Changing Managers

This is not to be construed as providing legal advice, or as prescribing how any particular owners corporation should manage its affairs. It is a summary, in layman's language wherever possible, of how some important concepts are provided for in the legislation, and how owners corporations might take account of those provisions when formulating their management philosophies and procedures.

Many owners corporations experience a deteriorating relationship with their manager.  The issue is what to do about it.  The Executive Committee does not have the luxury of ignoring lack of service and poor advice.  The EC needs to respond in a careful and considered unemotional manner in the best interests of all unit owners.

First the EC needs to decide whether they want to try to rebuild the relationship with the current manager or they want to move quickly to engage another manager. There are always consequences, such as the attendant upheaval of changing accounting systems and building new relationships. 

Although it might not sound like it, trying to rebuild the relationship with the current manager may be the most effective path to take in the long term. Keeping an open, objective mind may be difficult but is the most constructive as change is not always the best option.

Arrange a meeting with the head of the management business and lay out, preferably in writing, your concerns.  You are paying for the services you should be receiving so you don’t need to be diffident.  Take examples of the work you are complaining about and state clearly what standards you expect.  Maybe what you need is a new member from the staff of your existing manger.  So ask for another member of the management business staff to take over your OC.  But remember that managers in larger management businesses are managing as many as 30 OCs and that the level of service you want may not be met by any manager. 

Be prepared to hear that the manager business might not think your EC or OC is the easiest client to work with.  There is an element of “They would say that wouldn’t they”, but some self-reflection would be in order.

Maybe the head of your manager will offer you a mutual termination instead of a new manager – see below.

Try to work with your new manager.  Make your expectations clear.  Give the new manager a go for a reasonable period of time and see whether you are happy with the service.  If you are then your problem is solved.

If you are not yet satisfied the EC should have another serious discussion and make a decision about trying to persist with the relationship, waiting out the rest of the contract period having made clear that the contract will not be renewed or going back to the head of the management business seeking a mutual termination.

Your contract may have a mutual termination clause, under which both parties can agree to part company without the need for blame or recrimination.  It is a very good provision to have and saves both parties time and trouble. 

If you are offered a mutual termination it indicates the manager company does not want your OC as a client, so accepting the offer may make sense.

Even if you do not have such a provision, you can ask for a mutual termination.  Businesses do not want clearly unhappy clients.  So, such a request is usually accepted.

If mutual termination is agreed, the EC should move very quickly to choose a new manager.  Refer back to the paper on Employment of managers on this process.

Should the head of the management company simply state that there is a contract and the manager will seek to enforce the term of it no matter what the EC wishes, you still have an option that may well become increasingly difficult and time consuming.

As a first step, it is sensible for the EC to formally inform the manager that the EC will not recommend to the members of the OC that the manager be reappointed and that any clause of the contract, requiring that the manager be given three months’ notice that the contract will not be renewed at its expiry, is being exercised.

Next the EC should contemplate issuing the manager a Remedial Breach under S55 of the Unit Titles (Management) Act.  This section requires that the OC rather than the EC reaches a conclusion on reasonable grounds that the manager has failed to exercise the manager’s functions, contravened the manager’s code of conduct or while exercising the manager’s functions, is grossly negligent or engages in misconduct.  For the OC to come to such a conclusion it has to pass resolutions at a general meeting and so the EC has to resolve to call a general meeting, decide the resolutions to be put to the meeting to fulfil the requirements of S55 and task the manager to send out the papers.

At this point most managers will agree to a mutual termination.  For the EC to get the OC to agree that the manager has committed the breaches the EC has to go through all the difficulties of the relationship and the perceived failings of the manager in detail.  Whether or not the OC passes the resolutions the relationship is so damaged that it is not possible to continue to work together.  The likelihood of bad publicity for the manager through word of mouth in a small market is very high.

In the unlikely event that the manager does not relent, following the meeting the EC serves the resolutions and other material to fulfil the requirements of S55 on the manager and the manager has 14 days to either remedy the breaches or deny they exist.  At that point, the OC can meet again to decide the manager has not rectified the breaches or that the manager’s denial of the breaches is not acceptable to it.

The clumsiness of this process means that it is unlikely to be carried through. But the threat is there for the EC to suggest to the manager.

Mutual termination is the most likely result.  Then the EC must undertake the task of appointing a new manager with a view to ensuring a repeat of the relationship breakdown does not occur.

The clear benefit of already having a fair strata management contract that is reasonable for both sides is obvious, especially when problems arise.

The OCN is considering the creation of a standard strata management contract that seeks to be fair and reasonable and prevent the current situation where some contracts impose draconian conditions on Owners Corporations but do not impose the same conditions on strata managers.