Associate contracts, you must know the rule

Published: 18 September 2009.

Contributed by Frank Higginson of Hynes Lawyers

We have recently been retained by a manager whose management rights were in grave danger of being terminated for entering into a contract with an Associate.

An ‘Associate’ for the purposes of the BCCM Act is basically someone who has a shared business interest with, or is related to, a party, rather than being a normal service provider.

The relationships that can create an association for the purposes of the Act include:

• marriage (including a de facto relationship);
• other lineal family relationships (ie children, parents, brothers and sisters);
• partnership; and
• employment.

Where a body corporate enters into a contract with an Associate of the body corporate manager or caretaker, then the modules require that the association must be disclosed to the body corporate before it resolves to enter into the contract.

As an example, a caretaker might engage a company on behalf of the body corporate to provide certain services. If the director of that company is, say, a brother to the caretaker, that association must be disclosed to the body corporate before it is entered into. We strongly recommend that the disclosure is given in writing and noted in the minutes. An even better suggestion is that you find an unrelated contractor.

Failure to do so can lead to criminal penalties, but more importantly can lead to a body corporate issuing breach notices or seeking to terminate the management rights for misconduct. Obviously, this is something to be avoided if at all possible.

As with most things legal, disclosure will prevent the problem.

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