17 Sep 2020
Minimum requirements for strata management contracts in WA imminent
By Shaun McNaught and James Harford
Developers of strata schemes in Western Australia should be wary of imminent changes to the minimum requirements for disclosure in a strata management contract under the Strata Titles Act 1985 (WA).
Key changes to strata management contracts imposed under the Strata Titles Act 1985 (WA) (STA) are scheduled to take effect on and from 1 November 2020.
The Strata Titles Amendment Act 2018 (WA) introduced a wide range of changes to the STA aimed at modernising scheme management in Western Australia. One such change is the introduction of statutory minimum requirements for management contracts.
The transitional provisions of the Strata Titles Amendment Act 2018 (WA) include a grace period from 1 May 2020 to 31 October 2020 delaying the effect of these changes. To date, a grace period has applied which preserves the effectiveness of strata management contracts entered into prior to 1 May 2020 which are non-compliant with the new statutory requirements.
Section 145 of the amended STA sets out new minimum requirements for disclosure in a strata management contract. Some of the new requirements are unsurprising and relate to the "usual" commercial terms that, in our view, a strata company would expect to be disclosed in a strata management contract such as the term, manager's functions and remuneration.
Other new requirements are aimed at improving scheme management by ensuring greater certainty and transparency in relation to the strata company's rights and the manager's qualifications and functions.
As and from 1 November 2020, management contracts must:
- include a provision requiring the manager to give the strata company written reports about the manager's performance of functions under the contract (the content and timing of such reports to be agreed by the parties);
- set out the circumstances where a strata company has "proper grounds" to terminate a management contract (including, for example, where the manager has contravened its duties to the strata company under the STA) and the process by which a strata company may terminate by written notice where there are 'proper grounds' for termination;
- include a statement that the manager will pay all money received on the strata company's behalf into either a separate ADI trust account, a pooled ADI trust account or the strata company's own ADI account;
- annex a "criminal record statement" in which the manager declares that it has obtained national criminal record checks as required by the Strata Titles (General) Regulations 2019 (WA) (STGR), such statement being in the form of a statutory declaration and, if the manager is a body corporate, made by a director of the manager;
- include a warranty that the manager will obtain national criminal record checks when required under the STGR and an obligation for the manager to notify the strata company if the manager is convicted of a property or dishonesty offence; and
- include a warranty that the manager holds professional indemnity insurance in relation to the performance of their functions under the contract of not less than $1,000,000 for any one claim.
Effect of non-compliance
A strata management contract that does not meet the requirements of section 145 of the amended STA will "cease to have effect" from 1 November 2020. Practically, this means the non-compliant management contract may be unenforceable as between the manager and strata company.
With the end of the grace period being imminent, developers who are yet to register a scheme, hold a position on the strata council, or wish to control majority voting in regard to a strata scheme, should engage with the manager and, if necessary, re-negotiate the terms of the management contract to ensure its continued efficacy post-1 November 2020.
Developers who will hold a position on the council, or majority votes on the strata company, for a significant period post-registration of the scheme (ie. developers in a staged re-subdivision development) should be particularly wary of these changes given they will have the direct benefit of the added transparency and certainty afforded by the minimum requirements until the development is completed and all lots sold.