NSW: Our management rights operators want a 10-year extension on their agreement

Question: Our management rights operators have asked for a 10 yr extension on their agreement. This will result in a 25 yr agreement. What is the average management agreement in NSW?

We live in a holiday accommodation/motel-based strata complex. Our caretaker lives onsite.

The management rights were bought 6 yrs ago. They have asked for a 10 yr extension. This will result in a 25 yr agreement. This seems a very long time!

Is the manager setting up to sell halfway through their term and trying to make it a better deal for themselves? The caretakers will not last another 25 yrs, so new people will come in and we have no say!

What is the average caretaker management agreement in NSW? In this situation, what options do we have?

Answer: You should check what the contract says about assignments.

1. Under the current laws (since November 2016), the maximum period a strata manager can be appointed is 1 year at the First AGM, and 3 years after that. A 3-year appointment is normal.
2. The maximum period for a caretaker/building manager is now 10 years, unless they had already been appointed for a longer period before 30 November 2016. Some older agreements were grandfathered. For some coastal motel-style units, longer periods happen, also where building managers have “purchased” a contract. It sounds like this was an older agreement for > 10 years.
3. For both strata and building managers, it can sometimes be appropriate to appoint them for a shorter “trial period” (eg 1 year), to see if they lift their game, or to allow the owners corporation to go to market and get tenders.
4. Leasing rights are different, and might be tied to the lease of the common property area they use. That is simply up for negotiation with no statutory limits. It is common and economical for one person to do both.
5. If you fear the current caretakers (whether the on-site workers are employees or owners of the caretaker company) are looking for a longer contract beyond the expected working life of the current operators, it could well be they are looking to increase the value of the contract and on-sell. That is the logical explanation. You should ask them why they want such a long contract in these circumstances. It sounds like you have a fair relationship with the current on-site managers but if the current contract still has a long time to run, I wouldn’t be recommending extending it this early on.
6. You should check what the contract says about assignments to new purchasers. Usually it says the owners corporation cannot unreasonably refuse but in this case, you might either agree to the extension with full discretion to refuse assignments, or simply refuse the extension.
7. One other point to raise could be this. Mention to the caretaker that under the new laws, the maximum period is 10 years. So as they already have a contract for that or more, it seems inconsistent with those laws to extend it further. Those new laws give you an excuse to refuse the extension (refer to section 68(1)(b) of the SSMA).

James Moir
Madison Marcus
E: Strata@madisonmarcus.com.au
P: 02 8022 1222