Onsite Managers/Caretakers – The Good, the Bad and the Ugly

If you are a property investor who owns a unit, you may well have bought into a development whose Body Corporate engages an Onsite Manager or Caretaker (hereinafter referred to as an OSM).

Now some OSM’s are good, and some are bad, and some are outright ugly! If your complex has a good one, breathe a sigh of relief and thank your lucky stars! A good one of course will have good knowledge and understanding of the complex, of its equipment and infrastructure, its contracts and service providers and good relationships with the Strata Manager and the Body Corporate Committee. But what if your OSM is ugly?? What happens then?

Well, brace yourself because the ugly generally get uglier. Case in point. Complex situated in northern Brisbane, about 26kms north of the city. The complex has eighty-nine residential units and a commercial section at the front with around twelve units and residential and commercial body corporate committees. The OSM bought the management rights for both the commercial and residential complexes in 2022.

The first thing to understand is that an OSM will generally buy the management rights, which is a colloquial term for what are a Caretaking Agreement, to care for and maintain the complex, and a Letting Agreement, that gives the right to the OSM to manage units on behalf of an owner, just like a real estate agent would.

The second thing to understand is that because the OSM has “bought” the management rights, the current laws, at least in Queensland, give them more protections and rights than what the Body Corporate tends to have. Of course, the Body Corporate is represented by a committee, who are owners of units in the complex, elected by owners at an Annual General Meeting of owners, to represent them and their interests. Body Corporate Committee representatives are voluntary, unpaid positions often coupled with the full-time commitments of work.

In the case in point, the complex was built and completed in late 2015. Property Club promoted the development and numerous members purchased a unit in the complex. At the time the complex was built, the developers, a partnership of two men in a company structure, formed the first body corporate committee. In doing so, they formulated Caretaking and Letting Agreements that for them, maximised their ability to sell the management rights for the best price possible.

Unfortunately, for subsequent Body Corporate Committees at the complex, this meant they were lumbered with a Caretaking Agreement that at best was ordinary, and at worst, was positively slanted towards the OSM leaving the Body Corporate Committee with few rights and few powers. The writer suspects this happens a lot. Could Property Club have done anything about it, absolutely not! In this scenario, Property Club would have had no powers to do anything because it would have all been done and dusted before Property Club even set eyes on the development.

Now to the ugly… so what happens when the OSM does the wrong thing? That would depend on to what extent wouldn’t it? It would also depend on the Body Corporate Committee and their resolve to keep the OSM accountable. As Body Corporate Committees are made up of volunteers, who frequently have full-time jobs and other commitments to be concerned about, OSM’s rely on these factors to enable them to escape a level of scrutiny they may otherwise be subject to.

In the case in point however, the Body Corporate Committee has been extremely vigilant, consistently, to endeavour to get the OSM to perform their responsibilities under the Caretaking Agreement, which is, after all, a legal contract. But the parties are subject to the Body Corporate and Community Management Act 1997 (Qld) which like most acts of law, impose significant requirements on a Body Corporate Committee in cases where an OSM does not perform their obligations under the Caretaking Agreement before anything can be done. So, in this case, the situation was that the OSM did not perform most of their obligations under the Caretaking Agreement which meant that firstly, owners were paying the OSM for work/services that were not provided and secondly, the standard and upkeep of the complex was deteriorating significantly thereby reducing its appeal, appearance and value, which of course, directly impacts and affects all owners.

Under the prevailing legislation, and despite many efforts by Body Corporate Committee members in the prevailing 18-24 months to assist, support and help the OSM to full performance, the Body Corporate Committee was left with no alternative but to take legal action against the OSM. But before that could even take place, the Body Corporate Committee had to engage consultants to do an inspection and report on the state of the complex which not surprisingly, illustrated many breaches of the Caretaking Agreement by the OSM.

The Body Corporate Committee were then required to detail what the breaches were, what clauses of the Caretaking Agreement were breached and how the OSM should rectify the breaches. The OSM then had 21 days in which to remedy the breaches. In the case in point, the OSM did not remedy the breaches so at the next Annual General Meeting of owners, a motion was put forward by the Body Corporate Committee to terminate the Caretaking Agreement. As it happened, owners overwhelmingly voted in favour of the termination motion.

As soon as the termination motion was passed, the OSM was scrambling to their lawyer’s office to lodge an injunction against the Body Corporate Committee to stop it from terminating the Caretaking Agreement. Where the purchase of the management rights has been financed by a financier, under the Body Corporate and Community Management Act 1997 (Qld), notice must be given to the financier that a motion to terminate the Caretaking Agreement has been passed by owners. Obviously, financiers could have hundreds of thousands, if not millions of dollars at stake so they want to know when things have gone pear-shaped.

So, in the case in point, things are now at a stage where the Body Corporate Committee has the OSM right where they want them, that is, fighting to keep their Caretaking Agreement from being terminated, potentially causing losses to them of around $1-$2 million and making them very amenable to renegotiating the Caretaking Agreement with the Body Corporate Committee. Under the legislation, if a Body Corporate Committee is stuck with a very ordinary Caretaking Agreement, it can’t just change it, it must renegotiate it with the OSM, and then going forward, new OSM’s who purchase the management rights will be governed by the renegotiated agreement. The Body Corporate Committee can’t even say when one OSM leaves and before the next one starts, we’ll put a new Caretaking Agreement in place. No, it doesn’t work like that. As the Caretaking Agreement binds the OSM, whoever is the OSM at the time must agree to a new Caretaking Agreement.

So, why is this relevant to you as a property investor and Property Club member I hear you ask? Well, as a Property Club member, we are all about education of members, and that goes for the good and not so good. As a property investor, it is good to know the challenges you might face in property investment. As a property investor in a unit development, there is always going to be risk around body corporates, their level of activity, or inactivity as the case may be, their fees and matters they may have to deal with.

In the case in point, it is still the subject of legal action in the Queensland Civil and Administrative Tribunal (QCAT) and so far, the legal bills incurred by the Body Corporate Committee in endeavouring to get the OSM to perform their obligations under the Caretaking Agreement are around $40k and growing. This is $40k that won’t be spent on the maintenance of the complex and which is ultimately funded by owners, as in this case, through increased Body Corporate fees. Sure, Body Corporate fees are tax deductible but who wants to be spending more on these costs than one absolutely must! This is why a good OSM is worth their weight in gold!

The only consolation in this case, is that the OSM has the management rights up for sale so hopefully, the next owner of them will be competent and know what they are doing and can perform their obligations fully under the Caretaking Agreement but even then, the Body Corporate Committee has very limited powers with regard to sale of management rights and cannot unreasonably refuse the sale to another person, who may be good, bad or ugly!

Despite all of that, this Property Club property is still my best performing property with the highest yield believe it or not!

For expert advice on managing complex issues with Onsite Managers or Caretakers, contact enquiries@propertyclub.com.au

Paul Hoppenbrouwer Branch Manager Brisbane Branch