Duties of the Manager – “The dark side”
An Original Essay by John Botha, Director of Highrise Strata Management
I write this insight piece based on 14 years direct and continuous experience as a Strata Community Manager and business owner.
Far too often we see the dark side of the industry emerge, where managers lose sight of their duties and obligations. Strata management firms often become too focused on profit and maximizing revenue streams while failing to generate nor deliver genuine value for their clients to justify the additional charges.
The phrase “the dark side” perhaps originated from the film, Star Wars Episode IV: A New Hope. George Lucas, the director used this phrase as a concept to show the evil aspect of the underlying controlling power of the universe. Strata Managers may not have Luke’s light sabre or Han Solo’s Millennium Falcon to navigate daily challenges however, many businesses, to some degree, find themselves succumbing to the seduction of the dark side, even without the alluring voice of James Earl Jones.
Historically, low barriers to industry entry and a lack of ethical accountability has allowed this to occur. Our industry body should be commended for championing continuous improvement and lifting the bar, so that we may be seen by the public as the trusted advisors we are.
Per Division 8, Part 6, Section 122 (1) (a) to (c) of the Victorian Owners Corporations Act it defines the Duties of the manager as: (a) A manager must act honestly and in good faith in the performance of the manager’s functions; and (b) A manager must exercise due care and diligence in the performance of the manager’s functions; and (c) A manager must not make improper use of the manager’s position to gain, directly or indirectly, an advantage personally or for any other person.
The Act is very deliberate in the use of the words “must” and “may” throughout, conferring a mandatory versus voluntary obligation. If we ponder for a moment how industry best practice should apply the above three obligations in every business dealing, and compare that to how the dark side operate, it becomes clear that some may have lost their way.
Strata Managers often defend their appointment when faced with termination. At times this defense ends up in court and even though in one instance found not to be illegal, the Tribunal held that the manager “went too far”. Is the manager making improper use of their position for direct gain when convening a meeting or ballot attempting to overturn a valid termination resolution?
Upon termination there are multiple instances whereby Strata Managers sought to withhold or withdraw funds from the Owners Corporation’s bank account in lieu of damages. SCA have subsequently made it clear this is not an acceptable practice.
Handover of records between strata managers is often shambolic, petty and spiteful. It should be a function of the manager to hand over comprehensive records. Is the outgoing manager exercising due care and diligence?
Some businesses seek to offer a one-stop-shop service. They set up ancillary businesses offering facilities management, fire and electrical services as well as a number of other essential services. Whilst there is a valid argument that synergy between operations can deliver benefit to the Owners Corporation, what processes are in place to maintain the Chinese wall?
When does this relationship blur towards the dark side where the manager makes improper use of the manager’s position to gain, directly or indirectly? Say the manager offers an after-hours emergency call service, great! Say the call center is an associated entity, ok. Say that entity, ABC123, subcontracts a plumber to attend site, legal. ABC123 then issues an invoice to the Owners Corporation containing a significant undisclosed markup, wow! I do not suggest any of this is illegal, merely challenge our industry to consider this in context of Section 122.
Legislative change will soon prohibit property developers from appointing associated entities as strata manager. One wonders if in the not too distant future we see the above practices ended also?
Insurance commissions have always been a hot topic. Natural disasters, financial crisis, flammable cladding and global pandemics have all contributed to an increase in strata insurance premiums over recent years. In some cases, this has resulted in a doubling of premiums and accordingly also the commissions. Has the average workload for strata managers increased proportionally? At what point does the continued exponential climb in premiums cause the manager to pause and consider Section 122?
Some Strata management companies are known to approach industry suppliers seeking “sponsorship” of annual conferences or similar training events. Is the company making improper use of their position?
We are blessed to be operating in an industry that has proven itself to be recession proof and is mandated by legislation. We get to wear many hats and appreciate the diversity this brings to the role each day. The ability to have a positive influence on the lives of so many puts us in the position to be unsung heroes, but will we?
You may ask, how does one stay within the light? I put it to managers that if the guiding consideration for decisions made that affect a client is, “does this generate and deliver a genuine value-add for them”, then you have acted in accordance with Section 122.
I challenge strata management firms, large and small, to pause for a moment and not lose sight of our obligations to act honestly, in good faith, exercising due care and diligence and not making improper use of our unique position to gain advantage that sees the dark side win.
May the strata force be with you.
References
• Wyndham Harbour A2 Pty Ltd v Your Body Corporate Pty Ltd [2019] VCAT 1710
• Owners Corporation No 2 PS338183E v Strata Plan Pty Ltd (Owners Corporations) [2015] VCAT 1148 (29 July 2015)
• Owners Corporation SP 7563 v Strata Plan Pty Ltd (Owners Corporations) [2018] VCAT 689 (10 May 2018)
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