A few people have recently spoken to me about other agents asking them to sign new 3-year contracts and describing them as a requirement of the new strata legislation, which is expected to commence on 1st July 2016.
What is changing?
Amongst other changes, when the new legislation comes into force Agency Agreements between the Strata Managing Agent and the client (Owners Corporation, or ‘OC’) will be limited to a maximum term of 3 years. After 3 years the Strata Committee, the replacement of what is currently known as the ‘Executive Committee’, would then be able to extend the appointment in 3-month blocks but only until the next Annual General Meeting (AGM). The new legislation will not permit what is currently common, being: a continuation of the Agency appointment after the initial term, without formally re-contracting, but instead just rolling over until either party gives notice of termination – which is usually a 3 month period.
Does a Strata client need to sign a new 3-year contract now?
Absolutely not. Depending on the term of the existing agreement, and how long ago it was entered into, the agreement may end during 2016 (assuming the new legislation commences 1st July 2016) EDIT MARCH 2016: Commencement of new legislation deferred until at least September 2016. If that occurs, the Committee may then extend the appointment in incremental 3-month blocks until the next AGM, or can convene an Extraordinary General Meeting to approve the (re)appointment ongoing.
The actual Agency Agreement contract terms are also going to change, soon, to deal with other requirements of the new legislation. Most importantly, committing to term should be a decision entered into with more consideration than rubber-stamping a surprise inclusion by the Agent at the AGM, with a cursory explanation that it is required under new legislation.
Contract Term – 3 years or something else?
Even if an Owners Corporation has an agreement that would otherwise end during 2016, it does not need to commit to a 3 year term to avoid being without a Managing Agent. A shorter duration is one option.
Burdensome notice requirements (from the Agent to the OC) approaching the end of the contract term, or extension renewal, argue against contracts for 12 month or less – but contracts for a 15 month term will be a practical option.
Clauses allowing termination of the Agency Agreement can also be negotiated, creating freedom if a client is not comfortable being committed to their Agent.
Committing to a contract term limits a client’s freedom. The best agency relationships are built on mutual respect and performance. If an Owners Corporation has a Strata Managing Agent that is performing and has the client’s confidence, committing to a contract term in the Agency Agreement is a reasonable request. It assists the agency to increase resources and fixed overheads with confidence. If the track record leaves room for improvement or the client is otherwise uncomfortable being committed to the Agency for the next 2-3 years, then the client should talk to an Agent who will offer more freedom.
Above is not legal advice. It is commentary on new legislation issued by the Licensee of Young Strata, for information only. Any reader intending to rely on commentary is encouraged to seek legal advice from a suitably qualified and experienced Solicitor.