Owners approval of the transfer of the management contract

Owners approval of the transfer of the management contract

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“A manager’s rights under a management contract may be transferred only if the transfer is approved by the owners corporation by ordinary resolution”, to quote S 53.  This could be read as requiring the manager to obtain OC agreement to a change of ownership of a manager business even though the name and personnel remain the same.  Owners do have a say about whether they want to move to the new manager company or find a new manager under the Unit Titles (Management) Act (Act).  However experience indicates owners can be short-changed in this process.

The Act provides in S 53 that:

• the manager can only transfer the management contract if the Owners Corporation (OC) approves the transfer by an ordinary (simple majority) resolution

• the OC has to approve or not approve the transfer within 30 days of being asked in writing

• if the OC does not take action within 30 days, it is assumed to have approved the transfer

• the OC cannot unreasonably withhold approval or seek a fee for approving and

• the OC can consider the following in making its decision:

  • the character of the proposed transferee and associates of the proposed transferee;

  • the proposed transferee’s financial standing;

  • the terms of the proposed transfer;

  • the competence, qualifications and experience of the proposed transferee and associates of the proposed transferee;

  • whether the proposed transferee or associates of the proposed transferee have received, or are likely to receive, training in relation to the manager’s functions;

  • anything else relevant to the management contract.

Section 53 binds the manager as well as the OC.  So the correct process for putting S 53, into effect is that:

• the manager formally informs the Executive Committee (EC) not individual owners, of its desire to transfer the management contract to a new business structure not just a new business and provides the information to enable the OC to make a decision,

• the clock for the 30 day approval period begins,

• the EC convenes a special general meeting and provides owners with the information that is available,

• the EC analyses the information provided by the manager and seeks more information if necessary,

• at this point the clock can be stopped by mutual agreement to provide the further information requested

• the EC provides owners with information as it becomes available,

• the EC advises the owners of its collective view, and

• the special general meeting makes a decision.

This process is unwieldy and the clock is ticking from the original notification. So the sooner the EC calls a meeting and starts analysing the information, the better.

If the OC votes against the transfer, the manager cannot transfer the contract and so the OC has to be released from the existing contract.

If the EC seeks more information and the manager requests time to provide it, then it is reasonable that both parties agree to stop the clock, otherwise the manager is behaving unreasonably. But certainly the OC cannot be assumed to have agreed the transfer, especially if it has called a general meeting. 

Early in 2017 one manager commenced a process to transfer contracts by writing to individual owners seeking approval without referring to the provisions of S53 or providing information on the new company. 

One OC promptly went to ACAT demanding its rights under S53, which ACAT supported to the extent of awarding costs against the manager and ordering that manager to immediately provide the EC with owners’ email addresses and telephone numbers so it could contact owners about the action urgently.   

In this case the manager decided to end its relationship with the OC and the action ended. The OC found a new manager.

So what does the OC do if the manager is determined to ignore S53, ignores the process or tries to substitute some other process?  Given that one manager has behaved in this way and was only partly deterred by an ACAT action, we can only advise that the EC commence an ACAT action very promptly. 

If an owner is unhappy that the EC has declined to call a meeting and to let the OC be deemed to have agreed the transfer, they can take an ACAT action against the EC to require the EC on behalf of the OC to seek the information necessary for decision making and call a special general meeting to enable owners to make a decision.  As part of that action, the owner will need to ask ACAT to stop the clock to give enough time for the OC to make a decision.

OCN has sought an amendment to give OC's 60 days to make a decision, among many other amendments of the Act proving to be necessary.

In conclusion, OC's do have rights over with whom and on what terms they contract for manager services.