Termination under the Act

• If one of the above provisions applies, the Body Corporate may terminate the Agreements only if-

– the Body Corporate has given the person a valid remedial action notice by following the procedure set out below; and

– the person fails to comply with the remedial action notice within the period stated in the notice; and

– the termination is approved by ordinary resolution (secret ballot).

Termination under the Act

• The remedial action notice must state - – that the Body Corporate believes the person has acted in one or more

of the ways mentioned above; – details of the action sufficient to identify-

• the misconduct or gross negligence the Body Corporate believes has occurred; or

• the duties the Body Corporate believes have not been carried out; or • the provision of the code of conduct or the Module the Body Corporate

believes has been contravened

– that the person must, within the period stated in the notice but not less than 14 days after the notice is given to the person- • remedy the misconduct or gross negligence; or • carry out the duties; or • remedy the contravention

– that if the person does not comply with the notice in the period stated, the Body Corporate may terminate the engagement or authorisation.

Termination under the Act

• If the remedial action notice does not strictly comply with these requirements, it may be adjudged to be invalid and of no effect

• The remedial action notice can be given to the resident manager under the authority of the committee

Termination under the Agreements

Under the termination provisions of the engagement or authorisation

• The agreements may be terminated under their own termination provisions provided that such provisions are not inconsistent with the Act (s318 – can’t contract out of the provisions of the Act)

Termination – in general

• Breaches will have to be severe and un-remedied in order to justify termination

• Body Corporate must act reasonably in carrying out its functions (can’t blindly pursue termination if not justified)

• Likely that resident manager will put up a fight (considerable asset at stake)

• Be mindful of adjudicator’s power to make decisions that are just and equitable in the circumstances

• Remedial action notices in themselves are generally all that is required to make the resident manager more accountable to the body corporate

Termination - disputes

• It is likely that a decision of a body corporate to terminate a resident manager’s agreements will be challenged by the manager

• Jurisdiction:

– Specialist adjudicator (by agreement)

– QCAT

Termination - limitation

Limitation for financed contracts • The Act provides that:

– Where a financier has notified the body corporate that it is the financier for a financed contract then the body corporate must give notice to the financier at least 21 days before terminating the agreements

– If the financier elects to act in the place of the manager (as approved by the body corporate) or appoint another person to act as receiver or receiver and manager (no body corporate approval required) then the body corporate cannot terminate the agreements

Alternatives - Negotiation

Negotiation

– negotiate new

agreements/duties that better suit the needs of the body corporate and the manager

– give manager an opportunity to sell and move on

Alternatives – Forced Sale

Forced Sale (“move on” provisions)

– Empowers the body corporate to require the manager to transfer the management rights if the manager is in breach of one of the relevant codes of conduct and has failed to remedy a valid code contravention notice

– Favoured alternative to termination because it has the effect of removing an underperforming manager from the scheme without completely eliminating their ability to recoup the value of their (often significant) asset

– Not applicable if there is no letting component to the management rights

Alternatives – Forced Sale

• Procedure: – the Body Corporate must resolve by ordinary resolution at general

meeting (by secret ballot) to give the manager a code contravention notice

– if the Manager does not comply with the code contravention notice the Body Corporate may (if authorised by majority resolution decided by secret ballot) give the letting agent a transfer notice

– once it receives a transfer notice, the Manager must transfer the management rights to a new Manager (who is not an associate of the existing Manager and who is approved by the Body Corporate) within 9 months

Alternatives – Forced Sale

– There is also scope, when the transfer notice is authorised, for the caretaking component of the Agreement to be reviewed by an independent person so that the terms are fair and reasonable for both parties. If this process is required by the Body Corporate, it must be so resolved by ordinary resolution at the same time that the transfer notice is authorised. If a review is required, the time frame in which the Manager is required to sell the management rights is increased to 11 months

– When a transfer notice is given to the Manager, the Body Corporate must give a copy of the notice to any financier that has notified the Body Corporate of its interest in the Agreement pursuant to section 123 of the Act.

Alternatives – Forced Sale

– if the Manager fails to transfer the management rights to a new Manager within the time frame allowed (9 or 11 months), the Body Corporate can find a purchaser of its choice, either at auction or by tender or by valuation, to whom the Manager must sell the management rights. All of the Body Corporate’s costs incurred under this section must be paid from the proceeds of the sale

– If there is less than 7 years to run on the Agreements, the Body Corporate is required to enter into new agreements for a minimum term of nine years

Tips for staying out of trouble

• Befriend the committee

• Do duties and be proactive in reporting your good work to the committee

• If you are served with a remedial action notice or code contravention notice – take it seriously; remedy the breaches; respond in writing (preferably via your lawyer)

• Be open to negotiation

• Stay objective

• Take the high ground

Questions?

Andrew Suttie Partner NICHOLSONS | Solicitors Level 12, 379 Queen Street, Brisbane QLD 4000 GPO Box 454, Brisbane, Queensland, 4001 P (07) 3226 3955 F (07) 3221 3756 E ajs@nicholsons.com.au W www.nicholsons.com.au