Always Read the Fine Print: What to Look For in Strata Management Contracts
As the number of strata and community developments continues to rise across Australia, the role of professional strata managers has never been more critical. Schemes should take their time not to rush into management agreements based solely on cost, warning that the true value and potential pitfalls lie in the contract’s fine print.
Understanding the Strata Management Agreement
A strata or community management agreement is the cornerstone of a scheme’s administration. It is a legally binding contract between the scheme representing all lot owners, and a strata management agent or individual. This agreement not only formalises the relationship but also details the agent’s responsibilities, the range of services to be provided, the fee structure, and the rights and obligations on both sides.
Key Elements to Examine Before Signing
Schemes should review several critical components within any proposed agreement:
Parties Involved: Clearly identify all parties bound by the contract, including the scheme and the appointed strata manager or management company.
Term of Agreement: Specify the contract’s start date and duration. For instance in New South Wales, for instance, contracts signed by a developer before the first annual general meeting are limited to 12 months, ensuring new owners have the opportunity to review or renegotiate terms. After that terms are capped at 3 years.
Scope of Services: Ensure the agreement lists all services to be provided. Standard inclusions should cover administrative duties (such as meeting coordination and record keeping), financial management (like budgeting, levy collection, and accounting), maintenance coordination, and assistance with by-law compliance. Missing services can lead to disputes or unexpected costs later. Look out for full delegation agreements, as these can allow an Agent carte blanche. It is best to have limited delegation with specified authorities.
Fees and Charges: Look beyond the base management fee. Contracts should clearly itemise all charges, including disbursements (such as postage, photocopying, travel, portals, and software), as well as additional fees for services outside the regular scope, such as specialist advice, time-consuming matters, mediating disputes, and tribunal and court attendances. Low management fees often come with high additional charges, limited inclusions or no delegations, so reading the fine print is essential.
Termination Clauses: Understand how and when the contract can be ended. Well-written clauses will outline notice periods and conditions for termination, such as poor performance or breaches of contract, giving schemes flexibility if expectations are not met.
The Importance of a Thorough Review
Before committing to any agreement, schemes are strongly advised to:
Seek Advice: A qualified legal professional can interpret complex terms, ensure compliance with relevant legislation, and highlight any areas of concern.
Benchmark Against Industry Standards: Compare the proposed contract with others in the sector to ensure fair pricing and comprehensive service.
Involve the Committee: Make the review process collaborative, involving all relevant stakeholders to ensure collective decision-making and shared responsibility.
The Low-Fee Trap: Why Cheaper Isn’t Always Better
While a low management fee may seem appealing, it can be a costly mistake. Low-cost providers might exclude key services from their base price or charge heavily for every additional task.
This can lead to:
Hidden Costs: Essential services such as attending meetings, urgent repairs, or issuing levy notices may not be included, and costs can quickly add up.
Reduced Service Levels: Some companies may cut corners, employ inexperienced staff, or manage too many buildings, resulting in slower response times, poor communication, and increased legal risks.
Long-Term Financial Impact: Poor management can lead to mismanaged repairs, compliance breaches, and higher insurance premiums, costing the Owners Corporation far more than a slightly higher management fee would have.
Assessing True Value
When evaluating management proposals, schemes are encouraged to look beyond price and consider:
The company’s experience and reputation in the industry.
Staff tenure, training and education programmes.
Qualifications and compliance history.
References and feedback from existing clients.
Membership of a professional body and a Professional Standards Scheme (if applicable in your state)
A higher fee for a reputable, responsive, highly skilled manager is often a wise investment that can prevent major headaches and protect the building’s value over time. Managers can add value and save costs in the long term.
A Foundation for the Future
A management agreement is not just a formality; it is the foundation for how a building is managed and maintained. Schemes are urged to take the time to read and understand the full agreement, involve professionals and fellow owners in the review process, and focus on quality and value, not just the cheapest quote. The old adage applies: “Pay Cheap, Pay Twice”.
In strata management, the maxim holds true: you get what you pay for. A low fee may signal limited service, lack of experience, or high hidden costs. Prioritising reliability, responsiveness, and proven capability is essential for safeguarding your community’s investment.
Disclaimer:
This article is intended for general educational purposes only and does not constitute legal or financial advice. Readers should seek independent legal and professional guidance relevant to their specific circumstances and jurisdiction
