case studies

52 Fullarton Road, Norwood
PO Box 4040, Norwood South
South Australia 5067
P: 08 8333 5200 F: 08 8333 5210
e:mail@unitcare.com.au

Case Studies

In this chapter we look at some cautionary tales of mismanagement.

We suggest you use the following as cautionary tales when considering appointing a new manager or renewing a management contract. See our Management Checklist for help protecting your assets and peace of mind.

Story: Manager helps developer stitch up new owners

The developer and body corporate manager hold a meeting of the Corporation before the owners have settled on their units. The owners paid deposits some years earlier however they were not informed of the meeting. The developer and manager committed the Corporation and its owners to a a 15 year contract with the manager, 25 years with a hotel manager and an open ended agreement with the Council to pay for the developer's encroachment onto Council land. We believe that the manager failed to act in the best interests of the owners who would be paying their wages. Click on the video below (Channel 7 Today tonight May 2009) for details.

click on image to go to video

Story: Manager's carelessness sees owners at risk of bankruptcy

The owners of a a 6 unit group suffered a public liability claim from a visitor using the external stairs. The claim alerted their insurance company to the state of the stairs and that their design and construction failed to meet the Australian Standards. The Corporation in early 2008 had accepted a quote and was raising some $40,000 when the strata manager wrote the following to owners on May 6th....

In September 2003 the corporation's insurer sent a notice advising that unless the common area steps were upgraded to meet the Building Code of Australia 1996 then they would not be in a position to offer renewal of Policy 2 - Legal Liability or Policy 6 - Office Bearers Liability. The corporation held an Extra Ordinary General Meeting on 30 October 2003 to discuss this. At the 2004 Annual General Meeting a quote was accepted of $3,850 to install handrails to the steps as agreed with the insurer. They were installed.
At the 2005 Annual General Meeting approval was given to install additional lighting to the steps from the car park to the units. This was done.

On 27 February 2004 the insurer advised that they would diarise their files for two to three years time (2006 - 2007) re: the replacement of the steps. To date the corporation's insurer has not implemented the warning given in September 2003 not to offer Liability insurance cover or Office Bearers Liability cover and the 2008 insurance renewal has been received and paid.

The improved lighting and the handrail has clearly made a significant improvement to the safety level of the steps since 2003.
The current corporation owners if you so wish, may determine that there is no current obligation upon the corporation to replace the steps and you may resolve not to do so. If in the future ### or some other insurer does impose a requirement upon the Corporation to replace the steps then the Corporation will need to address this issue at that time.
As to monies collected to date our view is that if the Corporation decides upon this proposal then those monies can be returned to the individual unit holders. If and when the situation arises that the steps need to be replaced then the Corporation would need to meet and resolve to fund the works. That would then be subject of an appropriate levy from the unit holders at that time.

The outcome was that owners in good faith accepted the manager's advice and were refunded their levies.

The insurance company cancelled the public liability cover on renewal in early 2008 - a month before we became managers.

The insurance company have advised us that the manager at no stage in 2008 asked them if they were satisfied with the state of the stairs

This has left the owners personally exposed to any claims related to the stairs. We have had bunting erected about the stairs to warn all not to use the stairs.

Given the owners had agreed to the work and were raising the money, we are at a loss to understand the manager's advice to owners. We believe the advice may be the basis of a claim of negligence against the manager and their firm should a stairs related injury claim arise.

Story: Manager fiddles whilst balconies rotting

The owners of a three storey group became aware two years ago that the balustrades on their balconies had rotted and were no longer safe. One of the owners contacted our office frustrated and concerned as their manager had collected the money but only half the balconies had been repaired.

We discovered that the manager had failed to ensure that the balconies could not be used and to date residents and their visitors still have access to the dangerous balconies.

Given that the owner had tried many times to expedite matters we advised her to take her concerns to the group's insurance company as their Public Liability cover may be voided given the failure to prevent access to the balconies or undertake the repairs. We anticipate that the insurance company will give the manager a kick up the proverbial. If this fails then the matter needs to be referred to the Court for a breach of Section 25 - duty to maintain.

Story: Manager's advice puts lives at risk

At an AGM in 2006 some owners in a multi storey group of units considered allowing unit owners on each floor to construct lockers on the common property about the lifts. Their manager advised the chair and owners 'that only a simple majority was required'.

The meeting moved that 'the common area on each floor be under the control and responsibility of the owners of the units of that floor. Any work performed on each floor must have unanimous approval of all units on that floor. Any construction made on the common area will be subject to subsequent unanimous agreement by units of the floor. If one person objects on the respective floor the construction must be removed'. This motion is recorded as carried with 15 votes for and 7 against.

This motion clearly breaches Section 26 of the Strata Titles Act in permitting common property to be alienated for the benefit of individual unit owners without the required unanimous resolution or regard to local fire and planning regulations.

