Management

When will they ever learn?

It is a source of constant amazement that bodies corporate, and quite often their lawyers, take on battles against resident managers that they cannot win.

Maybe the bodies corporate can be excused for knowing no better but the advice and actions of their lawyers can hardly be excused. Perhaps our policy of not acting for a body corporate in a dispute with a resident manager means that we have a much better understanding than other firms of how to protect resident managers in such disputes. Cynics might also suggest that lawyers acting for bodies corporate have an interest in prolonging disputes rather than trying to arrive at an early resolution.

Our policy of not acting for a body corporate in a dispute with a resident manager came under fire some time ago by another lawyer who suggested that we could not really understand these types of disputes unless we also acted for bodies corporate. Interestingly, we are now acting for a former client of that other lawyer in an acrimonious dispute where the other lawyer is acting for the body corporate against his former client. I prefer our policy to his.

It has also been our policy that where differences arise between a body corporate and a resident manager arise, every effort should be made to resolve those differences as amicably and as early as possible. The parties should do whatever they can to avoid an escalation of the matter to the point where they are fighting each other in QCAT or elsewhere.

We have successfully utilised the services of an experienced third party mediator or facilitator to resolve differences. Such a person may be able to demonstrate to the manager where the manager is not performing the duties to the requisite standard or may be able to demonstrate to the committee that its expectations are too high – expecting a five-star standard but having an agreement and paying a salary that can only deliver a three-star standard. Such an approach might also lead to a genuinely poor manager agreeing to move on.

So the first lesson for bodies corporate is to settle their differences by conciliation rather than confrontation. Regrettably many committees prefer to just issue a remedial action notice in the false expectation that they will somehow be able to terminate the management rights agreements. Such a step causes an immediate escalation of the dispute. More often than not these notices, even those drafted by lawyers with supposed expertise, do not comply with the strict requirements of the legislation. We see notices that claim rectification of an alleged breach that occurred in the past, notices that allow only 14 days to remedy something that in all the circumstances requires a longer period to be rectified and notices that do nothing more than demand compliance in the future with provisions of the agreement. None of those sorts of notices are valid yet they are regularly issued.

We also see many circumstances where a remedial action notice is issued by the committee that has one or more dictatorial type members when the owners at large do not support what the committee is doing. That sometimes leads to the manager and other owners instigating the removal of those committee members at an EGM, a tactic we have used successfully a number of times.

The second lesson for bodies corporate then is to use a remedial action notice only as a last resort and make sure that the majority of owners support such a step.

Of course even if a remedial action notice is validly issued and the manager fails to comply, contrary to what many committee members seem to believe or get advised, that does not lead to a termination. There still needs to be a resolution to terminate passed at a general meeting. The manager will no doubt do all that can be done to prevent that and it is rare that such a motion is passed. Even if it is there can be no termination for two reasons.

First, most managers would seek an injunction restraining the body corporate from terminating the agreements on the basis that the remedial action notices were invalid or had been complied with.

Secondly, where (as in almost all cases) a bank has a charge over the management rights, the body corporate must notify the bank of the proposed termination and give the bank the opportunity (which it invariably takes) to step in and take over the business. If the bank does so it then sells the business to a new manager. We are often surprised that bodies corporate are not aware of and are not advised by their lawyers of these rights given to banks.

So the best the body corporate can hope for – after spending tens of thousands of dollars – is to replace one manager with another, an outcome which, where the real problem was in fact the manager’s poor performance, could have been achieved without spending anything like that.

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