What should you ask your body corporate manager about their fees and contract?

If you want to understand your body corporate management fees and contract, we’ve provided you with a number of key questions to ask your manager (and your scheme). Find out how willing they are to respond. If they resist, that may be a very good warning sign.

Understanding Management Contracts

The basic structure of most management contracts is the same – you pay a fixed annual cost for a range of agreed services and then variable fees for additional services required by your scheme.

This standard format makes a lot of sense. All body corporates will require certain services such as an AGM that can be covered by the fixed fees. Then, each scheme has different needs. A six-lot scheme will take a lot less management than a 100-lotter, and the variable fees allow for reasonable adjustments to be made. Structuring contracts this way is probably better than having an all in one package where schemes would pay a lot for services they don’t use.

Contracts fall down when there is considerable manipulation of the clauses by body corporate agencies to make customers focus on lower headline cost items instead of thinking about the total amount you pay. Then, companies don’t clearly disclose the amounts you pay for insurance management, making it very hard for customers to see the true costs applied.

The true amount your body corporate management agency makes from your scheme

Interpreting the contacts can be tricky and, if you are projecting future costs, there may not be an exact answer as to how much you will pay. If you want to understand the true amount your body corporate management agency makes from your scheme, this straightforward sum will give you a good idea:

Total income = all fixed costs + additional services fees + fees for insurance commission/insurance management

You can ask your body corporate manager to provide your last financial year’s fees and costs for these items. If the manager is not forthcoming, you can check the totals for the agreed and professional services in your financial statements. The fees for the insurance commission (and any other referral commissions received) may be harder to find. Generally, a body corporate manager doesn’t like talking about these fees but they should be disclosed in documents of your last AGM notice, on the insurance renewal documents or the invoice. If you ask your body corporate manager to confirm the amounts for any fees they charge, and they are not transparent, that’s a warning sign.

Evaluating Value for Your Body Corporate Management Fees

Once you have calculated your manager’s income from your scheme, you have to think about whether you are getting value for the fees you’ve paid.

Remember, good management isn’t cheap. It requires time and knowledge and a high-quality manager will help your scheme run smoothly while saving money and stress by helping the committee focus on efficient spending and management. If you feel your manager is making a positive contribution to your scheme, that’s good news and if it costs an extra $50 or $100 per year, per owner to have that service, you may well see that as worthwhile.

On the other hand, you could be paying a lot of money for things you don’t get any value out of. This could be a manager who is never available and defers everything to their assistants. Or, it could be bloated contractual obligations such as fees for storing irrelevant archive boxes and sending out welcome letters whose main purpose is to fatten the bottom line for management companies. Even if you have a good manager, it’s worth investigating these opaque and unnecessary costs and question why they are there.

Key questions to ask your manager about their body corporate management fees

What is the total of the fixed fees?

The fixed fees are all fees your scheme will definitely pay. They are not just the total of the body corporate management fee and disbursements fee – anyone can add those up and companies like to keep these low to make you think their costs are reasonable.

Don’t be fooled! Companies have to earn income somehow and if the body corporate management fees are low, the company will be planning to monetise your scheme on the back end.

If you are comparing contracts or looking at a renewal don’t ask for the management fees – ask for the total of all fixed costs that will apply. These will include, but are not limited to, fees for:

• Management services.
• Disbursements.
• Tax filings – everyone makes one a year.
• BAS filings – you will have these if your scheme is GST-registered.
• Software provision – usually a fixed fee per lot per annum.
• Maintenance management fees – fixed fees for building management services.
• WHS or communication fees – fees for providing periodic reports or other vague services.
• Archive storage – if you have archive boxes you will be charged for the company to keep them. Mostly this storage is for old material that can be disposed of so see if you can get rid of the boxes. Watch out for odd charges like electronic storage – if you are paying a software fee why would you pay more for this?

Note that as a body corporate, you need many of these services. There is nothing wrong with paying for these services if you receive a valuable service in return.

How are the additional/professional services fees charged?

In most body corporate contracts, any legal service requested by and provided to the body corporate (committee or owners) that is not an agreed service can be charged as an additional fee. That’s OK – it gives management companies a lot of flexibility to offer different services to different sites. And, if your scheme doesn’t need much extra help, you should be able to keep these fees low.

The difficulty is, contracts can list dozens of potential fees making it very difficult to understand what is charged and when. If you are looking at future costs, it can be hard to work out what those fees will be. No one knows in advance exactly how much time it will take to manage your scheme.

When it comes to making an assessment of these fees, you need to feel things out a bit. Start by being realistic about how much time it takes to manage your site. If you are calling your manager every day, your body corporate management fees are going to be higher than if you call once a month. Be realistic about the time it takes to manage your scheme.

