Body Corporate Managers, Committee Members and Resident Managers commissions and other benefits

Committee members, caretaking service contractors (i.e. resident managers) and body corporate managers have a number of disclosure obligations.  These obligations were revised with the regulation updates which came into effect on 1 March 2021.  In this article, we will focus on these disclosure obligations to assist bodies corporate with achieving compliance.

Benefits received by committee members

Under regulation 79 of the standard module, committee members may not receive a direct or indirect benefit from a caretaking service contractor or a service contractor, unless the receipt of such benefit has been authorised by an ordinary resolution of the body corporate.

It is worth noting that the conflict of interest provisions only apply to committee decisions, and not those made at a general meeting.  Therefore, the committee member seeking the approval of a benefit may freely vote on the issue at a general meeting.

The committee member is still required to comply with the conflict of interest provisions under regulation 66 of the new standard module (regulation 53 under the existing standard module regulations) in relation to any decisions the committee may consider, if that decision relates to a contract or arrangement under which the committee member is receiving a benefit (assuming prior body corporate approval was granted).

Therefore, if future committee decisions related to such contracts or engagements, the benefitted committee member must disclose their direct or indirect interest in the issue being considered and must abstain from voting on that issue. For more information about conflict of interests, please see: https://smartstrata.com/conflict-interest-strata/

We discuss a few examples of how these obligations apply to body corporate managers, caretaking service contractors (resident managers) and committee members below.

Examples

Body Corporate Manager

Scenario 1: What if the body corporate manager suggests a service provider, such as a pest control company, to the body corporate, and the body corporate manager receives a payment from the pest control company and does not disclose the amount of this payment to the body corporate?

Answer: Under the current regulations, the body corporate manager would be in breach of regulation 156 of the new standard module. In order to properly comply, the body corporate manager must give written notice to the body corporate of the amount of the payment they are entitled to receive from the pest control company before the body corporate makes it decision as to whether to engage the pest control company or not.

Scenario 2: What if a service provider, such as a lift maintenance company, who are engaged by the body corporate suggests a body corporate manager to the body corporate, and the lift maintenance company receives a payment from the body corporate manager and does not disclose the amount of this payment to the body corporate?

Answer: Under the current regulations, the service provider would not be in breach of regulation 156 of the Standard Module.

The disclosure requirement to provide written notice only applies to a ‘relevant person’ which is defined as ‘a body corporate manager, including a body corporate manager acting under a chapter 3, part 5 engagement’ or ‘a caretaking service contractor’. A ‘caretaking service contractor’ is defined as a service contractor for a community titles scheme who is also a letting agent for the scheme or an associate of the letting agent.

If it was a caretaking service contractor (and not a service provider such as a lift maintenance company) who suggested the body corporate manager to the body corporate, the caretaking service contractor would be obliged to provide written notice to the body corporate pursuant to regulation 156 before the body corporate made its decision as to whether or not to engage the body corporate manager.

Scenario 3: What if a body corporate manager suggests a service provider to a body corporate, and that service provider’s company is also owned by the body corporate manager’s company?

Answer: It depends on whether the body corporate manager receives a commission, payment, or other benefit from the service provider’s company, and that commission, payment or other benefit is associated with the proposed contract for works between the service provider and the body corporate.

If the body corporate manager does receive such a commission, payment or other benefit the body corporate manager is still required to comply with regulation 156 of the standard module and disclose (by way of written notice) to the body corporate before the body corporate makes its decision as to whether or not to engage the service provider.

If the body corporate manager does not receive a commission, then the body corporate must still disclose the nature of its relationship to its “associate” under regulations 154 and 155 in the new standard module.  So essentially, this does not change the existing requirements under 133 and 134 of the current standard Module.  The obligation continues to apply and the body corporate is required to provide written notice to the body corporate disclosing the relationship between the body corporate manager and the service provider before the body corporate makes it decision as to whether or not to engage the service provider.

Caretaking Service Contractor (Resident Manager)

Scenario 4: What if the caretaking service contractor (as is defined in the BCCM) suggests a service provider, such as a pest control company, to the body corporate, and the caretaking service contractor receives a payment from the pest control company and does not disclose the amount of this payment to the body corporate?

Answer: Under the current regulations, the caretaking service contractor would be in breach of regulation 156 of the standard module. In order to properly comply, the caretaking service contractor must give written notice to the body corporate of the amount of the payment they are entitled to receive from the pest control company before the body corporate makes it decision as to whether to engage the pest control company or not.

Committee Member

Scenario 4: What if a committee member suggests a service provider, such as a pest control company, to the body corporate, and the committee member receives a payment from the pest control company and does not disclose the amount of this payment to the body corporate?

Answer: Under the current regulations, the committee member would be in breach of regulation 79 of the Standard Module as body corporate approval of the benefit was not obtained by way of an ordinary resolution.

The disclosure requirement to provide written notice of the amount only applies to a ‘relevant person’ which is defined as ‘a body corporate manager, including a body corporate manager acting under a chapter 3, part 5 engagement’ or ‘a caretaking service contractor’.

Contract for supply of goods or services

Under the Body Corporate and Community Management (Standard Module) Regulation 2020 (Qld) (“standard regulation module”), the disclosure requirements apply to the extent that the commission, payment or other benefit is monetary, the amount must be disclosed pursuant to regulation 156. In the explanatory notes for the standard module, it is noted at 8 that this section “clarifies and improves requirements for a body corporate manager or caretaking service contractor to disclose any commission, payment or other benefit they are entitled to receive that is associated with a contract the body corporate is considering entering into (including insurance)”.

This means that merely disclosing a percentage or other method of calculating any commission will not be sufficient and the actual monetary amount of the commission, payment or (monetary) benefit must be clearly stated in the disclosure.

Whilst there is no express provision in the standard module that disclosure must be given at the same time the decision is being considered by the body corporate, it would make practical sense to do so (particularly in circumstances where the exact amount must be disclosed and it would be impractical to provide those exact amounts before the contract is being considered i.e. when the body corporate manager is engaged the actual amount of the commission will likely be unknown). The body corporate manager or caretaking service contractor is required under the regulations to provide disclosure before the body corporate makes its decision.

Insurance

Under the standard module, pursuant to regulation 196, the following disclosure requirements apply:

• the notice of an annual general meeting (“AGM”) or a note attached to the administrative fund budget proposed for adoption at the AGM must include details about each policy of insurance held by the body corporate, including:
  • disclosure of the amount and type of any financial or other benefit given (or to be given) for taking out the policy by the insurer to:
    • the body corporate manager or their associate;
    • a service contractor for the body corporate or their associate;
    • the body corporate;
    • a committee member; or
    • a lot owner.
  • include the name of any insurance broker in the notice of AGM or a note attached to the administrative fund budget proposed for adoption at the AGM; and
  • disclose where any financial or other benefit is given by an insurance broker or intermediary for taking out the policy.

Conclusion

It is vital for committee members, resident managers and body corporate managers to be aware of their disclosure obligations to avoid any adverse outcomes. If you would like more information about your disclosure obligations, please do not hesitate to contact our office and we will provide you with a tailored fee proposal.

This article was contributed by James Nickless, Partner – Chambers Russell Lawyers