A body corporate’s relationship with its management company is often entered into with the expectation that it will be long term. At the outset, there is usually a reasonable balance of power, responsibility and trust between the parties.
Over time, that balance can change.
As with many long-standing relationships, the end of a management arrangement can be difficult. If not handled carefully, the ending can overshadow what came before it and create disruption for the community.
For this reason, Committees should consider not only how a management relationship operates, but also how it might end, before issues arise.
Key Takeaways
- Planning for how a management relationship may end helps reduce disruption and risk for the body corporate.
- Clear termination rights and control of records are critical to managing a smooth transition.
- A professional and cooperative exit protects governance, continuity and reputation.
Why changing body corporate management companies can be challenging
In the context of a building’s relationship with a professional manager, the stakes are often high. Most Committees rely heavily on professional management to handle the day-to-day operation and administration of their community.
For many body corporates, this reliance is appropriate. A balance exists between the responsibilities of the Committee and those of the licensed manager.
However, in some communities, that balance gradually shifts. Over time, the manager may come to exercise control over essential information and the financial affairs of the body corporate.
When this occurs, changing management companies can become complex and potentially damaging to the body corporate.
Planning ahead through the management agreement
Given this level of reliance, Committees must be proactive about how a management relationship might end and what steps can be taken in advance to reduce risk.
Without clear planning, the transition to a new manager can be difficult. Delays in accessing records and uncertainty around financial information can disrupt daily operations and place the body corporate in a vulnerable position.
The appropriate time to consider how the relationship will end is before the management agreement is signed.
Termination rights
If the Committee wishes to retain the ability to terminate the agreement, with or without cause, at any point during the term, this right must be expressly stated.
Without a clear termination provision, a body corporate may be locked into an arrangement that no longer meets the needs of the community.
Control of funds and records
The agreement should clearly define how the body corporate’s funds and records are managed throughout the appointment. If the Committee intends to retain oversight or control in these areas, this must be set out in clear terms.
Assumptions about access to financial information or records often lead to disputes when a relationship begins to deteriorate.
Clear and well-defined terms at the outset provide certainty for both parties and help reduce the risk of disruption if the management relationship later comes to an end.
Retaining access to key documents
Committees must ensure they retain a complete and executed copy of the management agreement at all times. This document defines the scope of the manager’s authority and the body corporate’s rights and obligations during the appointment.
It is not uncommon for body corporates to discover they do not hold their own contract when issues arise.
This can create unnecessary complications, particularly if the Committee must rely on the outgoing manager to provide the agreement during a dispute or transition.
Maintaining independent access to key documents is a basic but essential governance measure. This includes access to:
- the executed management agreement
- contracts entered into on behalf of the body corporate
- core records required for administration and compliance
Having direct access to these documents allows Committees to understand their position, seek informed advice and respond decisively if concerns about performance or compliance emerge.
Managing records at the end of a management appointment
Most management companies now provide a broad range of services supported by digital systems that store:
- financial information
- maintenance records
- compliance documentation on behalf of the body corporate
While these systems can improve efficiency during the appointment, issues often arise when the relationship comes to an end.
Some management companies facilitate a smooth and cooperative handover of records. Others dispute ownership of records created during their appointment or delay their release.
Access to records is critical to the ongoing operation of the body corporate. Without timely access, Committees may face difficulties such as:
- meeting compliance requirements
- managing financial affairs
- supporting an incoming manager during the transition
Under the Owners Corporations Act, a manager is required to return all body corporate records at the end of their appointment, even where a monetary dispute exists.
This obligation applies regardless of the format in which the records are held.
Withholding records can significantly disrupt the body corporate and complicate the transition to new management. It also rarely leads to a constructive outcome for any party involved.
Managing the transition professionally
As with most matters in the body corporate sector, reputations matter. How a management relationship ends can have lasting implications.
Committee members change and circumstances evolve. A management company that exits professionally may be considered again in the future under different leadership, while a poorly handled departure can leave a negative impression.
Approaching the transition in a respectful and cooperative manner helps minimise disruption and supports continuity for the body corporate.
Key considerations when changing body corporate management companies
A strong relationship with a body corporate management company can last for decades and deliver lasting value to the community.
However, Committees should always consider the possibility that the relationship may one day come to an end.
By addressing termination rights, control of records and handover processes at the outset, body corporates can reduce risk and support a smoother transition if change becomes necessary.
Planning for the end of the relationship is not pessimistic. It is a sensible and responsible approach to governance.
Ready to review or change your body management arrangement?
If your body corporate is reviewing its current management arrangement or considering a change, there is no need for the process to be disruptive or difficult.
With extensive industry experience at Change Body Corporate, we help body corporates make management decisions that support long-term stability and governance that is effective.
To discuss your options or arrange a consultation, contact us today.
