The Risks With Long-Term Contracts: Lift Maintenance
LookUpStrata
11 January 2016

This article about lift maintenance contracts has been supplied by Wayne Stevens (UOAQ President) Unit Owners Association of Queensland (UOAQ).

Many complexes have long-term lift maintenance contracts: often, for 10 years or so. These contracts include two big risks to Body Corporate funds:

Inflated Price Increases:
 Most contracts allow for regular increases, based on arbitrary formulas like ‘wages indexes’, or 3.5% CPI. With their compounding effect, these increases will quickly cause the service fee to spiral upwards, out of all proportion to current market prices. By 10 years, your annual fees can easily be double what it would cost with a fresh contract.

90 Day Termination Clauses:
Most contracts require notice of termination at least 90 days prior to the contract’s end-date. Failure to give this notice can mean the contract automatically re-news for another 10 years or so, starting at the already in ated service fee. This is a double-jeopardy.

Who Knew? Not the Body Corporate Committee (BCC) at a Sunshine Coast complex.

The Body Corporate (BC) inherited a 10-year lift maintenance contract from the original developer in 2003. The service fee had started at $15,400 per annum: by 2013, it had grown to $26,000 per annum. This was about $10,000 above the 2013 market price. Although their contract should have expired in 2013, their Body Corporate Manager (BCM) overlooked the 90 day Notice of Termination Clause.

The original contract automatically renewed for another 10 years, commencing with a service fee of $26,000 per annum. The owners were facing excess payments of $100,000 (at least) over the next 10 years. The unit owners didn’t find out about this until 14 months later at their 2014 AGM, when an owner (a UOAQ member) queried the lift maintenance costs. By then, the Body Corporate had already wasted $12,000.

The Body Corporate Committee [Board of Directors] agreed, somewhat reluctantly, to engage an independent Lift Maintenance consultant.

Their consultant, armed with legal advice that any 90 day Termination Clause may be invalid, secured a more reasonable arrangement: not as good if the old contract had been terminated in 2013, but one which the owners could live with for the next nine years. (You can be assured they’ve already given notice of termination, effective 2023.)

The consultant advises that failure to provide notice of termination is a regular occurrence.

Consideration is now being given to pursuing a claim against the BCM [property management] for breach of contract.

Key Messages
Uplift Factors in Long Term Contracts:
Be very wary: this is how they make their money. Their fees start off low, then quickly spiral upwards, faster than current market prices.

90 Day Termination Clauses:
Give notice of termination as early as possible: do not wait until ‘just in time’. In the case of new contracts, handover the termination notice when you sign the contract. Insist on formal acknowledgment of the notice. Record the arrangement in full at the next AGM.

Consult an independent lift maintenance expert before signing any new contract.


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