Let’s be Done With Pettifogging and Shackles – Rethinking Strata Management Agreements

Plato wrote in about 380BC, ‘The cure of a part should not be attempted without the treatment of the whole’. This ancient wisdom might be applied by strata management leaders seeking to building trust with strata owners and regulators following recent events.

In our case, the ‘cure of the part’ which has had our attention in recent weeks, is the way we charge for services and disclose this in our agreements, but the ‘whole’ is the agreement itself between an owners corporation / body corporate and managers. This is where we really need to focus.

The standard strata management agreement published by Strata Community Association Australasia and used by many practitioners would be a good place to start ‘the treatment of the whole’. It’s a terrible document that, on many levels, personifies the legal definition of an unfair contract. 

It runs for some 19 pages, contains five or six schedules that must be cross referenced multiple times to make any sense of the content, and in the way it is used it will often contain up to 60 or more different heads of charge. It is one sided with preferential treatment for managers and limitations of liability that are unfair. It should be scrapped, and we should start again with a blank page. 

If we were to do that, the first thing I would do is aim for something about five pages with two schedules; Schedule 1 – what’s included in the annual fee, Schedule 2 -what’s not. I would apply an hourly rate to what’s not and be done with the pettifogging. 

The second thing I would do is be more radical. I would make the contract capable of termination by either party on 30 days’ notice without cause. Yearly terms cause more problems than they are worth. They make people feel trapped, and in the case of new developments, trapped with a service provider, not of their choice. There is nothing worse than a client that feels trapped. They don’t want you, and the truth is, by this stage, you don’t want them. Without a path to freedom, everyone behaves badly. Like a marriage that has run its course, there should be no fault strata divorce. 

Apart from the futility of trying to hold someone to a contract for professional services against their will, there is an even more ludicrous thing about yearly terms. Each year, you invite the client to consider leaving. Why would you do that when the alternative is to get on with business until, for whatever reason, one party decides the arrangement is not working for them? 

We don’t sign our lawyer up to a three-year deal, nor our doctor, nor our accountant or any of the other professionals, the ranks of which we are so desperate to join. We engage them to provide a service and stay with them while ever they satisfy our needs. This freedom to stay or go is at the very essence of a professional relationship. 

Historically, the real reason for annual terms has been to bolster valuations on sale. Portfolios with longer-term contracts have been perceived as worth more than those with shorter terms. But is this still true? Was it ever true? I suggest the main reason strata management businesses are attractive assets is that the income is ‘sticky’.  It’s hard to leave a manager, and not because of the contract term. It’s hard because you must work against apathy and inertia to get people to vote for change. 

All sorts of businesses sell for healthy multiples of earnings without lock in contracts. Professional strata managers should think about joining them rather than holding on to relics of the past.