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Owners Corporation update: New rules to govern owner’s corporation management contracts

Dec 18, 2014

A Bill has been passed by the Upper House of the Victorian Parliament which when passed by the Lower House and made operative will have dramatic, and some say drastic, effects on owner’s corporation management contracts and the activities of owner’s corporations managers.

The purpose of the changes

The proponents of the Bill claim that the amendments proposed will empower an owner’s corporation to more effectively than at present deal with a Manager whose services are unsatisfactory.

They also claim that the amendments will strengthen professionalism and accountability of Managers and will foster healthy competition between Managers in respect of the level and quality of services they provide.

The Bill proposes to make the following amendments to the Act:

Contract of Appointment

  • Appointment of a Manager must not exceed 3 years subject to some exceptions which will be prescribed in regulations.
  • A contract of appointment of a Manager (‘Contract’) must not include a term that restricts an OC from revoking the appointment of the manager by having to:
    • pass a special resolution, unanimous resolution or any other resolution that requires more than a simple majority; or
    • convene a general meeting of the OC; or
    • take any other prescribed step.
  • A Contract must not include a term that:
    • allows the Manager to renew the contract at its option; or
    • requires prescribed OCs to give 3 months’ or more notice, or any other OCs to give one month’s or more notice, of its intention to revoke the appointment of the Manager; or
    • renews the Contract if the OC fails to give notice; or
    • reduces the ability of the OC to refuse consent to an assignment of the contract, other than a requirement that such consent must not be withheld unreasonably.
  • Where an OC fails to give notice to renew a Contract, the Contract is taken to be rolled over on monthly basis or shorter period if specified in the Contract.
  • If a Contract requires consent to assignment of management, consent must not be withheld unreasonably.
  • Withholding of consent to an assignment of a Contract to a full member of professional bodies or associations that are approved by the Director of Consumer Affairs from time to time, will be deemed to be unreasonable. 

Quotes for goods and services

  • Goods and services obtained by the Manager on behalf of the OC must be obtained at competitive prices and on competitive terms.

Funds management

  • Managers are required to keep monies held on trust for separate corporations in separate bank accounts.
  • The OC may request from Managers copies of bank statements for accounts held by the Manager containing trust monies for up to three years.
  • It is an exception to hold money held on trust for separate OCs in the same account if:
    • the OCs are in the same subdivision and each OC has consented to the money being held in the same account; or
    • the account is a statutory trust account held by a licensed real estate agent, legal practitioner or licensed conveyancer.

Manager’s beneficial disclosure

  • Managers are required to disclose certain beneficial relationships with a supplier of goods or services.
  • The Manager’s disclosure of a beneficial relationship must be given in writing to the OC immediately once the Manager becomes aware of the beneficial relationship and before entering into the Contract.
  • In emergency situations, where it is necessary for the Manager to enter into a Contract and it is not reasonably practicable for the Manager to make disclosure prior to entering the Contract, the Manager must make disclosure as soon as practicable after entering into the Contract.
  • If a Manager is entitled to receive a commission, payment or other benefit, the Manager must give written notice to the chairperson of the OC disclosing same.

When will the changes become effective?

The Bill has only been passed in the Upper House.

The legislative program of the new State Labour Government is not yet known so it is not known when this Bill will be presented again to Parliament and if then passed when the various provisions will be made effective.

Given, however, that the amendments are seen as ‘protection for consumers’ it is our view that the new Government will bring the Bill before Parliament and that it will be passed sooner rather than later.

We will issue further update bulletins in this regard.

What you should do

Reflect on changes or improvements that would need to be made to your management operations and contracts in light of the amendments proposed by the Bill. 

The quiet time at the end of the year and at the start of a new year may be an appropriate time to carry out that review. 

More information

To discuss your rights and options as manager with respect to the proposed amendments, including a review of your management contracts, 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.