If your lawyer or accountant locked you into a three-year contract and charged you the full amount for walking away early, you would never hire them in the first place. Yet this is the exact arrangement most strata management agreements impose on owners corporations across Australia. The standard industry contract is not designed around the interests of the client. It is designed to protect the revenue of the manager.
Dr Nicole Johnston’s landmark report, At the Crossroads: Addressing Pervasive Conflicts of Interest in Strata Management, was funded by NSW Fair Trading and published in October 2025. It reveals the deep problems within the strata management industry. While the public debate has focused on insurance commissions and kickbacks, it has not examined the management agreement in detail.
What is wrong with the standard strata management agreement?
The standard strata management agreement is fundamentally one-sided. Most agreements in the market lock owners corporations into fixed terms, typically three years, with no right to terminate without cause. If the owners corporation wants to leave, it must prove a serious breach to end the contract immediately. Otherwise, it must pay the full management fee for the remainder of the contract.
Read: Let’s Be Done With Pettifogging and Shackles: Rethinking Strata Management Agreements
Management agreements across the country that I have reviewed have termination clauses that overwhelmingly favour the agent, and few agreements have a payout calculation method. This means owners corporations can't know beforehand how much it would cost to leave. Automatic renewal clauses let agreements continue unless the owners corporation acted to cancel them. Fee escalation clauses allowed annual increases of up to 5% or CPI, whichever was higher. Clients had no option to exit if the price became too high.
Why does the fiduciary relationship demand something better?
The fiduciary relationship requires more because a strata managing agent is not an ordinary contractor. The Johnston report on conflicts shows that strata managing agents are fiduciaries. They have the highest duty known in law to their owners corporation clients. Johnston says that fiduciary duty is based on trust and loyalty. A fiduciary cannot put themselves in a position where their duty to the client conflicts with their own interests.
Read: The Fiduciary Timebomb Ticking Under Your Strata Business Model
To my mind, lock-in contracts sit in direct tension with this duty. When an agreement makes it costly for an owners corporation to leave, the manager has prioritised protecting its revenue over the client’s interest in choosing a better service. The contract itself becomes a conflict of interest. A manager who trusts their service quality won’t need penalties to keep clients.
How do owners experience these agreements?
Owners corporations receive complicated, long agreements written in legal jargon. Most committee members find them hard to understand. Owners tell me they feel they cannot change the terms.
Read: Caught in the Crossfire: How Standard Agreements Turn Strata Delegation into a Professional Disgrace
The imbalance is striking: the agent holds the pen, drafts the terms, and presents them as standard. The owners corporation, often a volunteer committee with no legal expertise, signs because it believes it has no choice.
What does doing the right thing look like?
Doing the right thing looks like giving owners the freedom to leave. If we accept the strata management relationship as fiduciary, the contract should reflect trust, not coercion. Owners corporations should be able to end their management agreement at any time, without cause or financial penalty. When the Owners Corporation is ready to transition, the current manager can be told to stop work right away. This forces every manager to nurture relationships with ongoing attention. They can’t just rely on a contract that punishes clients for wanting better service.
Market pressure to lower base fees and compensate through conflicted revenue streams has created a race to the bottom. Only regulation can stop this trend. But for those of us building new strata management businesses, we do not need to wait for parliament. We can lead.
In my new strata management company, there will be no lock-in contracts. If we are not delivering value, owners should be free to walk away. That is not a risk to the business. It is the discipline that will make the business better.
Michael Teys has more than 30 years’ experience as a strata lawyer and academic and has owned 11 strata management agencies throughout Australia. He has a Master of Philosophy (Built Environment) and Bachelor of Laws. He lectures and writes widely about strata management issues in Australia and internationally.
