The real cost of contracting
Strata property maintenance in Western Australia is a minefield of litigation just waiting to explode, according to SHANNON DANIELS of Triumphant Property Services.
As Western Australian strata managers try to cut costs and contract individuals for property maintenance work, they expose themselves to a Pandora’s box of potential litigation that can result in common law claims as high as $50 million. The real cost of contracting to an individual can be many times more than the savings on the contract price. This is the reality that is often missed by strata managers and councils of owners, who are keen to reduce maintenance costs.
By jumping at the cheapest prices, they are leaving themselves open to a potential wave of litigation for workers’ compensation, personal injury and public liability claims. Low-priced contractors are often individuals working on their ABN and hiring other family members or friends on a sub-contractual arrangement or a cash basis. This leaves the chief operating officer and strata manager responsible for workers’ compensation if they are injured on the job.
The Western Australian Workers’ Compensation and Injury Management Act is quite clear on responsibility. Section 175 of the act states “if a person (the ‘principal’) contracts with another person (the ‘contractor’) to perform work which is for the purpose of the principal’s normal trade or business, then both the principal and the contractor are liable to cover any workers the contractor may employ. Both parties are jointly, and severally, liable to cover the contractor’s workers”. In other words, each must have a workers’ compensation policy.
As most of these individuals do not have any real assets, the chief operating officer and strata manager would be most likely to face litigation and be left holding the compensation bill for any injuries sustained.
I am deeply concerned about the number of ‘Ma and Pa’ operations in Western Australia servicing contracts for major strata titled properties. Unfortunately, in their rush to save money, some strata managers are doing their owners a gross disservice – one that could ultimately bankrupt them in a worst case scenario. They have taken on the role of an employer.
In many cases when property maintenance contractors are engaged, the only concerns are the price and their ability to satisfactorily complete the work. Contractors need to be assessed in much more detail. It is particularly important to find out what liabilities a contractor has assumed and what liabilities it has passed on to the chief operating officer. You may find that you have in effect taken on the role of employer and are responsible for the workers’ compensation of these people and anyone they employ.
THE POTENTIAL FOR PUBLIC LIABILITY
Aside from not being properly covered for workers’ compensation, small operations are unlikely to have safety management plans and procedures in place, and will often leave a building in a state where an accident can easily occur.
There are a multitude of things that can go wrong. Slip and fall incidents are a growing area of litigation and, under Australian law, the property owner can be held liable for the incident if they “must have caused the spill, worn or torn spot, or other slippery or dangerous surface or item, to be underfoot”.
If they employed a contractor who caused the damage, or is negligent, the law states that they are liable if they “should have known of the dangerous surface because a ‘reasonable’ person taking care of the property would have discovered and removed or repaired it”.
Aside from the actual cost of litigation, bad publicity surrounds these incidents. This makes the property less desirable and lowers the amount owners can command in rent.
A lack of signage on wet floors or negligence around repairing damaged floor areas that could cause accidents is just part of safety for building maintenance contractors. Other issues include handling and storing dangerous chemicals, and building security. A negligent or poorly trained contractor can make a multitude of mistakes that can lead to injury for unit owners, their tenants and visitors. The importance of having a reputable and professional building maintenance company can never be understated.
EFFECTS ON RENTAL INCOME
Units in a well-maintained building will always command a higher price in rentals than comparable units in a poorly maintained one. By saving money on maintenance, strata managers can in effect lower the market value of the property and reduce the returns for owners.
It’s really false economics. The short time gains will soon disappear when the effect of a poorly maintained property begins to take its toll on the market value. Income losses will quickly wipe out any gains saved from the maintenance contract.
Shannon Daniels is the founder and chief executive officer of Triumphant Property Services.