Voting Rights and Conflicts of Interest

23 July 19

 VOTING RIGHTS AND CONFLICTS OF INTEREST


“Am I allowed to vote on this because I’m the building manager?” or “Can I be on the committee because I’m the building manager?” are common questions we get asked. The underlying issue is usually a question of whether there is a potential conflict of interest and how that conflict should be handled. The answers to these and other similar questions vary depending on your circumstances and from state to state. In this article I will focus on a few of the answers that apply with Owners Corporations in New South Wales.


Strata Committee Meetings


In an Owners Corporation, the building manager (caretaker/letting agent) is not eligible to be elected to the strata committee unless the building manager is also the owner of a lot in the strata scheme. This means that the building manager (or their representative if a company) cannot be appointed to the strata committee if the building manager only leases or licences an area in the scheme. As it is common for individual shareholders in a building manager company to own a residence in the scheme in their own name (and not in the name of the building manager company) it means that only those persons named as lot owners could be appointed to the strata committee. For example, if Mr and Mrs Manager run the building manager company, but the lot is only in Mrs Manager’s name, then only Mrs Manager may be appointed to the strata committee.


Once they become a member of the strata committee, the building manager will likely find that there are times when they have a commercial interest in a matter being decided on by the committee. For example when the strata committee is deciding whether to accept the building manager’s quote to paint a fence. When there is a potential conflict of interest like this, the building manager must disclose the conflict to the other strata committee members. The need for disclosure is more obvious when the conflicting interest is less obvious, for example when the building manager is instead just a shareholder in the company that provides a quote to paint the fence.


Once the conflict of interest is disclosed the building manager cannot participate in any part of the decision process unless the strata committee first votes to allow the building manager to participate. The building manager cannot be present when the strata committee deliberates on such a vote.


A person on the strata committee (building manager or otherwise) is not entitled to vote when the levies for the lot they represent were overdue when the meeting notice was issued and remain overdue when the meeting is held.


General Meetings of the Owners Corporation

 

While there are rules preventing the building manager voting on conflict of interest matters at the strata committee level, those rules do not apply to building managers at general meetings of the Owners Corporation. If the building manager owns a lot in the scheme and has paid their levies, the building manager may vote on any motion at a general meeting, like any other owner, even if the matter being voted on grants a benefit to the building manager.


While this might not seem appropriate to some owners, the key difference is that when voting at a general meeting, the building manager is just one of many who can vote on the matter, whereas at a committee meeting the building manager is just one of a few who can vote on the matter. When this power imbalance is removed it is entirely appropriate for the building manager to vote on matters that affect them as an owner, regardless of how it may also affect them as the building manager.


Proxies


A building manager may hold and cast proxy votes at Owners Corporation meetings, except when the motion being voted on would provide (or assist in providing) the building manager with a material benefit. A material benefit includes for example topping up the caretaking and letting agreements, increasing the caretaking remuneration or withdrawing from legal action against the building manager. When voting on matters that could provide a material benefit to the building manager, you will need to instruct owners to direct their proxies to someone else for that meeting.


Note that the net is cast fairly widely for this ban and it is not only the directors of the building manager who can’t hold the proxies, but all associates of the building manager who could be seen as acting as the building manager’s agent when holding the proxy. This may include all the staff and relatives of the building manager. When encouraging owners to vote on your motions you should be directing the owners to forward their proxies to people not associated with your business. Also remember that there is a cap on the number of proxies that a person may hold and therefore you may need to direct owners to multiple people to hold all the proxies.


These are just a few examples of how the rules for voting at meetings apply differently to the building manager than they do to other owners. To avoid making incorrect assumptions you should always check the rules that apply to you in your circumstances at the outset.

 

 Article Written by Col Myers of Small Myers Hughes Lawyers


Liability limited by a scheme approved under Professional Standards Legislation
Disclaimer – This article is provided for information purposes only and should not be regarded as legal advice.

Additional Documents

Click here to download: 2019_08_Aug___Voting_Rights___Conflicts_of_Interest.pdf

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