A strata manager’s demise is often brought about by the following:
- A breakdown of relationship between the strata committee and the strata manager;
- A new strata committee wanting their choice of strata manager;
- Strata manager’s offering cheaper services; or
- Inefficient strata managers.
The first three do not relate due to the skill and care of the strata manager. Strata committees, new members of an owner’s corporation or competing strata manager’s often cause a breakdown of relationship with the strata manager. This leads to owner’s corporations being talked into expelling the current strata manager by cancelling their contract.
An owner’s corporation executes a strata managing agency agreement with a strata manager. It is usually done for a term of twelve months to three years. The owner’s corporation, in the strata managing agency agreement, agrees to pay the management fees to the strata manager for that term.
If an agency agreement is terminated by any party, the other party is entitled to damages under the contract. If you terminate an agreement early, the owner’s corporation will need to pay the management fee of the strata manager until the end of the contract. For example, if a strata manager has a three-year agreement and is charging $5000 a month, they are entitled to be paid that $5000 a month upon termination.
Using this example, if it is a three-year contract and the owner’s committee terminates it at the end of the first year, the owner’s corporation may need to pay $120,000 to the owner’s corporation as well as needing to pay the new strata manager.
Two points of warning:
- If an owner’s corporation sends a letter terminating an agreement, it can be considered by law repudiation. Repudiation is simply that one party refuses to abide by the contract. Instantly, a strata manager can accept that termination as repudiation and ask for automatic damages for the rest of the agreement.
- By sacking the strata manager and engaging another, the owner’s corporation may end up with two sets of fees.
Be patient with your strata manager and be sure that termination is the only thing left open to you. Unless there is a failure of due skill and care, find a way to work with your strata manager to the end of the term and then replace them.
This article was written by Bailey Compton, Principal Solicitor & Director at Leverage Group.
To get in touch with Bailey, please email info@leveragegroup.com.au or call 1300 438 538
I cannot see how the agent would be entitled to a payment equivalent to the total pro rated amount of the service fee – they have not incurred the cost nor will incur the cost of the service. I can accept an amount equivalent to the loss of profit for the remaining contract period and a transfer cost to a new agent. It would seem the exiting strata plan would be subsidising the managing agent.
Hi Bailey,
Can the managing agent pay themselves the outstanding balance of the agency agreement before transferring the book, given the existing contract?
Dear Silvestro,
If an SMAA is terminated before it expires, the agent is entitled to be paid their outstanding management fee. For example, if it is a 3-year agency agreement, and the OC terminates the agreement with 1 year to go. Before transferring the books, they are entitled to take their management fee for the other 12 months. Hope this assists.