An Older Strata Manager Insurance Commission Story
Real Estate Services Council v Alliance Strata Management Ltd and Ors [1994] NSWCA 258
GoStrata’s CaseWatch is a short, sharp and easy-to-understand review of important and interesting Court and Tribunal decisions affecting Australian strata title stakeholders.
Quick Read
This 1994 NSW Court of Appeal decision is about attempts by the NSW property services regulator [the Real Estate Services Council] to cancel the licence of the strata manager Alliance Strata Management alleging that it was not fit and proper to hold it. The key issues in the appeal were whether the lower Court’s initial findings about Alliance Strata Manager’s disclosure of insurance commissions were inadequate and breached its fiduciary duties and whether its business structures breached limits on delegated functions and sharing management fees with unlicensed people. After considering the role of a strata manager as a fiduciary, the laws affecting fiduciaries, Alliance Strata Management’s management contracts and disclosures and its business arrangements, the NSW Court of Appeal decided that the business structure was illegal and explained when a strata manager could and could not keep insurance commissions under management contracts and otherwise. The decision had very significant impacts on Alliance Strata Management and the rest of the NSW strata management sector at the time and clarified the law around strata manager commission entitlements that have applied ever since then.
Implications
The key implications of this strata case are as follows.
A strata managing agent is a fiduciary in its role as an agent for strata buildings.
The law affecting fiduciaries and their duties is very clear and well known.
A strata manager fiduciary cannot keep a commission unless an exception applies to the commission.
One exemption is full disclosure by the strata manager about the commission and informed consent from the strata building to keep it, which both have very high requirements.
Another exception involves an agreement between the strata manager and strata building about keeping the commission before a fiduciary relationship exists, which also has pre qualifications and strict requirements.
Even if a strata manager can keep commissions, it must still select or recommend arrangements that are in the best interests of strata building’s regardless of commission entitlements.