Reviewing Caretaker Remuneration
August 3, 2022
We get a lot of questions from resident managers and committees about caretaking remuneration and the ability to change it. Quite often there are misconceptions that the resident manager is a type of employee.
That is not the case. The typical management rights arrangement is a contract for service in which the service provider performs certain tasks for a stated remuneration. In that sense, resident managers are no different from lawyers: there is a fee paid for a job to be performed, although lawyers usually have a far shorter lifespan of engagement with a body corporate.
One of the ongoing difficulties with management rights is the project developer sets the caretaking remuneration. That remuneration might reflect a considered assessment of what duties are required and how they should be rewarded, but that is not always the case. Caretaking remuneration is often referenced back to a dollar value per lot per annum, which is certainly a way to compare the respective costs between lot owners, but is not a true reflection of what work might actually be required.
So, having set that scene, how and when can caretaking remuneration be changed?
Like any contract, management rights agreements can be changed by agreement. That agreement usually comes after some form of negotiation. Agreement from a resident manager comes by them simply agreeing to the change and signing a document to record that. From a body corporate perspective, agreement comes after passing a resolution at a general meeting to approve the change. A committee alone cannot lawfully agree to a binding change in remuneration.
There is usually no way to force one party to accept a change suggested by the other.
So, in terms of any negotiation, we think:
· Getting a report from someone experienced in the market value of caretaking remuneration (commonly known as a ‘time and motion’ report) removes a lot of subjectivity from the conversation. Who pays for that report depends on the context of the negotiation;
· If the remuneration is to be changed it makes sense to also update the caretaking duties so they are accurate and reflect a detailed description of what needs to be done and how often. This is particularly the case if the caretaking duties are the older, more generic style.
· It is difficult for a resident manager to get approval to increase caretaking remuneration without the support of the committee. A mutually agreed proposal has a far greater chance of being approved.
· Inevitably there might be other changes to the management rights agreements that form part of this negotiation too.
A market remuneration review comes by virtue of the provisions of the caretaking agreement. There is no standard clause for these types of review but commonly they would include detail about:
· who can initiate a review and in what time period;
· how the remuneration is to be calculated in the absence of agreement between the parties –usually by the appointment of an expert by an independent third party, such as the President of an industry body;
· who pays the costs of that expert;
· the process for that review.
There is no short cut here but to read the provisions of the agreement and follow what needs to be done.
Anecdotally, we would suggest that about 15% to 20% of caretaking agreements include a clause of this nature. They are not common.
Statutory reviews under the Body Corporate and Community Management Act 1997
If we were to summarise these provisions, it would be to say that they are a market review of caretaking remuneration for management rights agreements entered into off-the-plan within the last two to three years.
Either party can commence a review to assess whether the terms of the agreement are ‘fair and reasonable’ and, if not, how the reviewable terms should be changed to achieve that.
There are some very strict timing hoops to jump through to enable these statutory provisions. The agreements need to have been entered into during the original owner control period, which is where the developer controls the voting of the body corporate, either through:
(a) ownership of lots in the scheme; or
(b) retaining voting control including by way of powers of attorney or other means granted as part of the sale process to the current lot owners.
The review needs to have been commenced within the review period, which is the later of the following periods to end:
(a) 3 years after the start of the term of the service contract; or
(b) 1 year after the AGM next held after the original owner control period ends.
These statutory review provisions lapse if the process to commence a review is not followed or the review period passes. They also do not apply after a management rights agreement has been assigned to a new manager.
It is safe to say that if the building is four or more years old, it is very unlikely that these statutory review provisions will still be applicable.
Once a review is available, there are further mechanics to the review process – including the preparation of an independent report (back to that same time and motion expert!) and then if agreement cannot be reached, heading off to QCAT for an order about what is ‘fair and reasonable’ in the schemes particular circumstances.
These are the only ways to change the caretaking remuneration.
This article was contributed by Frank Higginson, Hynes Legal.