Then ask your management agency the following questions:

• Do they list examples of body corporate management fees in the contract or other documents?
• Will they show you example invoices for the fees they charge?
• Will they forward additional fees to the committee as with any other invoice or do they pay them on their own authority?
• What is the hourly rate for the manager? How about other staff? If different staff have different rates, how do you know who is doing the work? How do they avoid doubling up?
• Do they charge for supplying routine information like certificates of currency?
• Is there a fee for sending out owner information packs? Are there other fees like this that they routinely charge where there is no opt out and the benefits to the body corporate aren’t clear?

If the company is comfortable talking to you about these things and can give clear answers, that’s probably a good sign. If they don’t want to discuss their body corporate management fees or the responses are vague, watch out.

How is the insurance managed and how are fees calculated?

This is a critical one! The fees you pay for insurance management are a hidden fee that you can’t see directly in the contract. Usually, the amount you pay is listed as a commission with a short note in the agreement stating the manager will receive a commission from brokers or insurers and, typically, that the manager will be paid up to 20 percent of the base fee of the premium.

In simplified terms, if the base fee of your insurance is $10,000, your manager may receive a commission of $2000 for arranging the insurance and your cost will rise to $12,000.

Make no mistake: the commission is a fee that the body corporate pays to the manager.

Managers do work for these commissions, and they can do quite a lot. If your body corporate manager doesn’t charge commissions, they will be charging you in other ways for supplying insurance services. In the long run, these may be equal to or more than commissions. Let’s save that conversation for another essay. The point here is that, as customers, you should consider the commission as a fee body corporates pay to managers. If you want to know how much you are paying, you need to understand what this is.

A related but important question is whether your scheme can arrange their own insurance and whether there would be any fees for this. Look closely at the clauses in the contract. Many agreements have a clause that states that if you arrange your own insurance, the body corporate manager can charge you the equivalent of the commission fee. If you want to arrange your own insurance and you are not happy with this, ask the body corporate management company to remove the clause.

Lastly, note that it is quite likely commission payments to body corporate agents will be banned in NSW in the near future. Other states may follow. If they are banned in NSW or other states, you may want to ask why Queensland isn’t following suit. Even if insurance commissions aren’t banned in Queensland, is this a fee you want to keep paying?

Does the company receive any other referral fees or commissions? Does it have any affiliated companies?

In other words, does it receive any kickbacks? Or, if there is a maintenance job to do, will they only book a company that they also own? If they don’t own the company, do they get referral fees for recommending work?

When you engage a manager to provide your professional advice, that manager should only be working for you. Regrettably, this is not a standard that the industry has maintained. There can be arguments in favour of affiliated companies and vertical ownership, but the real life practice of how these have been integrated into body corporate companies over recent years has not borne these out. Unless there is a clear demonstrable benefit, be wary if the answers to these questions come back as yes.

How long is the contract for?

Many companies will automatically propose a three-year agreement when it is time for you to sign a new contract. Of course, they would. Long-term locked-in customers is what they want. This is not necessarily a bad thing. If you have a good relationship with your managers, signing a long-term contract can help with continuity and improve the service offering you receive.

However, if you have concerns, you shouldn’t feel pressured into signing these contracts. Watch out for clauses in contracts that allow the managing agency to automatically include their contract on a meeting agenda. Ask for a one-year agreement and compare the differences. Ask another company for a quote so you can compare.

And, if you are at the voting stage and you see a contract you don’t like, exercise your right to vote no. Votes are the most powerful tool you have.

How easy is it to communicate with the person who can resolve your issue?

Lots of owners will ask questions about response times and most companies, whether it is true or not, will respond giving you a variation on ’24-48 hours’. OK, but that doesn’t really tell you much. What really matters is how much time it will take to have direct content with the person who can action resolution.

There may not be a straightforward answer to this, but if you can phone or email your manager or finance manager directly, there is a fair chance that they are going to be the person resolving your issue. Giving good access to that person is a key part of good management.

On the other hand, if every time you call the company you have to speak to layers of different people until you get to the person who can help you, that’s a frustratingly inefficiency. Technically, you may have been responded to, but so what?

Availability and accessibility of the key players is what you need. Check with your managers to see how easily this can be provide.

Tower Transparency Comparison Checklist

To help you make ‘Your Best Decision’, we’ve created a comparison checklist to demonstrate Tower’s commitment to transparency, honesty and accountability. If your body corporate is not managed by Tower, use this checklist to compare how serious your manager is about transparency and disclosure.