OPTIONS IN CARETAKING AND LETTING AGREEMENTS—CAN THE AGREEMENTS BE ENDED?
Most committees are surprised to learn that renewal options in caretaking and letting agreements aren’t just a formality—they can be used to end an agreement. While it might seem like the caretaker or letting agent simply has a right to extend the agreement, it’s often not that simple. There are conditions that need to be met, and if they’re not, the committee may have more control than expected. Understanding how options work is key when renewal time comes around.
Exercising An Option: It’s A Right—But Not a Guarantee
An option to renew is a contractual right for a caretaker or letting agent to extend the agreement for a further fixed term where specified conditions are satisfied. The further extension of the agreement given by the option is usually not (although it can be depending on the drafting of each agreement) an automatic right for a caretaker or letting agent.
These conditions typically include:
- the notice must be in writing;
- giving that notice to the correct party, at the correct address, in the correct way, and within a defined period;
- preconditions at both the time of exercising the option and the end date of the agreement.
While there is some flexibility that decision-makers apply when assessing whether these conditions have been satisfied based on the specific circumstances of each case, the starting position is whether strict compliance with the conditions can be established.
A technically defective notice, whether because of timing, method, or address, can render the option invalid and bring the agreement to an end.
Put it in writing—and make it clear
If an agreement requires the notice exercising the option to be given in writing, it is not enough for the caretaker or letting agent to verbally mention at a committee meeting or general meeting, or in passing with a committee member.
The notice must be in a written form, such as a letter or other piece of paper, or an email or other electronic form of communication. Where an electronic form of communication is used by the caretaker or letting agent, the issue will be whether it was given in the correct way.
The written notice must also be clear in what it is doing—that is, whether the option in both a caretaking and letting agreement is being exercised, or only one of those agreements. The body corporate is not expected to speculate as to which agreement is the subject of the notice.
Who, where and how: Getting notice delivery right
The agreement will usually nominate who the notice must be given to—usually the body corporate directly. That is different to the body corporate manager, the body corporate’s solicitor or a committee member. If the notice is given to the wrong party, the caretaker or letting agent would need to show that the other party was an agent for the body corporate or that the notice ultimately came to the body corporate’s attention in a way that satisfies the requirements of the agreement.
The address for the giving of notices is usually set out in the agreement or otherwise notified in writing during the term of the agreements. Where no address is given (or it is unclear), there are steps that the caretaker or letting agent will need to take to ensure the notice is properly given.
The agreements will typically list ways the notice may be given, such as by certified pre-paid post or facsimile (yes—these still exist!). Most agreements do not expressly provide that a notice may be given by email or other electronic means, and it will depend on the way the agreements are interpreted as to whether email is an acceptable form of giving the notice.
There is usually a window of time within which a notice must be given, and at a minimum, such notice must be provided before the current term of the agreement ends.
Pre-conditions
A common prerequisite for a caretaker or letting agent exercising an option is that there must be no breach of the relevant agreement at the time of exercising the option or at the end of the current term. This prerequisite can have various nuances depending on its drafting, but all those nuances require a degree of compliance with the duties under the agreement.
Are Renewal Options an Avenue to End Agreements?
Options are not only a right for the caretaker or letting agent. They are also a control mechanism for the committee. If the committee has concerns about the performance of the caretaker or letting agent, the option process provides an opportunity to negotiate (and potentially end) an agreement.
For that reason, it is critical for committees to understand whether the option has been exercised correctly. If the exercise of the option does not comply with the contractual requirements, the committee may be able to refuse renewal and negotiate new terms or appoint a new contractor.
Caretaking and letting agreements can also contain cross-default clauses. These clauses tie caretaking and letting agreements together where those agreements are in separate documents, so that if one agreement ends, so does the other.
Summary
Renewal options in caretaking and letting agreements require strict compliance with contractual conditions, including proper written notice to the correct party—usually the body corporate itself. Committees must understand these nuances to protect their rights, as defective notices or missed deadlines can affect whether an agreement is validly renewed or ended.
We have been (and currently are) involved in many cases leading up to, and at the time, an option is exercised under an agreement and have achieved successful outcomes for those bodies corporate.
Article Contributed by Brendan Pitman, Partner at Grace Lawyers QLD.
If your Committee is approaching a renewal date for caretaking or letting agreements, contact our Grace Lawyers QLD team on 1300 144 436 or www.gracelawyers.com.au for practical advice on your rights, obligations and options for moving forward.
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thank you for your help
Brendan
First of all, thanks for an informed article about 25-year contracts in QLD. The more people who find out about these arrangements, the more people will realize what is so wrong in QLD strata.
