When a new community title scheme is established the developer has an obligation – to both the body corporate and the caretaker – to ensure the caretaking agreement is appropriate for the scheme.
It is not uncommon for bodies corporate and caretakers to have issues with the caretaking agreements and remuneration in new schemes, and we regularly act for bodies corporate where:
- the schedule of duties is not appropriate or tailored to the needs of the scheme (we have seen agreements which refer to pools and lifts when the scheme had neither!);
- there is a divergence between the extent of the duties and the remuneration which the body corporate is required to pay (this can result in the body corporate under paying or over paying for services).
When these issues arise, the body corporate has two options:
- amend the agreement; and/or
- look to the developer for damages.
In this article we discuss what is required to amend the caretaking agreement to address issues with the caretaker’s duties or remuneration – with a specific focus on the lesser known, and often overlooked, statutory review process.
How can you change an agreement?
A caretaking agreement can be changed in a number of ways, namely by:
- mutual agreement between the body corporate and the caretaker;
- an existing contractual mechanism under the agreement itself (e.g. a market review clause); or
- the lesser known, and often overlooked, statutory review process.
It is this last alternative with which this article is concerned.
Statutory review basics
A statutory review allows either the body corporate or the caretaker to request a review of either:
- the remuneration payable to the caretaking service contractor; or
- the duties carried out by the caretaker.
This right of review exists regardless of what is contained in the agreement itself and cannot be contracted out of.
The circumstances that must exist for a statutory review to take place are when the:
- caretaking agreement is entered into during the “original owner control period”;
- “original owner control period” has now ended; and
- caretaking agreement has not been assigned.
Once requested, the review must be completed before the end of the “review period” (which is usually around 3 years after the scheme was established).
The key elements to a successful statutory review are timing, following the correct process, and having the right commercial strategy from the outset.
Timing is important
The circumstances for a statutory review rely heavily on timing.
The “original owner control period” relates to the period when the developer has the ability to force the body corporate to make decisions. This decision making control is exercised through the developer’s right to vote through lots it still owns or as part of an agreement with other lot owners.
The “review period” ends on the latest of:
- three years from the commencement of the caretaking agreement; or
- the anniversary of the annual general meeting held after the “original owner control period ends”.
These complicated timing calculations result in a window of opportunity of between approximately one and three years from the scheme’s registration date – which can be extended if the developer still owns a majority of lots in the scheme for longer than normal.
The body corporate begins the statutory review process by:
- passing an ordinary resolution;
- notifying the caretaker;
- obtaining a “review advice” within 2 months from notifying the caretaker;
- giving the caretaker a copy of the “review advice”;
- negotiating an outcome with the caretaker; and
- approving the change at a further general meeting.
If after negotiating, the Body Corporate and the Caretaker are unable to reach agreement on a revised salary or duties, the Queensland Civil and Administrative Tribunal has the power to make a decision and determine the salary or duties which should apply.
In implementing the statutory review process there are a number of complicated legal and commercial considerations that the body corporate needs to consider as part of its strategy. As examples:
- is the body corporate going to be better or worse off by starting the statutory review process?
- what aspects of the agreement should be reviewed – duties or remuneration?
- which consultant should be engaged to provide the “review advice”, and when?
- has the “original owner control period” started and is there sufficient time to complete the statutory review within the “review period”?
- has the caretaking agreement already been reviewed or assigned?
- how will the caretaker respond to any notice of the statutory review – will it be disputed?
These issues (and others) need to be considered by the body corporate as part of any statutory review process.
Mahoneys has acted in every significant statutory review dispute since the legislation was enacted and has significant expertise in this area.