Service agreements must spell out dollar figures to be complete
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.
We hear about finder fees and payoffs and kickbacks from contractors but never experienced it first-hand. Is this a normal industry practice? 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 its 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.
Protect your strata corporation and demand full disclosure of any amounts being received, any business relationships where the contractor, service provide or strata management brokerage owns or operates other companies that are providing services, and any incentives that are being provided to individual licensees. If a contractor is receiving benefits from a third party, then whose interest are they really working on behalf of?