A service contract is a contract for the supply of services to the body corporate. It is entered into between the body corporate and a contractor for a term of at least one year.
Contracts generally must be approved by ordinary resolution before they are entered into by the body corporate. Usually the chairperson may enter the contract on behalf of the body corporate.
Two common types of service contract include:
- contracting a manager to carry out secretarial and administrative services that the body corporate or committee has a duty to perform, for example producing pre-settlement disclosure certificates under section 147 of the Unit Titles Act 2010.
- contracting a building manager to upkeep the common property and services that benefit all the owners.
There are a number of different professionals that provide services to bodies corporate. Professional managers are not members of the body corporate, rather, they are contracted to provide specific services.
Professional body corporate managers are one of the most common service providers to bodies corporate in New Zealand. They tend to do many of the administrative tasks on behalf of the body corporate, such as organising meetings, preparing financial statements and collecting levies.
Some developments, particularly mixed-use developments that have hotel or serviced apartment units, have building managers. The role of building managers varies. In some cases they are responsible for running the hotel or serviced apartments. In other cases they organise repairs and maintenance of the building. Sometimes they might provide porter or reception services. The body corporate is usually responsible for paying the building manager.
Bodies corporate are required to establish and maintain a long-term maintenance plan. Some bodies corporate might consider engaging a specialist to create the plan and update it regularly, especially if you have a large development with a lot of common property.
Many long-term maintenance specialists will provide advice on what the plan should cover, when maintenance needs to be undertaken on different parts of the building and how much it is likely to cost. Some long-term maintenance specialists will also provide advice on how much you should save to pay for maintenance in the future.
Things to consider when engaging a service provider
Whatever kind of service provider you’re thinking of, you should always:
- Decide exactly what you want a service provider to do, and put it in a contract. You might want to consider having a lawyer look over the contract for you. You have more consumer protection if you have a contract.
- Shop around. There are a number of different companies and individuals providing services to bodies corporate. Find the one that’s right for you.
- Check references. Find out what kind of experiences other people have had with their service provider. Ask potential service providers for references.
Witnesses to the contract
The body corporate should determine if the contract or obligation to be entered into is required to be in writing, or not. If it must be in writing, it must be witnessed. A witness can be a member of the body corporate committee or a member of the body corporate if there is no committee. If there is only one member of the body corporate then a witness can be someone who is not the member of the body corporate and who has no interest on the contract or obligation. (Regulation 17(4) of the Unit Titles Regulations 2011).
Service contract entered into by a developer
Sometimes, during the control period (in most situations, the control period is the period of time before a body corporate of new owners is established) the developer of a unit development may enter into a service contract with a service provider. If the developer does this, they must exercise reasonable skill, care and diligence and act in the best interests of the body corporate, by ensuring that:
- the terms of the contract achieve a fair and reasonable balance between the interests of the body corporate and the service provider
- the terms of the contract are appropriate for the development
- the powers and functions of the service provider are appropriate for the development and do not adversely affect the body corporate’s ability to carry out its functions.
If you are in the situation where the developer has entered into a contract on behalf of the body corporate and you think the contract is not fair, you may be able to apply to the Tenancy Tribunal, District Court or High Court (depending on the value of the dispute) for an order:
- requiring the developer to pay the body corporate compensation for any loss or damage, or
- terminating the contract on the grounds it is ‘harsh or unconscionable’.
You should consider taking independent legal advice before making either of the above applications.
Provisions to consider in building manager service contracts
There is no ‘one size fits all’ service contract that suits all unit developments. For example, sometimes in a large unit development a service agreement will provide accommodation for a manager to live in the unit development. In other unit developments, the building management service might be supplied by regular visits and off site administration services.
Here are some common provisions to consider when looking at a service contract.
- Identity: the name of the individual or entity providing the services is stated correctly as a party to the agreement. If contracting with a company, check the Companies Office Register to ensure that the body corporate is contracting with the correct legal entity.
- Services: Where detailed services are to be provided, you could use a schedule to clearly set out all the duties the contractor will perform. Services may include:
- maintenance of specified property. You may wish to include a cap on maintenance costs for sums above a figure determined by the body corporate, which can’t be exceeded without body corporate consent.
- accounting for funds of the body corporate that come into the contractor’s hands.
- attending to Building Act and Fire Safety Regulations compliance issues.
- maintaining an up-to-date register of residents
- overseeing and implementing the annual and long term maintenance plan for the unit development
- the contractor’s availability for attending individual unit owners requests
- complying with local authority rubbish requirements and keeping rubbish areas tidy
- administering security keys and tabs, and holding master keys
- complying with body corporate rules and reporting monthly to the body corporate.
- Term: the term of the service contract should be for at least one year. The term should only be renewed at the body corporate AGM. Service contracts that are entered into for long terms may be susceptible to challenge.
- Charges: the contractor’s fee should be recorded on a per annum basis and should clarify whether payment is to be invoiced monthly inclusive of GST or exclusive of GST.
- Accommodation: an area designated for occupation by the contractor, as accommodation or as an office
- General Conditions:
- restricting the contractor from assigning their rights under the service contract without prior consent of the body corporate
- clarifying the contractor is not an employee of the body corporate and is an independent contractor
- restricting the contractor from sharing any confidential body corporate information without body corporate authority to do so or where necessary to perform duties under the service contract
- restricting the contractor from sub-contracting any duty without prior consent of the body corporate
- requiring the contractor to supply records and information to the body corporate if the contract expires or is terminated
- requiring the contractor to meet a benchmark standard or performance and having a performance appraisal process
- Termination: the grounds on which the parties to the service contract may terminate the contract
- Disputes: the contract should describe a process for dealing with disputes between the body corporate and contractor
- Indemnity: the body corporate may indemnify the contractor against claims made against the Contractor while carrying out its duties
- Liability: a statement that the contractor will not be liable for damage or loss caused by the breach of any body corporate rules by an occupier, lessee, or visitor
- Body corporate assets: the contractor may be restricted from obtaining income from using the body corporate assets without the prior consent of the body corporate
- Signatures: the identified parties are correctly recorded in the signature space, have authority to sign and there is provision for witnesses to sign