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Advice on strata insurance commissions

11 September 2017

The strata reforms brought in over 90 changes to the legislation, including to insurance commissions. This article explains the disclosure changes.

Amanda Farmer, Founder of Your Strata Property, recently hosted a podcast on this issue with Reena Van Aalst, Managing Director at Strata Central, which you can listen to here.

The disclosure of insurance commissions is covered by section 60 of the Strata Schemes Management Act 2015.

Amanda said: “Strata managing agents must report at each Annual General Meeting whether any commissions or training services have been provided to, or paid for, by the agent in the preceding 12 months, and provide the particulars of those commissions or training services.

“The agent also has to set out an estimate of any commissions they expect to receive in the following 12 months. If an agent doesn't do this, they are subject to a penalty of up to $2,000, so it's an offence for an agent not to make this disclosure.”

She added how if your actual commission is different from the estimate provided, you have to notify your owners corporation and explain why. 

Reena added: “The legislation is a bit tricky because when you're estimating what you're going to be receiving for the next 12 months it's based on the insurance premium at the time, which could easily change in 12 months' time. 

“It also depends on the building sum insured by the valuation. Most agents I've seen are estimating a 5-10% increase the following year, but there's no real science behind that calculation.”

Amanda added that the owners corporation can apply for an order from the tribunal requiring a strata managing agent to pay them the value of any commission that has not been disclosed. 

They can also seek a refund where the agent hasn't complied with their obligations to disclose, or a disclosure was not made in good faith. 

Amanda explained: “My advice as a lawyer in the situation of good faith would be to explain to your owners corporation it's difficult to provide an accurate estimate because you don't know the sum insured. 

“That, in my view, is a disclosure made in good faith, and would be a good defence.”

Reena said in this situation there are two factors, the building sum insured, and the insurance rates changing. As a result, she advised asking a broker for advice.

Amanda says that a workaround would be negotiating the terms of your agreement to say you don't want you to take insurance commissions, and add it onto your management fee.

Reena added: “Strata managers can advise the client to dispense of an insurance commission in favour of paying a higher fee which is a way of being proactive.

“For renewal arrangements, where you're not negotiating a new contract with a new building, but continuing on, you may also suggest changing your terms of engagement.”