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Understanding conflicts of interest in a body corporate

Conflict of interest in a body corporate

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In a recent ‘Ask the Expert’ question, Strata Operations Manager Matthew Savage provided some insights on conflicts of interest within a body corporate.  

The question raised concerns about the need for committee members and owners to document conflicts of interest, ensuring transparency in financial decisions and contractor appointments.

Let’s explore the best practices surrounding conflicts of interest in a body corporate. 

Read more on Clarifying conflict of Interest in an article by the Commissioner for Body Corporate and Community Management here.

What is a conflict of interest?

A conflict of interest arises when someone’s personal interest clashes with their professional responsibilities in a specific situation.

In a simple example: The chairperson of a body corporate submits a $2,000 quote from their partner’s business to do work at the property. 

This is a potential conflict of interest as the chairperson’s objective judgement about the quote may be influenced by their desire to support their partner’s business. The existence of a conflict of interest is often unavoidable, and is not necessarily a bad thing. If handled properly, conflicts of interest are easily managed and do not affect the operation of the committee process.

Conflict of interest rules for committee members

Committee members play a significant role in making decisions on behalf of the body corporate. Committee members have a legal obligation to act in the best interests of the body corporate (all owners) and not in their own best interest.

When a committee member has an actual or potential conflict of interest, like the example mentioned earlier, they are required to abstain (not vote) on that matter.

However, they can still contribute relevant information and participate in the discussion. In our example it is fine for the chairperson to submit their partner’s quote to the meeting, however they should not vote when that quote is considered for approval.

Usually all committee members have “some interest” in getting a good outcome for their own body corporate – for example if a committee makes a decision to upgrade the light fixtures, they would also benefit as owners/residents of the building.

Simply having some level of interest in the outcome does not mean a conflict of interest exists.

Distinction for owners at meetings

Owners who vote at general meetings (AGM and EGM) do not have any obligation to disclose conflicts of interest.

An owner at a general meeting is freely entitled to vote in their own interest.

On the other hand, committee members are held to a higher standard as they make decisions on behalf of others (the body corporate and all its members). 

Transparency and best practices

Recording conflicts of interest in meeting minutes is not mandatory but is recommended as a best practice.

The only legal requirement is that a conflicted committee member abstain from a vote about the topic. The member does not need to explain the detail of the conflict.

Our advice however is that the committee should include a brief comment about the member’s conflict and their abstention from the discussion and vote. This does not change the outcome, but allows owners to be informed about the potential conflict in a transparent way.

The goal is to promote transparency and ensure that conflicts of interest are appropriately addressed within the body corporate. 

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