SM contracts to be fixed but not set in stone

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Contracts between strata managers and owners corporations have been accused of being one-sided, rigid and unfair, but they are unlikely to be replaced by standard statutory contracts any time soon in NSW.

However, there is an alternative for strata schemes that aren’t prepared to sign away their right to be indemnified against poor performance by their strata managers that could potentially cost tens of thousands of dollars in legal fees and compensation.

Anyone hoping that NSW strata managers would soon have a standard, prescriptive strata management contract, like residential rental leases, for instance, is likely to be deeply disappointed if they drill down into the 139 proposals for changes to strata law and regulations.

While the review currently under consideration by strata policy-makers recognises long-term public disquiet over the one-sided nature of some elements of the standard strata management contract (as offered by Strata Community Association, the strata managers’ professional body), requests for a standard prescriptive contract have been dismissed.

“Having considered the feedback, the review considers that prescribing a standard form agreement in legislation at this point may not be necessary and notes that the PSA Act does not impose standard form agency agreements on other agents regulated under that Act (real estate agents and stock and station agents),” The “Report on the statutory review of the Strata Schemes Development Act 2015 and Strata Schemes Management Act 2015” says

Now you could claim that real estate agents offer contracts that are rigidly fixed in what they must and can’t say when they sign up tenants.  But they would argue that the contract is between the tenants and the landlords, not them.

“There are other ways to improve the regulation of contractual arrangements,” the report says. “Moreover, based on the feedback received, it appears that the key driver for much of the support for standard agreements is a concern with what are perceived to be unfair clauses in some strata managing agency agreements.

“It was suggested to the review by several stakeholders including the Law Society, ACSL, UDIA and PICA, that instead of prescribing a standard form agency agreement, terms of concern could be addressed through a prohibition on their inclusion in management contracts.”

ACSL is the little-known Australian College of Strata Lawyers, UDIA is the developer-driven Urban Development Institute of Australia and PICA is one of the largest if not the single largest strata management and building services management groups in Australia.

The strata law review goes on to say that the government’s approach is “already in place through Schedule 14 of the PSA Regulation and ensures a baseline level of protection and consistency for contracts without being overly prescriptive.” 

The report says that a revision of PSA Regulation is due to be completed by September 1, this year and will provide “an ideal opportunity for an exploration of the inclusion of any additional mandatory or prohibited terms in Rules of Conduct”.

Certainly, SCA (NSW) is on board with the idea of making changes in the future, especially in view of its recently acquired Professional Standards Scheme status.

“SCA (NSW) is aware of the need to make necessary changes to contemporise parts of the agreement to accord with the commencement of the Professional Standards Scheme and the proposed amendments to the Strata Act,” SCA (NSW) General Manager Sadiye Ince recently told Flat Chat.

“These changes will take effect once the [proposed NSW Strata] regulations have been finalised.”

But there is hope for those strata schemes that can’t wait for the strata managers and the state government to sort themselves out.

The Owners Corporation Network, the peak body for strata owners in NSW, which was among those agitating for a fixed, standard strata management contract, has produced a guide for members on how to make their next strata management agreement more client friendly.

In their submission to the review of the Strata Schemes Management Act that led to the recent report and proposals, OCN said: “The strata management agreement is perhaps the most important contract entered into by an owners corporation. 

“Currently, most strata managers use the agreement produced by the strata managers’ industry association (SCA) which is skewed in favour of strata managers.  Many owners corporations do not have the expertise or bargaining power to negotiate more suitable terms.”

However, owners corps and individual strata owners only need to pay the annual $66 membership fee to be able to access the guide and “much, much more”, according to Executive Officer Karen Stiles. Check them out on ocn.org.au.

And unless the inclusions and exclusions restore the balance between strata managers and strata schemes, the failure to create a statutory standard contract could bite the SCA in the bum.

If contracts aren’t fixed, then they are negotiable.  Then, in a state like NSW where having a strata manager is not compulsory, it becomes a matter of who has the nerve to just say “no”.

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