The risks with long-term contracts: lift maintenance
11 January 2016
This article about lift maintenance contracts has been supplied by
Wayne Stevens (UOAQ President) Unit Owners Association of Queensland
Many complexes have long-term lift maintenance contracts: often, for 10
years or so. These contracts include two big risks to Body Corporate
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
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
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.
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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