Strata Communities and the 3 Key Stakeholders

Contributed by Darren Brent, PROPERTY BRIDGE – 24 September 2020

Strata Communities and the 3 Key Stakeholders

Within the Management Rights business model there are three key stakeholders being:

• Body Corporate
• Management Rights operator
(usually a “Resident Manager”)
• Body Corporate Manager

When you purchase a lot in a strata community you automatically become a voting member of the body corporate.

The body corporate is responsible for taking care of the common property and maintaining it in good condition. The body corporate’s powers and obligations are established by state legislation.

Every year the body corporate has a general meeting to make decisions, including approving budgets and raising funds for the anticipated expenses of the coming year (such as paying for the regular upkeep of the building) and for future capital works (such as painting the exterior of the building).

At the end of each annual general meeting a committee is elected. The committee is authorised to make and implement decisions concerning the day-to-day operations of the body corporate. Some decisions are beyond the power of the committee and can only be approved by the body corporate in a general meeting (for example, spending above certain limits or approving signiﬁcant refurbishments to the common property).

A body corporate is empowered to enter into contracts and commonly engages other parties to assist it in the performance of its functions. For example, a body corporate usually engages a Body Corporate / Strata manager to assist in the performance of its administrative functions (including keeping the body corporate’s records, administering its bank accounts and calling and holding meetings).

In strata communities, the body corporate often engages a resident manager to provide management and caretaking services and authorises the resident manager to conduct a letting business. The collective interests of those agreements are generally referred to as “management rights”. Often, management rights include an obligation for the resident manager to live in or own a lot within the strata community.

The powers of the body corporate cannot be delegated to another person. For example, the body corporate cannot delegate any decision-making powers to the strata manager (all decisions must be made by a resolution of the committee or the body corporate) or delegate the power to enforce the by-laws to the resident manager (only the committee is authorised to enforce the by-laws).

One of the committee’s functions is to administer contracts between the body corporate and other parties by ensuring the duties are being performed according to the terms of the contracts and to provide instructions and directions to the contractors.

The resident manager owns the management rights business and is not an employee of the body corporate but is a contractor. Usually, the investment is signiﬁcant and involves the purchase of a residence and/or office in conjunction with the business component itself. Thus, the resident manager often has the greatest ﬁnancial investment in the strata community.

There are two primary components to the resident manager’s business:

• Caretaking
• Letting

The caretaking component involves the resident manager looking after the common property for the body corporate by performing the duties set out in the caretaking contract. The body corporate pays the resident manager to perform those duties at the rate determined in the caretaking contract.

The resident manager is not required to provide any caretaking services to individual owners. The contractual relationship is between the resident manager and the body corporate and the caretaking duties extend only to the common property.

The caretaking duties are set out in the caretaking contract. The resident manager is not required to perform any work outside the scope of the caretaking contract. Caretaking contract obligations should excuse the resident manager from performing any work of a specialist nature or that would be required to be conducted by a licensed tradesperson. However, it may require the resident manager to obtain quotes for that work and to supervise the contractor to ensure the work is completed in accordance with the approved scope.

The letting component enables the resident manager to operate a letting business from the building.

Owners are free to choose whether to engage the resident manager to manage their lots. Considering the resident manager’s letting business is operated onsite and because the resident manager has a signiﬁcant interest in the strata community, most investor owners prefer to utilise the services of the resident manager over an external agent.

Where owners engage external agents to manage their lots, they (and their guests) are not entitled to use any services oﬀered by the resident manager. For example, if an apartment is managed by an external agent and the tenant locks its keys in the apartment, it is for the external agent to make arrangements for access. Similarly, if the resident manager oﬀers particular services to its clients and guests (for example, equipment hire), it need not oﬀer those services to guests of an owner who has not engaged the resident manager to manage their lot.

Although the body corporate gives the resident manager the exclusive authority to operate a letting business from within the strata community, it is up to each owner to negotiate with the resident manager in relation to the management of its lot.

For the “health” of each strata community it is important that the three key stakeholders; Body Corporate, Resident Manager and Body Corporate Manager proactively work in harmony with each other ensuring the interests of the strata community are considered first and foremost.