Legal Ease

The hills not to die on in management rights

In the day-to-day operation of a management rights business there are dozens of potential spot fi res that can break out at any given time. That’s not to say they will all happen, most won’t. But if you get just a few sparking at once it is very easy to get frazzled and over-react.

The same problem can occur in any business, including law. Something I keep in mind when the sparks start fl ying: While I usually cannot control the circumstances, I fi nd myself in, I am always in control of my reaction. If you are going to choose to die on a management rights or body corporate hill, make sure it is a hill worth dying on. Unfortunately, most clients have chosen to take a stand before they speak to us, which is what brings them to us down the track to try to resolve the resulting mess. This is a grab-bag of the most common causes of disputes that we see… Interestingly, the cause of a dispute isn’t necessarily the dispute that we get engaged on. What might start as a small issue oft en gets blown up into something far bigger, perhaps related, but perhaps not. Now don’t get me wrong. Some of these issues might be worth arguing about collectively, but it would be rarely worth having a dispute over a single one of these.

Expenses

This is really #1 with a bullet. Most management rights agreements include a provision for the manager to pledge the credit of the body corporate or to have a spending limit of some description. This allows the manager to purchase the litt le things that keep the scheme running. That’s fi ne when it works, but sometimes (particularly under new committ ees) the committ ee wants to rein in the spending to understand where the money is going. As lawyers, we then get engaged to argue the clause of the agreement, and our advice (almost without exception) is not to bother.

Frank Higginson,

Partner, Hynes Legal

Why?

Because there is almost always a deeper issue of control and/ or trust behind the request. Either way, it’s one you need to roll with, and either manage the control issue or re-earn the trust.

At the end of the day, it’s the body corporate’s money you are spending. They are entitled to decide what happens with it, and if you want to argue the point it’s more than likely going to lead to bigger issues.

Corporate governance on the committee

Strata is the land of the committ ee volunteer. They may well have a professional body corporate manager engaged, but committ ees don’t have to listen to their body corporate manager or do what they recommend. So, some defi nitely go off script when it comes to proper governance. An easy example is jobs for mates without declaring confl icts, or even declaring confl icts knowing that the mate will still get the job. Is that proper corporate governance? No. Is it something that aff ects the value or management of your management rights business? Probably not. If that’s the case, then let it go. Because if you don’t let it ride you are going to make a potential enemy of the promoter of the idea on the committ ee, and you are eff ectively putt ing your head above the parapet in relation to everything you do. Are your business practices squeaky clean and above reproach? They may be, and if so that’s great. But in any business, mistakes happen. So, if you’re going to pull the trigger on accusations about poor corporate governance at a committ ee level, expect that same spotlight to be shone your way at some stage.

While I usually cannot control the circumstances, I fi nd myself in, I am always in control of my reaction

That’s not my job

I get it. There is a lot going on at any given time, and usually the request to do something that might not be in your contract can be delivered in a less than conciliatory manner, which is particularly the case if it is delivered in writing. If it’s a small thing that might take fi ve minutes or less, then my usual take would be to look at it as an investment. Will those fi ve minutes be an investment in furthering my relationship with the committ ee or the body corporate manager? The answer is usually, yes. However, these things can be the thin edge of the wedge. If the requests come repeatedly, it might be time to start to rein them in. If they’re because others are disorganised, it might be time to help them get organised. It is usually bett er to work within a collaborative framework than respond with, ‘That’s not my job.’ Simply put, that never, ever, goes down well.

The 24-hour rule

There is rarely any request that cannot wait 24 hours for a response. Each of the above situations would not demand an immediate answer, so in each instance perhaps draft what you would like to say but sit on it for 24 hours.

The response you give a day later will likely be very diff erent to the one you write at the time when your blood is boiling. Context is everything This article is writt en in midNovember 2022, which I think is important in context. We are all at the tail-end of a few rough COVID years, and both interest rates and infl ation are higher than they have been for the business memory of many. The opportunities for stress in running a business remain for all of us, and also the people we are dealing with. You always need to bear that in mind.