Zombie Strata Agreements: Fees, Rights & Risks After Contract Expiry

Introduction

When a strata manager agreement expires but services continue, both an owners corporation facing legal uncertainty and the strata manager can face uncertainty about their rights and obligations.This situation, sometimes called a “zombie agreement,” can lead to strata disputes over fees, implied agreements, and the proper way to terminate or extend a contract.

Understanding how these agreements operate after expiry is essential for owners corporations and strata managers alike. Consulting a strata lawyer is important to ensure that any action taken—whether to end, extend, or challenge an agreement—is consistent with the law and protects the interests of all parties involved.

Strata Agreement Expiry Rules & Legal Limits

Strata Manager Appointment Term Limits

Under the Strata Schemes Management Act 2015 (NSW), there are strict limits on the duration of a strata manager’s appointment. The initial term of a strata manager appointed at the first annual general meeting (AGM) of an owners corporation cannot exceed 12 months.

Following this initial period, any subsequent appointment or reappointment of a strata manager can be for a maximum term of three years. Section 50(1) of the Strata Schemes Management Act 2015 (NSW) ensures that long-term contracts do not lock an owners corporation into an agreement, which promotes regular reviews of the manager’s performance.

Mandatory Notice Periods & Extension Options

A strata manager has a legal duty to inform the owners corporation that their management agreement is approaching its end. They must provide written notice of the expiry date at least three months, but not more than six months, before the agreement is due to expire.

There are several options for extending an agreement, each governed by specific rules under the Strata Schemes Management Act 2015 (NSW). Understanding these can be complex, so consulting a strata lawyer is advisable to ensure compliance. The primary extension options include:

• Extension by the strata committee: The strata committee can extend a strata manager’s appointment for successive periods of up to three months. However, any extension cannot go beyond the date of the next Annual General Meeting. This provides flexibility while the owners corporation decides on reappointment.
• Extension by the strata manager: In certain situations, the strata manager can opt to extend their own agreement. This option is only available if the agreement was for a three-year term and the owners corporation decides not to reappoint them but fails to provide at least three months’ written notice of this decision. The agent can then extend the term for a maximum of three months by giving written notice to the owners corporation.

What Happens When an Agreement Expires but Services Continue

The Creation of an Implied Agreement

When a formal strata management agreement expires, but both the owners corporation and the strata manager continue to operate as if the contract is still active, it can lead to the formation of an implied agreement. This situation, sometimes referred to as a “zombie agreement,” is not based on a written document but is inferred from the conduct of both parties.

The key question is whether a reasonable bystander would view the parties’ actions as a signal that their relationship is continuing under the terms of the expired contract. As established in cases like CSR Limited v Adecco (Australia) Pty Limited [2017] NSWCA 121, if both parties continue to act as though the agreement still binds them, a court may infer that they have mutually assented to a new contract with the same provisions as the old one.

This assessment is a factual question based on the specific conduct in each case. For instance, the following conduct can be seen as evidence of an intention to maintain the relationship:

• The owners corporation continues to instruct the strata manager
• The manager continues to perform services and charge fees after the agreement has expired

Additionally, the silence of the owners corporation in the face of the manager’s ongoing work can also be a contributing factor to a finding that an implied agreement exists.

Estoppel by Convention as a Defence

In situations where a strata manager continues to provide services after their agreement has expired, they may use the legal doctrine of estoppel by convention as a defence against a claim that they are not entitled to fees. This principle can apply when both parties have proceeded based on a shared assumption of fact or law.

Estoppel by convention prevents a party from denying a shared assumption if it would be unjust to allow them to go back on it. For example:

• If an owners corporation’s conduct leads a strata manager to believe there is an agreement in place for them to be paid for their work
• The owners corporation may be “estopped” from later claiming no such agreement existed

This can even arise from silence where there was a duty to speak, such as an owners corporation failing to object to the continued provision of services.

This doctrine can provide a valid defence even where a primary contract might be considered void due to non-compliance with statutory formalities, as seen in the case of Equuscorp v Wilmoth Field Warne [2007] 18 VR 250.

Given the complexities of implied agreements and legal defences like estoppel, consulting a strata lawyer is important for an owners corporation to understand its legal position and obligations when an agreement expires.

Case Study: The Owners – Strata Plan No 63517 v Titles Strata Management

Background of the Dispute & The Expired Agreement

The case of The Owners – Strata Plan No 63517 v Titles Strata Management Pty Ltd [2025] NSWCATCD 112 involved a dispute between an owners corporation and its long-serving strata manager. The parties had a three-year strata manager agreement that was set to expire on 30 April 2024.

It was common ground that the strata manager failed to provide the owners corporation with the legally required written notice about the upcoming expiry, as mandated by the Strata Schemes Management Act 2015 (NSW). Despite this omission, the owners corporation was aware of the expiry date, and a motion to not renew the agreement was defeated at an extraordinary general meeting on 4 April 2024.

