Developers owe Fiduciary Duties to Strata Buildings
Community Association DP No. 270180 v Arrow Asset Management Pty Ltd & Ors [2007] NSWSC 527
Quick Read
This NSW Supreme Court decision about a long-term site management contract in a Balmain community title complex confirmed a long-forgotten legal doctrine about developer duties. The primary issue was whether setting up long-term contracts for strata and community title buildings where the developer profited and/or the strata building was bound to uncommercial terms was a breach of the developer’s duties to the strata building and/or future strata owners. The decision confirmed that developers owe fiduciary duties when creating strata title complexes which extend to site management contracts, profits they make from those arrangements, and adverse impacts on strata owners. It’s a very important decision about fundamental legal principles for strata stakeholders to understand.
Implications
Developers of strata and community title schemes are like promoters of companies.
Developers therefore owe fiduciary duties to the new strata and community title entities they create which will limit what they can do whilst they control them.
That includes an obligation not to profit from their position or to be in a conflict of interest in relation to contracts it arranges.
Developers must fully disclose any profits they receive when selling or setting up management rights [and other contracts or ongoing arrangements].
Full Report & Case Details
The decision was made by a single judge [Justice McDougall] in the NSW Supreme Court.
The case involved a dispute between the community association for Balmain Cove in Balmain and the developer [Australand] and the second site manager [Arrow Asset Management] about the long-term Site Management Agreement that had been made in 1998 when the association was under developer control because the Agreement was too long, uncommercial and restricted other service providers in the complex. There was also a dispute about the payment Australand received for arranging the agreement.
The agreement had the following key terms.
The term was 10 years with 2 options of up to 5 years each.
Arrow Asset Management was to perform certain specified duties for a fee.
The fee increased annually by the higher of CPI or 5% which was compounding.
Arrow Asset Management had exclusive rights in the complex to provide letting and tenancy management services.
The agreement was approved at an inaugural association meeting held when Australand still owned all the lots and only Australand and its lawyers were present. At the time the agreement was with Bondlake but it was later transferred to Arrow Asset Management with association approval.
Australand also received a payment of $190,000 from Bondlake for arranging the agreement.
There were many legal issues in the case with the association making 32 separate allegations. But the key legal issues were as follows.
Firstly, whether the agreement ended at the first annual general meeting because of s 24 in the community title laws as an agreement made in the initial period that was not adequately disclosed in the Community Management Statement and not ratified at that first annual general meeting.
Keywords
#NSW #NSWSupremeCourt #2007 #developer #fiduciary #managementrights #agreements #CLDA1989 #CLMA1989 #s.23(1)(a) #s.24