A New Law To Make A Messy Situation About Insurance Commissions Even Messier

A new law proposed that will legislatively enshrine insurance commissions and related party transactions for strata managers has been introduced to the Legislative Assembly NSW this week.

First, here’s a summary of the main point of the Strata Managing Agents Legislation Amendment Bill 2024 (NSW) -

1. Commission is defined to include insurance brokers fee  

2. Maximum penalties increased for not disclosing gifts or commissions, failing to disclose commissions and training benefits at each AGM, and not disclosing connections with original developer up from $2,200 to $55,000 

3. Commissions and training services disclosed in strata management agency agreements must -some text

• Only be approved at general meetings 
• For commissions, disclose the amount and method of calculation 
• For training services, disclose the monetary value or estimated monetary value 
• Detail the nature of the relationship between the strata managing agent and the provider 
• Detail why the provision of the service is in the best interest of the owners corporation 
• Give reasons why the strata management agent believes that the arrangement is not a conflict of interest 
• Disclosure at each AGM must include new connections with suppliers and the original owner during the previous year, and all connections with suppliers and the original owner including the nature of the relationship and the goods and services the connected parties supply 

4. Disclosure at each AGM must include new connections with suppliers and the original owner during the previous year, and all connections with suppliers and the original owner including the nature of the relationship and the goods and services the connected parties supply

5. Disclosure must be made by the strata managing agent before entering any contract if a commission or training service is provided, and where the provider is connected to the strata managing agent this must include -  some text

• That the payment has been approved by an agreement disclosed at a general meeting
• For commissions, disclose the amount and method of calculation 
• For training services, disclose the monetary value or estimated monetary value 
• Detail the nature of the relationship between the strata managing agent and the provider 
• Details about why the provision of the service is in the best interest of the owners corporation 
• Give reasons why the strata management agent believes that the arrangement is not a conflict of interest 

6. Breach of the three-quote rule for insurance renewal by strata management companies increased to $55,000 (max) and the information to be provided for each quote must include- some text

• Base premium amount 
• Commissions (excluding brokers fee), as an amount and as a %
• Brokers fee as an amount and as a %
• Stamp duty
• Levy amounts 
• GST 
• Statement about any connections with the person providing the quote and the insured

7. Agency agreements must not allow for commissions or expenses if insurance is ‘arranged without the assistance if the agent 

8. Enforceable undertakings introduced to aid regulatory enforcement of breaches by strata managers 

Second, in my opinion the impact of these reforms will be as follows – 

• Commissions and related party transactions in strata management will be validated by further statutory entrenchment
• Subjective reasons will be given by managers for justifications of commissions and related party transactions that do not adequality address the law relating to conflicts of interests by fiduciary agents. This Bill will create more work for lawyers and not provide owners or managers with the environment they need to work together professionally 
• Further complex disclosure is unlikely to be effective – essentially this Bill will ensure that its business as usual for strata managers with existing conflicts and related party arrangements, and that’s no good for anyone