Beware the Office of Fair Trading
In the current economic times it is probably not surprising that we have seen a significant increase in complaints by owners to, and consequent investigations by, the Office of Fair Trading in relation to the way resident managers charge owners for various services.
As occupancy levels and accommodation tariffs have fallen in recent years in most holiday destinations in Australia, disgruntled owners have been looking closely at their diminishing returns and demanding absolute accountability from their resident managers. As such owners have been quick to complain to the Office of Fair Trading if they perceive that a manager is overcharging or making a profit from services provided.
While it is fair to say that many unit owners misunderstand the role of their manager and do not appreciate that it is appropriate that the manager be entitled to some profit from the myriad of services the manager provides beyond just the prescribed rate of commission, it is equally fair to say that many managers misunderstand how they should go about charging and recovering this profit.
We have in recent months handled a large number of matters for resident managers who have found themselves the subject of such investigations. In recent times I have written many articles about the importance of resident managers having all of their letting appointments in place and compliant with the Property Agents and Motor Dealers Act. Much of what I have written about concerns the letting appointments being assignable as assignable letting appointments are critical to a successful sale.
But resident managers should never under estimate the importance of letting appointments generally. Like so many factors in any business, you really never know how important something is until a problem arises. This is so true of letting appointments.
I am aware of a number of investigations by the Office of Fair Trading triggered by complaints from owners about letting appointments. Unfortunately in many cases the complaints are justified and in more than one occasion the OFT has launched a prosecution.
It would take me pages and pages to set out all of the important aspects of your letting appointments. The subtle difference between putting your advertising levy in the PAMD Form 20a as a charge rather than an expense, the need to specify the management fee quite distinctly from commission or the careful way in which you must deal with any profit or mark up you make in providing services to your owners are just some examples.
Recently an old chestnut raised its head again, that of properly dealing with providing gardening services to tenants. There is the right way to do this, so that the income is lawfully earned by you as manager and quite able to be included in the income of the business to which the multiplier will be applied. Then there is the wrong way which if followed results in you breaching the residential tenancies legislation and precludes the income for that service from being included in the verifiable income of the business.
Another common pitfall is the way that leasebacks or guaranteed returns to owners are dealt with. Most valuers will ignore or reduce considerably the multiplier on, income derived from leasebacks so understandably managers prefer some form of guaranteed return to the owner in their letting appointment. But this requires careful wording to avoid potential PAMDA and GST problems.
We have also helped managers come up with alternative ways of dealing with the complaints they get from the myriad of charges they face each month from the rent collected on their units. By working on a commission and either a flat but relatively high management fee to cover these charges or a combination of a management fee and just some charges, we have been able to assist managers keep their owners happy.
Many of our astute clients have sought our help in getting their letting appointments in order. Managers should not wait for the OFT to come knocking on the door before realising the importance of getting all the seemingly little things about their letting appointments right.
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