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Owners Corporation update: Is your Management Contract enforceable?

May 31, 2012

Any owners corporation management contract that may be regarded as unfair may be unenforceable by the manager. This may lead to the manager being unable to recover fees for services provided or to refund fees paid.

VCAT has broad powers under the Australian Consumer Law regarding unfair management contracts. It can bring to an end an entire management contract if it is unfair, declare that contract void (that is, declare that it is to be regarded as having never been an enforceable contract) or end or declare void a part of the contract.

The result may be that not only will the manager’s rights for future fees be brought to an end, but the manager may also have to repay fees it has already been paid.

Clearly from a manager’s point of view making sure its contract will not be regarded as ‘unfair’ is critical.

It appears however, that at present many contracts being used by owners corporation managers would be regarded as ‘unfair’ under the Australia Consumer Law which has been applicable to contracts made in Victoria since July 2010.

What is an unfair term?

Under the Australian Consumer Law, a term is ‘unfair’ when:

  • it causes a significant imbalance in the parties’ rights and obligations arising under the contract;
  • it is not reasonably necessary to protect the legitimate interests of the supplier; and
  • would cause financial and non-financial detriment to a party.

Examples of common terms in contracts that may be ‘unfair’:

Term of contract

There is a common practice in the industry to include a clause in the contract which stipulates that the management contract will roll over for a further term if the owners’ corporation does nothing to end the contract.

If the owners’ corporation members are not aware of the term of the contract, the automatic roll over term creates a significant imbalance.

This term may be regarded as unfair because:

  • it is not reasonably necessary as there is an opportunity at every AGM for the manager to seek re-appointment; and
  • the owners’ corporation faces the financial burden of having to potentially continue the contract for another term before being able to end the contract.

Termination of contract

Many standard contracts have a provision that requires a termination notice be approved at an AGM and be given to the manager some time before (often at least 28 days before) the expiry of the current term.

AGMs can be held at any time during the year and may not necessarily coincide with the term of the contract. Added to the fact that many lot owners and committees are not always aware of the term of the management contract, this may make clauses like these difficult for owners’ corporations to comply with.

This provision in the contract may therefore be regarded as unfair.


The Act requires that any appointed manager be a registered manager and that the manager have professional indemnity insurance. The purpose of this is to protect owners’ corporations against negligent acts by their managers.

In spite of this, there are contracts being used which have clauses which remove or limit liability of the manager for all acts except those relating to fraud.

These clauses will probably not stand up to the unfair test and a manager may have difficulty relying on a clause of that type when faced with a negligence claim.

What managers should do now

Owners’ corporation managers should review the contracts they currently use especially if these contracts:

  • have not been reviewed since July 2010; and
  • were not prepared or reviewed by a lawyer (Even many ‘standard form’ contracts may be regarded as ‘unfair’ under the Australian Consumer Law).

A comprehensive management contract should set out clearly the manager’s responsibilities and the respective rights and obligations of the manager and the owners corporation.

If a contract is ‘fair’, it should protect the manager from the potential of a lot owner issuing proceedings in VCAT seeking a declaration that the contract should be amended, terminated or declared void.

More information

If you would like us to review your contract, please contact Anton Block, Principal Lawyer and Head of Owners Corporation, on (03) 8600 8833 or ablock@kcllaw.com.au.

Note: This update is a guide only and is not intended to constitute legal advice.