Personal Liability of Executive Committee Members

The owner’s corporation is the body made up of all the owners in a strata scheme. It has the responsibility for:

• maintaining and repairing the common property of the strata scheme
• managing the finances of the strata scheme
• taking out insurance for the strata scheme
• keeping records and accounts for the strata scheme
• administering the by–laws for the strata scheme

The executive committee of the owner’s corporation is a group which represents owners or owners’ nominees. Now that we have established the distinction between these groups, we ask:

Did you know that your Executive Committee is personally liable for decisions it makes on behalf of the owners corporation?

As a member of an Executive Committee, each individual member assumes personal liability for any action or decision taken outside its authority.

Put plainly, this means that you as a member of an Executive Committee are responsible for any or all decisions made by an Executive Committee that are not sanctioned by the Act.

Are you aware that as a member of an Executive Committee there is a clear guideline outlining your governance responsibilities as a member?

This means that in your capacity as a member of an Executive Committee, you are legally required to adhere to and undertake a clear scope of duties as outset in the Strata Schemes Management Act.

While we will provide a guideline to these responsibilities in a further publication, we feel it is important to focus on the potential recourse as a result of non compliance.

What exactly is the implication of non adherence to these requirements?

In addition to personal exposure to litigation, actions deemed outside this scope are NOT covered by insurance policies undertaken by an Owners Corporation.

Directors and officers insurance policies typically held by owners’ corporations exclude cover for Executive Committee members where loss or damage is suffered as a result of:

• Any circumstance or event where a member of the executive acted or made a decision outside of its authority,
• Any potential conflict of duty or conflict of interest, and
• Penalties, fines, and aggravated, exemplary, and punitive damages.

Too often we see Executive Committees or owner’s corporations that approach us after having neglected or underestimated the extent of their fiduciary duties.

How these responsibilities apply to you and your asset.

Let’s look at the responsibilities of an Executive Committee when undertaking its procurement policy.

As a member of an Executive Committee, you have a legislative requirement pursuant to the strata Schemes Management Act (1996 – SECT 113) to ensure that you have engaged the services of a suitably and professionally qualified candidate.

STRATA SCHEMES MANAGEMENT ACT 1996 – SECT 13

2) An owners corporation must ensure that any person employed to assist it in the exercise of a function has the qualification required by this ACT for the exercise of that function.

What does this mean for me?

This means that not only is an Executive Committee liable for the engagement (or failure thereof) to engage a professional services provider/subject matter expert, it is also required to ensure that any proposed candidate holds the necessary qualifications and experience to undertake the role effectively.

Concerned you or your Owners Corporation is exposed as a result of a lack of set out policy or guidelines for its duties and responsibilities?

This is a very real concern given the extent of personal liability of the Executive Committee. To mitigate this risk, Executive Committees should seek professional advice in order to develop and maintain a comprehensive governance manual outlining the roles and responsibilities of an Executive Committee and its individual members.