Posted by Grant Beaumont on May 23, 2017

THE NEW ACT: Proxy Farming

Proxies allow individuals to represent another person and are used in various areas including strata and community schemes. While proxies are intended to facilitate and simplify proceedings when an individual cannot be personally present, sometimes they don’t work so smoothly. For example, the application of proxies in strata and community schemes has been marred by controversies.

Ever since the original strata scheme legislation was introduced, there was a serious need to address the rights of owners who were unable to attend meetings personally but needed to be represented nonetheless. The problem was the founding legislators lacked the awareness and understanding of how proxies could be misused for vested interests.

The strata industry has grown and evolved since then. Old untenable rules have been amended to ensure that every individual’s rights are protected and no one is taken advantage of or misrepresented by proxies.

The changes included in the Strata Schemes Management Act 2015 includes measures to refine proxy appointments and restrict the number of proxy appointments that a single person can hold. These changes are instrumental in bringing the practice of proxy farming to an end.

 

History of Proxy Farming

The Strata Schemes Management Act 1996 allowed any person to be appointed to act as a proxy. The procedure to appoint a proxy was simple. The owner filled out the relevant form and ensured it reached the secretary of the owners corporation before the meeting started. One person could be a proxy for several owners at any meeting. The proxy could then make all lot-related decisions on behalf of the owners they are representing.

The problem with this is that it put the power in the proxy’s hands. Without the owners’ present to monitor the meetings, the proxy had ample opportunity to influence the proceedings to serve their own interests.  Any decision made by the proxy could have financial implications running into hundreds of thousands of dollars and more often than not, the main beneficiary would be the proxy holder themselves.

Many problems arose because one proxy was allowed to represent several lot owners. To capitalize on this opportunity, proxies aggressively garnered representations. Some simply approached owners asking for the appointment while others even went so far as to intimidate lot owners and coerce them to sign the nomination form. Any proxy who had secured several representations could essentially influence any motion passed during the meeting, as each proxy appointment translates to a vote.

Proxy farming however, did have its benefits too. Since one person held several proxy appointments, it was easy for owners corporations and strata managers to get the necessary quorum at meetings so voting on motions could proceed quickly and smoothly without waiting for owners to be physically present. Unfortunately, the advantages have been overshadowed by proxy farmers, who were only interested in personal gains.

 

Bringing Proxy Farming to an End

Introducing new legislation to stop unscrupulous individuals misusing proxy appointments was the need of the hour. The Strata Schemes Management Act 2015 aims to do just that. The additions to the Act have drastically changed the way proxy appointments are made.

The new legislation stipulates that one individual can only represent one other person at the most, in strata schemes that contain 39 or less lots. In strata schemes that contain 40 or more lots, the number of owners that a single proxy appointee can represent increases progressively up to a maximum of 5%.

If owners disregard this new legislation and appoint the chairman as their proxy, the chairman is permitted to accept only a limited number of proxy requests. This again leaves the process open to abuse as the appointed proxy can choose which proxy requests to accept and which to reject if the chairperson does not inform affected lot owners that their lot/vote will be taken into consideration during the meeting.

Under the Strata Schemes Management Act 2015, if owners nominate proxies blindly, without giving due thought to the impact of their actions, the campaign will be invalidated.

However, this brings to the forefront another question – what if a number of owners genuinely need to be represented at a meeting due to their inability to attend it? Every lot owners will now have to look for another proxy holder to represent them or their vote will not be counted. The good news is that the new legislation has taken this account by setting up a procedure that allows the lot owners to cast their vote prior to a meeting as long as the agenda has been written to note votes can be cast that way.

It is also interesting to note that the Strata Schemes Management Act 2015 has not made any changes to the way a corporate entity nominates a representative. So, it is quite possible that proxy farmers may switch from individual lot owners to corporate lot owners, and try and amass a larger share of the votes than they would have with individual owners.

 

The Bottom Line

While the new strata schemes legislation does look to put an end to proxy farming, it may not be that successful. Proxy farmers may still be able to find ways to work around the new Act, but they would need to be more creative to fulfil their vested interests.

 

Contributing writer: Robert Odenthal | Associate Director | Beaumont Strata Management

About the Author, Grant Beaumont

Grant Beaumont

As Director of Beaumont Strata, Grant is passionate about the management of Commercial & Industrial Property. With an enthusiastic attitude toward innovation, and adoption of modern practices, the businesses have significantly developed in terms of the internal processes, creating business efficiencies and enhancing the customer experience for clients and customers. In addition, he handles much of the administration side of the businesses, comprising legal, accounting, human resources and office matters.

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