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You may have seen some reporting back in March, and again in September, highlighting the unscrupulous practices which can unfortunately exist within the Owners Corporation (OC) management sector. While scrutiny on the sector can at times be uncomfortable and feel as though all Owners Corporation Managers (OCMs) get tarred with the same brush, we at The <br>Knight believe it is ultimately a good thing to bring questionable practices into the light. Indeed, we have been calling out these practices for years.
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Unpacking the Developer-Owners Corporation Manager relationship You may have seen some reporting back in March, and again in September, highlighting the unscrupulous practices which can unfortunately exist within the Owners Corporation (OC) management sector. While scrutiny on the sector can at times be uncomfortable and feel as though all Owners Corporation Managers (OCMs) get tarred with the same brush, we at The Knight believe it is ultimately a good thing to bring questionable practices into the light. Indeed, we have been calling out these practices for years. In this article, we’ll explore one facet of this recent scrutiny: the developer-OCM relationship. As you will no doubt be aware if you have found yourself reading this article, developers will often engage an OCM to assist them with the setup of the OC for their projects. While this engagement at times is remunerated via a fee for service, the more common approach is for the OCM to undertake the set-up work under the arrangement of receiving the contract to manage the OC upon settlement. Recent changes to the Owners Corporations Act have tightened requirements up in the developer-OCM space, including: 1.Making it illegal for a developer to receive payment from an OCM for a contract to manage the property, and 2.Limiting the term of the initial contract to a maximum of 3 years. These changes were heartily welcomed by The Knight when introduced. However, some consumers have still raised questions about this common remuneration approach. This is because – while the developer is the initial client of the OCM – during the Inaugural General Meeting (IGM) the OCM’s client changes to become the OC, comprising of all purchasers within the property. This change, if not properly navigated from the outset, could create a conflict for the OCM. At The Knight, we are proud of the work we do to assist developers. Helping to set an OC up for the success of future owners is our focus from the beginning, and this should be front of mind for developers too. Here are just some of the ways we ensure that future owners remain the focus, practices we believe should be the norm when working with OCMs. 1) Sustainable and realistic Owners Corporation budgets.
While this is now a legal requirement, there can still unfortunately be pressure placed on OCMs to keep OC budgets unrealistically low to attract potential purchasers with “low fees”. At The Knight, we will always make recommendations to developers about the realistic running costs of a development. To account for all operating costs of a development a year 2 budget is presented at the outset to ensure any year 1 savings (due to warranty periods, for example) are not misrepresented to purchasers. Presenting an unrealistically low budget will only result in dissatisfaction among future owners and place financial pressure on both them and the OC. Remember, unpaid fees will mean the OC does not have the funds to pay its bills, and this can have negative impacts on the repair, upkeep and safety of the building. This can in turn affect the developer’s reputation for future projects. Read more…
