Unfair Contract Terms and Owners Corporations: An Overview


Introduction

When it comes to owners corporation management, the terms of the contract can greatly impact the experiences and rights of the individual owners. In this article, we will explore some common issues and concerns related to contract terms in owners corporations, including the length of the contracts, automatic roll-over or extension clauses, additional fees and charges for various services, onerous and unfair special conditions, and termination provisions that may contravene strata management legislation. By understanding these issues, owners corporations can make more informed decisions and protect their interests.

Lengthy Contract Terms for Owners Corporation Management


Reasons for Lengthy Management Contracts

Owners corporation managers often secure lengthy management contracts by getting in early with developers or persuading a couple of owners to sign prematurely at the Annual General Meeting (AGM). This practice can lead to contracts that extend far beyond what is fair and reasonable for the owners.

Impact of Lengthy Contracts on Owners

Lengthy contracts can limit owners’ flexibility and ability to change management companies if they are dissatisfied with the services provided. It is essential to advocate for more reasonable initial contract terms, such as three years instead of five or ten, to ensure fair treatment for all parties involved.

Ideal Length of a Management Contract

Three years is a more reasonable and balanced length for an owners corporation management contract. This allows for a sufficient trial period and flexibility for owners to evaluate the services provided, while also ensuring that management companies are not tied to long-term agreements without ongoing performance assessments.

Automatically “Roll-over” or Management Contract Extension Clauses

Explanation of Roll-over Clauses

In the past, many management contracts had automatic roll-over clauses that extended the contract for another 12 months if no notice of termination was given. However, changes in strata legislation and Australian Consumer Laws have made these clauses less common.

Changes in Legislation and Impact on Roll-over Clauses

Strata legislation and consumer protection laws have been updated to provide greater transparency and protection for owners. Consequently, automatic roll-over clauses are now more closely scrutinized and restricted to prevent unfair practices and ensure that owners have the ability to make informed decisions about their management contracts.

Potential Issues with Roll-over Clauses

Some management companies may still try to enforce automatic roll-over clauses from outdated contracts. Owners must understand their rights and seek legal advice if they believe they are being unfairly bound by a roll-over clause.

Additional Fees and Charges for Various Owners Corporation Services

Common Strategy of Quoting Low Management Fees

Many strata management companies attract clients by quoting low management fees. However, the devil is in the details, and owners should be cautious about hidden additional fees and charges that may apply.

Importance of Reading the Contract in Detail

To avoid unexpected costs, owners must carefully review the proposed strata management contract and scrutinize any sections regarding additional fees and charges. Understanding when and how often these fees apply is crucial to prevent unpleasant surprises down the line.

Examples of Additional Fees and Charges to Look Out For

Additional charges can significantly inflate the actual cost of management services. For example, a $21,000 base management fee can easily turn into over $40,000 when various additional charges are factored in. Owners should be vigilant in identifying such charges and negotiating fair and transparent fee structures.

Onerous and Unfair ‘Special Conditions’

Overview of Special Conditions in Owners Corporation Management Contracts

Special conditions listed in owners corporation management contracts often favor the management company, leading to unfair terms for owners. These special conditions are commonly found on page 16, under clause 11.3 of the contract.

Examples of Onerous and Unfair Special Conditions

Some special conditions can impose significant burdens on owners corporations, such as excessive reporting requirements, restrictions on changing management companies, or unfair allocation of costs.

How to Identify and Address Unfair Special Conditions

Owners should carefully review the special conditions in their contracts, seeking legal advice if necessary, to ensure that they do not agree to onerous or unfair terms. Negotiating with the management company or seeking alternative options through the appropriate legal channels may be necessary to address unfair conditions.

Termination Provisions that Contravene Strata Management Legislation

Understanding Termination Provisions in Strata Management Contracts

Strata management contracts often contain termination provisions that may favor the management company. These provisions were typically drafted by lawyers engaged by the management company, which can in imbalances of power between the management company and the owners corporations.

Potential Conflicts between Contracts and Strata Management Legislation

Owners corporations may encounter conflicts between the termination provisions in their contracts and the current strata management legislation. Owners need to understand their rights and obligations under the law to ensure a fair and lawful termination process.

Rights of Owners Corporations and Committees in Termination of Contracts

Owners corporations have the right to terminate their strata management contracts if they believe the management company is not meeting their needs or if there are breaches of the contract’s terms. Understanding the proper procedures and legal requirements for termination is crucial to protect the interests of owners.

Importance of Diligence in Choosing Owners Corporation Management Companies

Why Due Diligence is Critical in Choosing a Management Company

Choosing the right owners corporation management company is essential to ensure quality service and fair contract terms. Conducting due diligence, including careful vetting and research, helps owners corporations make informed decisions.

Risks of Trusting One-man Bands with Owners Corporation Management

One-man bands, referring to individual owners corporation managers, may lack the necessary resources, expertise, and support network to effectively manage complex owners corporations. Entrusting management to a professional, reputable company with a team of experts is recommended.

Benefits of Working with Strata Management Consultant Professionals

Strata Management consultant professionals can provide valuable guidance and assistance in navigating the complex process of changing management companies. With their expertise and careful vetting of management companies, owners of corporations can find a trustworthy partner that meets their specific needs and safeguards their interests.

Conclusion

In conclusion, unfair contract terms can create significant challenges for owners corporations. By understanding and addressing issues such as lengthy contracts, automatic roll-over clauses, additional fees and charges, onerous and unfair special conditions, and termination provisions that may contravene strata management legislation, owners can protect their rights and interests. Diligence in choosing a management company is essential, and working with trusted consultants can provide valuable guidance throughout the process. By being aware of these considerations, owners corporations can ensure fair and reasonable contracts that serve the best interests of all parties involved.

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