After the agreement expired, the strata manager continued to provide services throughout May 2024. These services included managing:

• a pool non-compliance notice from the local council
• emergency roof leaks and ceiling repairs
• lift compliance issues

On 27 May 2024, the owners corporation resolved to terminate the relationship and appoint a new strata manager. The dispute arose when the outgoing agent charged $1,450 in fees for the May services, which the owners corporation argued were unjustified because the formal agreement had expired.

The Tribunal’s Ruling on Fees & Implied Contracts

The NSW Civil and Administrative Tribunal (NCAT) ultimately dismissed the owners corporation’s application, finding that the strata manager was entitled to be paid for the services rendered in May 2024. The Tribunal’s decision rested on the principle of an implied agreement.

Although the written agreement had expired, the conduct of both parties showed they continued to operate as if the contract were still in place. The Tribunal held that the owners corporation, by accepting the services and remaining silent, signalled that the relationship was ongoing.

Relying on legal precedent, the Tribunal concluded that a reasonable bystander would regard the parties’ conduct as mutual assent to a new implied contract on the same terms as the expired one. Because this implied agreement existed for May 2024, the strata manager had a valid legal basis to charge fees for the work performed during that period.

Can a Strata Manager Charge Fees Without a Current Agreement

The Principle of Quantum Meruit

A strata manager may argue for payment based on the principle of quantum meruit, which allows for fair and just restitution for services that have been accepted without a formal contract. This legal concept, discussed in cases like Pavey & Matthews Pty Ltd v Paul [1987] HCA 5, is based on preventing one party from being unjustly enriched at the expense of another.

However, using quantum meruit as a defence can be complex. In the case of The Owners – Strata Plan No 63517 v Titles Strata Management, the strata manager had already paid themselves from the owners corporation’s funds. The Tribunal noted that:

• The agent was not seeking restitution but rather trying to justify keeping the fees.
• It was not established how quantum meruit could be used as a defence in this context.

Given these legal nuances, it is crucial to consult a strata lawyer to understand your position.

How an Implied Agreement Justifies Fees

A more direct legal basis for a strata manager to charge fees after their written agreement has expired is the formation of an implied agreement. This occurs when the conduct of both the owners corporation and the strata manager demonstrates an intention to continue their relationship under the same terms as the expired contract.

The key test, as outlined in CSR Limited v Adecco (Australia) Pty Limited, is whether a reasonable bystander would view the parties’ actions as a mutual agreement to continue the contract.

Conduct that can lead to this conclusion includes:

• The owners corporation continuing to instruct the strata manager.
• The strata manager continuing to perform services and charge fees.
• The owners corporation remaining silent and accepting the ongoing work.

When a tribunal or court finds that an implied agreement exists, it provides the strata manager with a clear legal justification to charge fees for the services performed during that period, based on the terms of the previous agreement.

Disputing Fees & Recovering Payments at the NSW Civil and Administrative Tribunal

The Process for Challenging Unauthorised Fees

If an owners corporation believes a strata manager has charged unauthorised fees, it can formally challenge them by lodging a strata dispute at NCAT. Under Section 232 of the Strata Schemes Management Act 2015 (NSW), the Tribunal has broad jurisdiction to hear and settle complaints or disputes related to strata managing agent agreements.

To address disputed fees, an owners corporation can:

• Make an application to NCAT to seek an order regarding the disputed fees.
• Rely on the Tribunal’s power to investigate the matter and make a determination, which could include ordering the repayment of funds if it finds the fees were not justified.

Why Consulting a Strata Lawyer is Crucial

The legal principles surrounding expired contracts, such as implied agreements and estoppel by convention, are highly complex. As demonstrated in cases like The Owners – Strata Plan No 63517 v Titles Strata Management, the outcome of a dispute often depends on a detailed analysis of the conduct of both parties.

Engaging a strata lawyer is important for an owners corporation to:

• Understand its legal position and the potential risks involved.
• Have a lawyer assess the strength of a claim, advise on the prospects of success at NCAT, and ensure that any action taken—such as attempting to terminate a zombie agreement—does not expose the owners corporation to a claim for damages.

Conclusion

When a strata manager agreement expires but services continue, an implied or “zombie agreement” can arise, creating legal uncertainty for the owners corporation. This situation can legally entitle the strata manager to continue charging fees, making it essential to understand your rights and obligations to avoid disputes.

Given the complexities surrounding expired contracts and implied terms, seeking professional guidance is crucial to protect your owners corporation’s interests. For specialised advice on your strata manager agreement, contact the expert strata law team at PBL Law Group today to ensure your rights are protected.

Frequently Asked Questions