Section 26(4) The strata corporation may, if authorized to do so by unanimous resolution of the corporation, grant to a unit holder an exclusive right to occupy part of the common property for a specified period.

Some owners have already undertaken works This is a breach of Article 5 of the Corporation's Articles as follows…

5) The registered proprietor of a unit and every occupier thereof shall not:a) Use the common property or permit the same to be used in such a manner as unreasonable to interfere with the use and enjoyment thereof of other members of the corporation or occupiers of units or their families or visitors;

The Fallout: We acted for an elderly owner who has grave concerns for issues of fire safety and the use of common property without addressing leases, public liability, maintenance and changes of ownership. The manager refused to reply to our request to rectify the situation. Our client is now being blamed for tensions at the group. We believe the manager has failed in their duty to the Corporation and our client. The matter went to court. Some 18 months later the court ruled in favour of our client.

You have to wonder what unit owners get when they pay and pay every year for a strata manager !

Story: Owners denied their democratic rights

The developer of a community titled group of apartments sells their interest in the property to a related company to circumvent the law. The law on developers of community titles is: Section 87 (3) If the developer owns one or more, but not all, of the community lots in a community parcel he or she is entitled to the aggregate of the votes determined in accordance with subsection (1) in respect of those lots or to a number of votes equivalent to the aggregate of the votes determined in accordance with that subsection that may be exercised by all the other members of the corporation, whichever is the lesser.

The effect of this provision is that the voting power of the developer can never be greater than the combined voting power of the other members of the corporation.

In this case the developer's related company had a meeting without inviting the owners who had paid deposits on the apartments. At this meeting it was agreed to bind the group and its future owners to: 15 years with a body corporate manager and 25 years with a firm supplying cleaning and caretaker related services and an in house letting agent

We understand that none of these contracts went to tender. The new apartment owners are now faced with substantial ongoing costs with contractors not of their choosing. We hope the owners can get some relief by taking the matter to Court.

Story: Records of wrong group handed over

In the transfer of records from another manager to UnitCare we were surprised to discover archives from two other groups. The outgoing manager had charged exit fees of $99 that included the cost of checking the records for transfer. That manager refused to refund the charges despite admitting the error stating that they had 'done the work' and so should be paid for it!

Story: Refusal to provide owner list to Presiding Officer ( Privacy Act )

A Presiding Officer in a group rang us seeking advice regarding his body corporate manager's refusal to supply him with a list of owners at his group and their contact details. The manager stated that they could not do so as the Privacy Act prohibited it.

We have received legal advice that this is hogwash. The Privacy Act deals with the release of such information to a 3rd party. For example the Act makes it an offence for a manager to supply a Real Estate Salesperson with a list of owners at a group. The owners are the group and are entitled to this information.

We suspect that in this case the manager's refusal was to thwart owners talking to one another and perhaps sacking the manager.

Click to view our legal advice

Story: Manager charges for services not delivered

Manager charged the strata corporation for preparing their income tax return however upon enquiry the new manager finds that the Tax Office has no record of the strata. The new manager applied for and received a Tax File Number & Australian Business Number after the change of management.

Story: Refusal to hand over ledgers - funds short:

Manager refuses to supply the strata corporation's financial ledgers when the Corporation transfers to a new manager. They deny that these are the property of the strata corporation.

Following a number of challenges the outgoing manager handed over the ledgers.

Since receiving the ledgers the manager has been asked to explain why the balance handed over is short of the final balance on the ledgers.

Story: Fees drawn 1 year in advance – funds taken from sink fund:

Manager drew their fees 1 year in advance and before the AGM approved the management fees.

They then used the strata corporation's sinking fund to prop up the recurrent funds to enable daily bills to be paid.

The records show that the manager took the fee each year on the 1st business day of the new financial year.

The manager does not report the totals for the Admin & Sinking Funds separately so the transfers were not revealed to owners.

Story: Manager keeps bank interest:

Manager charges a fee that equals the interest the group earns during the year. The minutes refer to this however owners are clear that they never agreed to the manager keeping their interest.

The outgoing manager refunded the fee.

We often come across minutes that bear little relation to the meeting when it come to the managers fees and rights

Story: Group left uninsured by manager

Recently a two year old Community Titled group sacked their manager and appointed UnitCare. On inspection of the group’s insurance records it appears that the outgoing manager left the Corporation uninsured for some six weeks last year. We are also concerned at what appears to be no written authority to drop their cover by over $100,000. We have put these matters to the outgoing manager and asked for an explanation and for cover for the six weeks just in case a public liability claim comes to light. At the time of writing we have had no reply. Insurance is one of the most important services body corporate managers undertake, we are surprised at what appears to be a failure of the duty of care in this case.