To the relief of the management rights industry, a recent Queensland Court of Appeal case confirmed:
1. The common practice of including lump sum fixed fee charges for services in letting appointments is lawful.
2. There is no requirement to itemize:
(a) the actual costs incurred to provide a service; and
(b) the amount of the manager’s reward for arranging a service.
The case also highlighted an ambiguous or deficient letting appointment can lead to arguments with lot owners and potentially with the Office of Fair Trading (OFT).
Allegations by OFT
In a long running saga, the OFT had alleged a manager was operating unlawfully because:
1. Cleaning and Foxtel charges:
(a) the room cleaning charge and monthly Foxtel charge levied by the manager were more than the costs actually incurred by the manager to have a room cleaned and Foxtel provided to a room; and
(b) the manager’s letting appointment did not specify how much of the cleaning and Foxtel charges were actual expenses and how much was the manager’s fee for arranging the services.
2. Wotif*: The manager charged owners 12% commission on the full rent amount collected by Wotif from a guest, not on the balance amount Wotif paid the manager after taking its 10% commission. The OFT alleged it was unlawful to charge commission on a rental amount more than the manager actually collected.
*The manager made apartments in the complex it managed available for rent via the Wotif website. When a guest paid for an apartment via the Wotif website, Wotif would collect a 10% commission and pay the balance rent to the manager.
After proceedings in QCAT, the QLD Court of Appeal found the manager was not acting unlawfully. Specifically, the Court of Appeal decided:
1. The lump sum charges for cleaning and Foxtel stated in the letting appointment were lawful. The lot owners received the services at the price specified in the letting appointment (which the lot owners had signed).
2. Letting appointments only need to specify the actual expenses incurred for performing services (the costs charged by the external cleaning contractor and Foxtel) if the manager will recover those charges from the lot owners and not absorb them in the manager’s fixed fee. In this case, the manager did not seek to do so – it offered a fixed fee for the services and took the risk it could outsource those services at its cost, but still make a profit.
3. The lot owners had authorised the manager to appoint Wotif and it was lawful for the manager to charge commission on the full amount of rent paid by guests and collected by Wotif. Whether or not this should have been included in the appointment as a recoverable expense is questionable, however not argued in the case.
A well drafted letting appointment will mean there are no surprises and (hopefully) no arguments with lot owners or the OFT.
Letting appointments should include:
1. Details of all charges for goods or services a manager will levy on lot owners.
2. Details of any increases to those charges, how the increase will be calculated and when it will apply (if an increase is not authorized in a letting appointment, managers should get lot owner consent to the increase).
3. Details of all expenses a manager will incur on behalf of lots owners and a specific authority to incur the expense. It is very important fees and charges are not referred to as ‘expenses.’ Expenses are passed on to lot owners (not absorbed by the manager in the fixed fee listed for a service).
We Can Assist
The ARAMA standard form letting appointments are a very useful tool and we recommend new managers refer to those.
But, no one size fits all.
Letting appointments should be tailored to fit the complex and the way a manager chooses to run their business.
Please contact us if you need assistance with your letting appointments.