Opposition to Extensions to Agreements – Some Balance in the Debate

Bodies corporate are regularly asked by resident managers to extend or renew management rights agreements.

Mostly this is done with a minimum of fuss, particularly where the owners have had a good experience with their resident manager. Occasionally the manager’s request is met with opposition and hostility. This article may be one that other managers in similar situations can show to their owners to help restore some balance to the debate.

Management rights have in their 40 or so years been subject to many extensive reviews and legislative changes. The current legislation is the culmination of a major review in the early 1990s, the mid 1990, the late 1990s and the early 2000s.

At the time of each review, interest groups particularly the Unit Owners Association of Queensland, played an active role and were very vocal in their demands, complaining vigorously about management rights and demanding all sorts of changes that would have all but destroyed the management rights industry. Representatives from the body corporate management industry, the tourism industry, the management rights industry and the REIQ also took part in the debate. The resultant legislation came about after the arguments and submissions of all interested groups were scrutinised and balanced.

The mechanism where the term of an existing agreement could not be extended other than by way of a variation to the agreement to add a further option was the result of extensive discussion and scrutinisation. Strict rules for doing that were set – secret ballot, only one variation in any year, the circulation of a summary of the existing agreement and a maximum of five years for the option period.

The legislation recognises the importance of stability in the management of buildings. The reality is that history has shown that in large community titles schemes, management rights, where the resident manager has a vested interest in the complex and the business, is the most efficient and effective form of management, providing sound on-site management and good returns for letting owners.

That is not to say that there are not some bad managers. There are, but the legislation (and usually the agreements themselves) provide mechanisms to effectively deal with the relatively small percentage of problem managers.

Management rights, for their success, depend on a sound tenure. That is something that a manager and a financier seek and is the reason why managers regularly seek to “top up” their agreements back to the initial term (by adding a further option) as provided for in the legislation. The industry recognises that a body corporate is not obliged to extend the term of existing agreements but believes there are sound commercial reasons why it should.

It is in the interests of a body corporate to have viable, stable long term agreements in place. Such agreements give a body corporate the best chance of attracting a good manager.

The manager’s significant financial investment in the building is the principal reason why management rights work. Extending well drafted agreements allows a body corporate to lock in the performance or other standards. It shows the manager that he or she has the support of the owners giving the manager both confidence and enthusiasm, something that benefits all owners.

Some opponents suggest that the term of agreements should not be extended as to do so in some way means that the body corporate is giving away control of the building to the manager. Such claims are often made by opponents who want to control and dominate (and often bully) the manager but find that the legislation actually ensures that the relationship is more balanced than they would like. Because they can not dominate and bully, they resort to claims that the manager has all the control.

What they are really complaining about is not that the owners have lost control but rather that they themselves can not control and dominate the manager and other owners.

They also argue that extending existing agreements takes away the option for a body corporate to put the management rights out to tender or implement a new management system, at the end of the term.

Until recently these opponents were hailing the decision at one large Brisbane building that refused to extend the manager’s agreements, allowed them to come to an end, put the management out to tender and appointed the successful tenderer to the position of manager. The experiment was a disaster. All sorts of security and other problems arose because the replacement manager did not reside on-site or have an on-site presence. The body corporate had to pay the newly engaged off-site manager $250,000 compensation for the early termination of its agreement. Not surprisingly owners have since voted overwhelmingly to abandon the unsuccessful experiment.

As the chairperson commented:-

“It is apparent from the dismal failure we experienced that if the on-site manager does not have a financial investment in the building or does not face a financial risk in the case of poor performance, there is little incentive to perform to an acceptable standard. It is my observation that an on-site manager must have a vested financial interest in the complex and the business in order to ensure an appropriate level of performance and accountability.

“The proponents of the new system claimed it would give the body corporate or the unit owners more control. In fact we finished up with less control, more problems, increased levies, many disputes, massive legal costs and the body corporate having to pay huge compensation for damages for dismissing the new manager.”

Extending existing agreements is a common and well recognised practice. It offers real advantages to managers and bodies corporate.

John Mahoney
Mahoney Lawyers 

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