Manager got angry when asked about commissions
Times Colonist
Tony Gioventu
25 May 2016

Dear Tony:
We have a new strata council this year. At our first council meeting, we were presented with a document that authorized our management company to receive commissions and fees from third parties.

We were told it was a standard form of document and every strata signs it. When we started asking detailed questions, our manager become quite angry with us and told us we were being unreasonable. When pressed for more information from past years, we were told the prior strata councils had authorized this and we were not entitled to any of the prior information.

We hear about finder fees and payoffs and kick-backs

We hear about finder fees and payoffs and kick-backs from contractors, but have never experienced it first-hand. Is this a normal industry practice? If it is, how do we know what we are signing if it is just an authorization for a contractor to receive fees as a result of doing our business, but never telling us what the amounts are?

Kevin J.,   Surrey

Dear Kevin:
The relationships around third-party fees and commissions may vary depending on the type of contractor.

The strata management company, for example, is your agent and has a fiduciary duty to act in your best interest as their client, whereas a contractor is not your agent and may be subcontracting for other types of services and charging a premium or fee on those services or may be receiving product rebates from suppliers.

The terms and definitions of services and any financial relationships and services that are compensatory are best addressed in the contract or service agreement.

Under a strata management agreement the Rules of the Real Estate Council require: if a licensee receives or anticipates receiving, directly or indirectly, remuneration, other than remuneration paid directly by a client, as a result of the licensee, the licensee must promptly disclose to the client all remuneration paid or payable to the licensee’s related brokerage in relation to the real estate services provided, and the disclosure must include all of the following: (a) the source of the remuneration, (b) the amount of the remuneration or, if the amount of the remuneration is unknown, the likely amount of the remuneration or the method of calculation of the remuneration, and (c) all other relevant facts relating to the remuneration.

A general disclosure form that simply authorizes commissions or fees is not complete unless the amounts and source of commission have been disclosed.

The actual amounts being received may have a material impact on your decision. For example, if a supplier is providing season tickets to a local sports team, but the actual value has no impact on the terms of the contract and the price is still competitive, both parties benefit. However, if the fees are increasing your cost as the consumer as a result of the financial incentive, then yes, you would assess the impact closely.

After all, the money is coming out of the pockets of your fellow strata owners. It all requires your consent.

demand full disclosure of any amounts being received, any business relationships

Protect your strata corporation and demand full disclosure of any amounts being received, any business relationships where the contractor, service provider or strata management brokerage owns or operates other companies that are providing services, and any incentives that are being provided to individual licensees.

whose interest are they really working on behalf of

If a contractor is receiving benefits from a third party, then whose interest are they really working on behalf of?

Tony Gioventu is executive director of the Condominium Home Owners’ Association.

Any property management company who asks the board to sign a release allowing them to make undeclared commissions on contracts that they bring to the board for approval, has got to be looked at with suspicion. Time for the board to hire different management.
editor—CondoMadness

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Be clear on roles with strata management companies
The Province
Tony Gioventu
07 September 2016

Question
Dear Tony:
Our strata council is in the process of interviewing for a new management company.

Our previous company constantly changed our manager and council did all the work we had contracted for. In the last three months, no one has come to our council meetings or provided us with any assistance, so we convened a special general meeting and terminated the contract.

Are there basic pitfalls we should watch out for when negotiating a new contract?

Martin K., Coquitlam

Answer
Dear Martin:
When you engage strata management, the company you retain and their staff are your agents. Meaning, they do what you instruct, what you contract for and act as you whenever they are doing your business.

Your strata must be clear on roles and responsibilities within the scope of the contract and the services being provided, if you are expecting a successful relationship. Confirm that everything a company claims it will do for you is detailed in the written service contract. Clearly define the performance description of the manager, when the duties are performed, and how they are reported to the strata council.  My contract mantra: “If it isn’t in writing, it likely isn’t true or going to happen.”

A number of strata-management companies  demand compensation or user fees from the contractors/service providers, which are often not disclosed

A number of strata-management companies  demand compensation or user fees from the contractors/service providers, which are often not disclosed to a strata, and many councils are unaware that they have signed a consent of some sort permitting other fees or compensation from third parties. The complication with this relationship is establishing who your manager is acting for — you, the contractor/service provider or their own interests.

Under an agency agreement, they have a duty to act in your best interest. That’s why you hire them.

There are two options to solve this problem

There are two options to solve this problem. Insert a clause in the contract that a) prohibits any fees, compensation or commissions from any third party, or b) as required by the Real Estate Services Act, any fees, compensation or commissions are disclosed to the strata corporation, and your consent to retain the fee is  required.

A legal review of strata management contracts before you sign is always advised. The company holds your trust funds, acts as your agent and business manager, advisor, record keeper, and represents your strata through most business transactions.

have a legal review of your contract and save yourself many heartaches

Negotiate a fair contract that holds both the company and the strata to a mutual level of accountability.  Usually, for under $2,000, you can have a legal review of your contract and save yourself many heartaches. Put this into perspective: what is it worth to protect your 150-unit highrise with an asset value of $45 million and a $1 million budget?

 When things go wrong, make sure you can end the agreement fairly. While the act defaults to a three-quarters vote, you can negotiate termination by majority vote, or unanimous vote of council.

If your strata can hire a company by majority vote, then why can’t you terminate them by majority vote?  It is a reasonable expectation that the owners at a general meeting would be competent to make this type of decision. This is a contract and may be negotiated. There is no such thing as a standard form of contract or contract that cannot be negotiated.

ask questions

Finally, review the schedule of fees closely and ask questions. Are there additional costs for extra services? How are they authorized? Do you pay additional fees to manage major projects or collect special levies?  Have you authorized the company to transfer your assets and services to another company in the event they sell?  How are decisions made that affect investments and trust funds? Many strata corporations have successful management relationships that span over 20 years. A fair contractual relationship is essential.

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Conflict of interest for property manager to take insurance sales commission?
CondoAssociation.com
19 June 2017

Question:
We are a self-managed board but I frequently meet with board members from other Associations that are managed. I recently learned that in addition to the management fees they pay, this particular management company has a licensed insurance agent and that they get 15% commission on a $60,000 policy. That's an additional $9,000 a year. This does not seem right to me. It is standard? Couldn't the board insist it be lower or the rates net of commissions totally?

Comments
Bob L  Michigan
6/19/2017
Insurance rates net of commissions totally? How is the agent going to make a living? BUT, this sounds more like a kick back than a commission. Basic rule: never buy insurance through your management company.

You can’t negotiate insurance rates with a single company: you need quotes from at least three companies. Select the company that best meets your criteria. It may not be the lowest quote. For example, we recently chose a company because their deductible was based on the complex as a whole rather than each building within the complex. It could be a huge difference in payout if storm damage occurred to several buildings.

Mary Flynn
6/20/2017
Anytime property Management gets commissions on outside things such as Insurance, vendors etc. it's called a kick back and the Association won't get the best deals just the paid off deals

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