Body Corporate Managers, Committee Members and Resident Managers Commissions and Other Benefits
Introduction
In Queensland, body corporate managers have a number of disclosure obligations in relation to any commission, payment or other benefit they receive. Recently, the Queensland Government released new body corporate regulations (Standard Module, Accommodation Module, Commercial Module, Small Schemes Module and Specified Two-lot Schemes Module), which will replace the existing regulation modules on 1 March 2021. There are various changes in the new regulation modules which we will all need to familiarise ourselves with and in this article, we will focus on the changes to disclosure obligations for body corporate managers, committee members and caretaking service contractors (i.e. resident managers).
Existing obligations
Associate supplying goods or services
- if a body corporate is considering or proposing to enter into a contract for the supply of goods or services; and
- the provider of the services is an associate of a relevant person;
- then the relevant person must give written notice to the body corporate disclosing the relationship between the relevant person and the provider, before the decision is made by the body corporate.
Contract for supply of goods or services
Under regulation 135 of the existing Body Corporate and Community Management (Standard Module) Regulation 2008 (Qld) (“existing standard module”):
- if a body corporate is considering or proposing to enter into a contract for the supply of goods or services; and
- under the contract (or another contract or arrangement), a relevant person is entitled to receive (other than from the body corporate) a commission, payment or other benefit;
- then the relevant person must give written notice to the body corporate of that commission, payment or other benefit before the body corporate makes a decision.
The definition of relevant person under regulation 132 of the standard module includes a body corporate manager or caretaking service contractor.
The definition of “associate” is given by s. 308 of the BCCM Act, meaning, a relationship or series of relationships (that can be traced between them through another person or persons) of:
- marriage, de facto or civil partnership;
- parent/child, sibling, cousin;
- partnership;
- employer/employee;
- fiduciary;
- where one person is accustomed or obliged to act in accordance with the instructions of the other person;
- corporation/executive officer; and
- corporation/person in a position to control or substantially influence the conduct of the corporation
Insurance
Additionally, under regulation 177 of the existing standard regulation module, 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.
In the matter of Northcliffe [2016] QBCCMCmr 211 (11 May 2016), the adjudicator was scathing in its assessment of a body corporate manager on the Sunshine Coast and its failure to comply with insurance disclosure requirements in relation to commission received and other information. The Adjudicator stated in their decision that it was not sufficient to simply state the body corporate manager “received a commission” from the insurer at 63-64:
“[BCM] submitted that the Motion to appoint [Insurer] as the scheme’s Insurer included the fact that they had disclosed that they “received a commission” from the Insurer.
The further evidence provided by [BCM] as a result of further reinvestigations reveals that they did not provide in the motion the commissions they would receive from [Insurer] if the scheme’s insurance was placed with them in 2015 but what they received in the financial year of 2014/15 when the premium last year was $33,558.58 they received the commission of $5,588.58. [BCM] clearly have not fulfilled their obligations in providing the exact commission they would receive from [Insurer] if the insurance was placed with them for the 2015/16 financial year.”
The Adjudicator also made the comment at 68 “there are many other body corporate managers on the Sunshine Coast who may be able to provide both better value for money and a higher level of compliance with the legislation”.
New obligations
Contract for supply of goods or services
Under the Body Corporate and Community Management (Standard Module) Regulation 2020 (Qld) (“new standard regulation module”), the existing disclosure requirements continue to apply, however, to the extent that the commission, payment or other benefit is monetary, the amount must also be disclosed pursuant to regulation 156. In the explanatory notes for the new standard module, it was noted at 8 that this change “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 new 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 new standard module, pursuant to regulation 196, the existing disclosure requirements will continue to apply. However, there are additional requirements to:
- 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.
Previously, a body corporate manager was only required to disclosure where such a benefit was given by the insurer itself. The new requirement under the standard regulation module, means that any body corporate manager that receives any financial or other benefit from an insurance broker or intermediary for taking out the insurance policy, must disclose the amount and type of benefit as well as the provider of the benefit.
Benefits received by committee members
Under regulation 79 of the new 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 new obligations will 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 new regulations which come into force on 1 March 2021, 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 new regulations which come into force on 1 March 2021, 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 new regulations which come into force on 1 March 2021, 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 new regulations which come into force on 1 March 2021, 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’.
Conclusion
It is vital for body corporate managers, committee members and resident 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
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A very good article. My only contention:
The final conclusion – that BCMs, CMs and RMs be aware of their DISCLOSURE OBLIGATIONS – might be better stated as follows…
That BCM’s, CMs and RMs be aware of:
1. the potential pitfalls of taking commissions from their positions of authority and control.
2. their disclosure obligations should they choose to do so; and finally…
3. their legal risks should they choose not to disclose.
A slippery slope?