I do have concerns about your comment regarding ‘usually the source of the angst’ arising from other terms of the 25-year agreement. Yes, the examples you provide do cause angst, but in my opinion, they are only symptoms of an inherently ‘corrupt’ process, ie 25-year agreements for provision of what are essentially janitorial services. Inflated prices, opaque conditions… nothing unusual about these in our strata world, and I could grip my teeth and live with them for 3 years. But for 25-years… this is a jaw-dropping revelation for most owners when they find out about it.
I often wonder how many bodies corporate would voluntarily sign-up for such an agreement if given the chance, say ,2 to 3 years from the 1st AGM…especially when advised that they – unlike the Original Owner – cannot charge the prospective Caretaker anything for the agreement.
My suggestion…separate the janitorial service element from the rental licence element, and restrict the services element to no more than what is commonly encountered in our real world, eg 3 years. If 3 years is good enough for our body corporate managers, then it is good enough for our janitors.
Hi Ross
Thanks for your comment. Brendan’s article was about options, not 25 year agreements per se.
My comment about the other terms of the agreements (remuneration, duties, etc.) as being the source of angst is not dismissive of the role that lengthy contracts pose in creating problems for bodies corporate. Being tied into a long-term contract amplifies the poor contractual terms because the body corporate is tied to them for such a long time. I think that is reflected in your comment “Inflated prices, opaque conditions… nothing unusual about these in our strata world, and I could grip my teeth and live with them for 3 years. But for 25-years…”
Apart from the actual terms of the contract, such as remuneration and duties, the other thing (probably the main thing) to add to the mix is simply poor or underperforming managers – and there are plenty.
Your suggestion of delineating between the caretaking and letting components of management rights, and bringing the maximum term of the caretaking component down to a short term arrangement is a sensible one which many in the industry agree with.
Jarad Maher
Thank you for you reply, Jared.
I may be an individual apartment owner but I am the owner. The job was given to this man without my consent. He simply got it because he was doing it for a while now and they just renewed his contract with outrageous salary to sweet the deal. All my money (9or rather the apartment owners’ money). Now I am unable to use my visitors car park because they threaten to tow my vehicle away! My car is too tall to fit in the car space allocated to me under the building. When I bought the apartment this sub-low didn’t exist! Now I have nowhere safe to park my car overnight in fear of it being vandalized or stolen.
The committee is in bed with this caretaker and I have no support from them either. The body corporate mangers were recently replaced with another firm because they wouldn’t blindly follow the orders of how to deal with issues in the building and were making their own investigations and inquiries.
I own the apartment yet I am restricted to bare minimum as to how I can enjoy living there. There was never a problem with parking my car in guest parking until only very recently (no longer then a year). I own this apartment for the last 10 years and never had any problems like this before! There are many apartment owners in this building who are very unhappy with current happenings. We don’t know what to do anymore. We just want to have our homes back the way they were.
Hi Barbara
The matters you raise are strarting to stray away from the topic of the article. Suffice to say, every problem has a solution – it might just take time and money to get there. Of course, some ‘disputes’ are simply a divergence of views on how to best manage the scheme. In such instances, the democratic nature of community titles schemes may not be for everyone.
Jarad
So, if the building caretaker or manager is not performing his duties or is turning my home into a prison like environment rather then an retirement resort as it is supposed to be, I have no right to fire him because he has his 10 years contract obtained under the false pretense of taking care of building rather then concentrating on creating sub-laws which prevent me from using building facilities at my leisure? Am I stuck with this person until the contract is over?
Hi Barbara
There is a lot to unpack there.
Firstly, such agreements are a contract between the Body Corporate and manager (not individual owners), so no owner has the right to ‘fire’ the manager.
If the duties are not being adequately performed, the Body Corporate can take steps to improve performance or, failing that, terminate the agreement. Whilst there are certain statutory reqiurements to effect a termination, such agreements are like any other contract and, in appropriate circumstances, can be brought to an early end.
The Body Corporate and/or owners in the scheme might decide to obtain specific legal advice. Rights of performance management or termination cannot be reduced to simple principles, and always turn on the unique facts of the particular case, including the terms of the agreement.
Jarad Maher
Would you follow up with an explanation of the length of agreements. How Queensland compares with other states.
How subsequent committees may not ‘like’ such a long term commitment. the Body Corporte is stuck with!
Hi Barbara
In Queensland, schemes under the Accommodation and Commercial Modules can have agreements with terms of up to 25 years. Under the Standard Module, the maximum term is 10 years. Under the Small Schemes and Two-Lot Modules, service contracts must not be longer than 1 year.
The contract is a legally binding document that can only be terminated under prescribed circumstances set out in the agreement or legislation. The article explores another possiblity of such agreements expiring (before future options are taken up) due to a default by the manager in attempting to exercise, or failing to exercise, an option to renew the agreement for an additional term.
Whilst long-term agreements can burden and restrict a body corporate, usually the source of the angst is with other terms of the agreement (e.g. remuneration, unclear duties, etc.), not the length of the agreement per se.
Jarad Maher