
are to be taken to ensure competitive prices are obtained for goods and services
secured by the manager for the owners corporation. This is in addition to
requirements to disclose relationships.
22
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?
No. Owners corporations make final decisions to enter into contracts and have the
ability to require multiple quotes on services and contracts being considered. Large
contracts often include independent professional advice prior to acceptance e.g.
engineering analysis of proposed building works. Large owners corporations with high
sums insured are more likely to seek quotes for insurance services from multiple
insurers or utilise the services of an insurance broker that fulfils that role.
2.5
Managers’ conduct
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?
Yes. As a provider of services, Australian Consumer Law also applies to managers.
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?
The provisions of sections 89 and 122, and a prohibition on managers using proxies to
vote on matters that benefit the manager, are sufficient controls.
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?
No. Existing restrictions on proxies are adequate.
26
Would any problem better be addressed, at least for larger owners corporations,
by requiring them to engage only professional managers?
The majority of larger owners corporations currently engage professional managers.
The REIV supports professional management for Prescribed Owners Corporations.
27
Should pooled accounts be prohibited and managers required to keep separate
accounts for each owners corporation they manage?
Pooled accounts should only be permitted when contained in a statutory trust account
such as an estate agent’s trust account. These accounts are subject to stringent
regulatory control and global audit.
At present, pooled non-statutory trust accounts used by owners corporation managers
are not able to be audited on a global basis and owners corporations are denied
access to view the bank account as it includes fund belonging to other owners
corporations. The risks associated by pooled accounts and identified in the issues
paper under Fraudulent Conduct are very real.
Choices should be limited to individual bank accounts or pooled statutory trust
accounts.
28
Should the Owners Corporations Act require managers to contribute to a Fidelity
Fund to compensate owners corporations for managers’ fraud?
No. This burden should not be imposed on managers.
The statutory provisions related to the Victoria Property Fund should be amended to
permit claims related to owners corporations. Whilst owners corporation funds would
not be generating interest to the VPF, as lots affected by an owners corporation are
bought and sold, the deposits are generally held in estate agent’s trust accounts and
interest does accrue to the VPF.
29
Is the current prescribed minimum cover of $1.5 million for any professional
indemnity claim sufficient?
No. The REIV believes this sum is inadequate and should be increased to $2 million.
The REIV requires all its members to have a minimum of $2 million as a condition of
membership. The level set prior to 2008 under the Subdivision (Body Corporate)
Regulations was $2 million.
2.6
Managers’ record keeping
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?
Yes.
31
If not, should managers have the same record keeping obligations as the owners
corporation?
Not applicable.
32
Should they simply have an obligation to record all receipts and expenditure of
owners corporation money?
The current obligations are adequate.
33
Should owners corporations have the power to require managers to provide
inspection of whatever accounts are kept by the manager, including providing
copies?
The current obligations are adequate.
34
Should managers be required to keep a record of each exercise of a delegated
function and serve a copy on the owners corporation?
The current obligations are adequate.
2.7
Unsuitable managers
35
Should there be a criminal record check for managers, including officers or
employees?
Yes. National licensing of strata managers will require personal and probity
requirements. Until national licensing is implemented, it is recommended that the
proposal in q.36 be followed.
36
If so, should the test reflect that in the Estate Agents Act? If not, what are
appropriate disqualification provisions?
Yes. The REIV supports an Officer in Effective Control position for corporate managers
to ensure an individual has responsibility. The Officer in Effective Control must also be
subject to probity requirements.
37
Should the test extend to voluntary as well as professional managers?
Yes.