Caretaking agreements and negative inflation

7 October 2020

As a general rule, the remuneration under a caretaking agreement increases every year. However with a negative annual inflation rate (or CPI), for only the third time in Australia’s history, bodies corporate and caretakers will need to approach any remuneration review with care. Normally the remuneration has only been able to increase, and that increase is based on:

  • a calculation of the relevant CPI increase; or
  • if the caretaking agreement contemplates it, the greater of:
  • a minimum percentage increase; or
  • the relevant CPI increase.

With annual inflation, for the twelve months to the June 2020 quarter, falling by 0.3%, it may not be as simple as applying the process outlined above as some caretaking agreements will have clauses that:

  • contemplate a decrease in remuneration based on the CPI change; or
  • prevent decreases so that any remuneration cannot be less than the previous period.

No two caretaking agreements are the same, so a general rule cannot be adopted. It is therefore important for both bodies corporate (usually through the body corporate manager) and caretakers to make sure the correct calculations are carried out for the specific agreement, otherwise there may be adjustments (or disputes) many years down the track in relation to overpaid or underpaid remuneration.

Given the potential for errors to be made, both bodies corporate and caretakers should carefully read the terms of the caretaking agreement to identify whether the next period’s remuneration is going to decrease, stay the same or increase. If there is any uncertainty, advice from a lawyer should be sought.

Mahoneys have assisted many bodies corporate and caretakers in confirming what should take place with their remuneration for the next period.