One size does not fit all

Those who have been to Hong Kong, and decided to buy a suit will recognize the truth of the title of this article. Choosing a tailor is very much a hit-and-miss affair. You will find some who will tell you: “never mind the quality feel the width” and some will say: “never mind the fit feel the quality”. All will tell you: “never mind the problems, we can fix that”. Of course you may be lucky, and find a good tailor who knows his trade and delivers a first-class product. But if you get a bad one there is little you can do about it, and you are stuck with a bad fitting or poor quality suit.

The above experience can be likened to the Body Corporate and Community Management Act 1997 (BCCM Act) when a building contracts a caretaker. You never know what you are getting –- you will be fed a lot of nonsense about how good they are, and once the deal is done, you are stuck with the product. The big difference between buying a suit and employing a caretaker is that you do not buy a suit expecting it to last 10 to 25 years with no ability to choose another of your own choice.

Under the BCCMA there is little a building can do to rid itself of a bad caretaker. The move on provisions of Division 8 is a fraud on unit owners, and the termination provisions are expensive and protracted. A very senior and experienced Queensland District Court Judge stated in his judgment on the termination of a caretaker: “Because the matter arises in respect of a caretaking agreement, under the (BCCM) Act, the situation is rather more complicated than this, because the Act and Regulation under it contain mechanisms designed to make it difficult for a Body Corporate to terminate an agreement of this nature.”

The easiest and most cost effective action a Body Corporate can take is to allow the caretaking contract to expire. That is say ‘no’ to any contract extensions. Then the Body Corporate is free to contract its own caretaker, on its own conditions, and at a fair market price. The shackles and constraints of the BCCMA are removed, and normal commercial market conditions apply. There are over two hundred years of contract law with thousands of precedents to set the standards of employment and termination. Every private business operates under these laws – except the provisions of the BCCMA.

Many buildings in Queensland have shed the shackles of the BCCMA with great success, and reduced costs. Victoria has a very successful system where building managers contract direct to the owners’ corporation. As reported by Michael Teys in a recent article “New York and Europe operate without lock-in contracts for managers and buildings there don’t seem to be falling down.”

A study of one building that successfully terminated a caretaker for poor performance highlights the advantages and success of direct contracting…

This is a mid-size high-rise that is Class 2 and primarily residential, but with a few short-term rentals. Notwithstanding the residential nature of the building, the BCCMA allowed the developer to assign it to the Accommodation Module with a 25 years’ caretaking contract. The BCCMA Accommodation Module section 3(2)(b)(ii) leaves it to the ‘intent’ of the developer. Thus a 25 years’ binding contract can be assigned based on the developer’s desires.

The first caretakers in this example building were efficient and performed their duties well. But despite having a 25 years’ contract, they sold out after two years only (took their capital gain and deserted the owners). The next caretaker had little or no experience and, despite his best efforts the two-year old building deteriorated. This caretaker sold out after 18 months under default, after agreeing to compensate the Body Corporate thousands of dollars for the cost of restoring the building. Outside contractors were employed by the Body Corporate to restore the building and gardens before the new caretaker commenced duty. This caretaker turned out to be the ‘caretaker from hell’. The first formal default was lodged within five months. Four years and $100,000 later the caretaker’s services were terminated. Fortunately the financier of the contract had failed to advise the Body Corporate as required by BCCMA section 123 (1) thus nullifying the special protection provided to financiers (protection that is provided over and above the rights of the building owners). The Body Corporate was thus free to employ its own contractor on its own terms.

Caretaking is a specialized job demanding a wide range of skills not generally possessed by one person. The Body Corporate decided to contract specialists to each area. The swimming pool (that under the ‘caretaker from hell’ had twice been closed by Gold Coast City Council’s Health Department) was contracted to a pool company. The gardens and lawns that had deteriorated to an unkempt jungle were contracted to a specialist gardener. The garage that had been a problem from day one, with dirt and dust over cars and in the storage cages, was contracted to a specialist garage cleaner.

Recognizing that two of the highest contract maintenance costs are electricians and plumbers, the Body Corporate made it a priority to find a caretaker with one of those qualifications. Also, the caretaking duties for the building did not justify full-time employment.

The solution was a semi-retired plumber who had owned his own business and knew how to organise jobs and people. (He could never have been able to afford to buy Management Rights contract). He was responsible for coordinating and overseeing the sub-contractors mentioned above, as well as his own duties of cleaning the common property, minor and plumbing repairs, attending to the rubbish bins, and the mail.

The caretaker is employed for 4 hours 5 days a week; the gardener is employed for 4 hours per week, the pool maintenance person for 2 hours per week, and the garage cleaner for 2 hours per fortnight. ·These are all professionals in their areas of expertise, and are far more efficient than the old resident-caretaker. The caretaker keeps a log of all the activities, reports to the committee, and attends committee meetings to give a written report and answer any questions. The caretaker is happy and can supplement his income with other jobs. The Body Corporate is happy and can review the contractors’ working hours if required. All contracts have standard termination clauses.

The short-term rental owners have contracted to real estate agents who are professionals in holiday unit-letting. The standard of tenants is good; the units are cleaned by the real estate agents’ professional cleaners. Any misconduct is reported to the responsible agents who quickly deal with the problem. Rental owners report an increase in occupancy and an increased return on investment.

The total cost to the Body Corporate for maintenance of the common property is less than was being paid to the resident-caretaker, the maintenance standards of the building have improved and, most importantly, the owners are happy with their appreciating asset. The Body Corporate levies have been held constant for three years.

The biggest advantage of direct contracting is the flexibility and control retained by the Body Corporate. The owners are free to administer their building as they wish. Contractors can be hired and fired under the same conditions as any small business operation. Efficiency is improved and costs are reduced. The committee’s time is not consumed by raising default notices, consulting solicitors, attending mediation and adjudication. Costs are reduced by more efficient contractors working only the hours that are necessary, reduced legal fees, reduced Body Corporate manager ‘add-on’ fees for correspondence, calling and holding Extraordinary General Meetings and circulating correspondence as required by the BCCM Commissioner.

Direct contracting is a win – a win for the Body Corporate. Other buildings may have other priorities and can tailor their contracts to their specific requirements. One thing is for certain – one size does not fit all!