Body Corporate Tips, Body Corporate
Reallocation of Exclusive Use Areas must be lodged within 3 months
Article by Bronwyn Rule
Current as at November 26, 2024
Apart from disputes with developers about building defects, terminating a management rights agreement is the biggest fight you can have in a body corporate in Queensland.
Most terminations of management rights agreements result in the manager trying to keep the agreement on foot. In that instance, there was a well-worn path for a body corporate to follow if they wanted to end a management rights agreement.
First, the body corporate would issue a remedial action or breach notice. That’s effectively saying to the manager, ‘You’re not doing your job. You’re required to do your job. And here’s a period of time to get your job done.’
The manager either then complies with that notice or argues the validity of some or all of it.
The body corporate either accepts that the manager has done what they have to do, or the body corporate calls an EGM to seek to terminate the agreement because the manager has failed to do what they were required to do.
Traditionally, the manager would then lodge an application in the Queensland Civil and Administrative Tribunal (QCAT) to prevent the body corporate from acting on that termination until the validity of the notice itself had been argued in front of a member of the tribunal.
That’s how those disputes have been handled for time immemorial – hundreds of thousands of dollars spent on years of disputes.
However, when the manager doesn’t want to continue with the agreement, there is a different approach that may be taken by managers to a remedial action notice. If the body corporate resolves to terminate the agreement and the manager has not commenced a proceeding to contest the validity of that termination, the manager can claim the body corporate’s action is a repudiation of the management rights agreement.
Repudiation from a contractual perspective is when one party to a contract says to the other, ‘I’m not going to be bound by it anymore and I’m bringing it to an end.’
So, if a body corporate terminates an agreement in circumstances where it’s not entitled to do so, that could be, and has been, interpreted as a repudiation of that agreement on the part of the body corporate.
The manager can then say to the body corporate, ‘You’ve terminated that agreement unlawfully, and we’re going to sue you for damages.’
That repudiation approach is exactly what has happened twice in recent years.
In the first case, the body corporate won. The termination was ruled to be valid and the manager’s claim for damages was dismissed..
But in the second case, the manager won the dispute (although the decision is still open to appeal at the time of writing). And that exposed the body corporate to damages of more than $300,000 because that was the value of the business that was lost when the repudiation (or unlawful termination) took place.
This approach highlights a new risk for a body corporate that seeks to terminate a management rights agreement. The downside if a manager follows the traditional response is just costs – you pay your costs and, if you lose, you might pay some of the manager’s costs.
For the repudiation approach, you get to pay your own costs, you get to pay some of the manager’s, and if you’ve terminated the agreement unlawfully, you get to pay damages for the value of that agreement.
Yet again, it proves how important it is for a body corporate to understand the risks involved before going down the path of terminating a management rights agreement.
