This article about management rights extensions in Queensland has been supplied by Mario Esera, HWL Ebsworth.
Jump directly to the QUESTION you are after:
- QUESTION: We’ve recently changed to standard module and our caretaker has requested a 5 year top up. If we decide the top up request is reasonable, are we allowed to go beyond the 10 year restriction given we are now Standard?
- ARTICLE: Voting “NO” to Extensions and Assignments of Management Rights Agreements
Question: We’ve recently changed to standard module and our caretaker has requested a 5 year top up. If we decide the top up request is reasonable, are we allowed to go beyond the 10 year restriction given we are now Standard?
Our original module (2003) was accommodation with a 25 year management/caretaker agreement.
A year ago we changed to standard module and the caretaker has requested a 5 year top up. As we currently have 13 years left, this would extend the particular agreement for another 18 years.
Now that we are under standard module, we have a 10 year maximum allowance but have been advised that since the original contract was for 25 years, we are allowed to go beyond the ten years and are not restricted.
If we decide the top up request is reasonable, are we allowed to go beyond that 10 year restriction given we are now Standard? The committee is uncertain how we should table this to the Body Corporate at our AGM.
Can we ask the caretaker/manager to provide independent legal advice at his cost that shows we are able to even consider the request?
Answer: Your current caretaking agreement can be extended so that (if approved) the term increases to eighteen (18) years.
The short answer is that your current caretaking agreement can be extended so that (if approved) the term increases to eighteen (18) years.
The fact that you changed regulation modules does not affect your current caretaking agreement because that agreement was in place before the change occurred.
Pursuant to section 128(2) of the BCCMA, your current caretaking agreement will continue to be treated as if it is regulated by the Accommodation Module, meaning the ten (10) year restriction that otherwise applies under the Standard Module does not apply to it.
As mentioned in the article below, however, extensions may be reasonably refused by Bodies Corporate at general meetings. An extension is refused if it is not approved by ordinary resolution (i.e. the votes counted against the extension are more than the votes counted in favour of it).
Presumably, your Body Corporate changed regulation modules to reduce the term of the current caretaking agreement, so if asked to approve an extension, they would vote against it.
If more than half vote against the extension, then the term of the current caretaking agreement would remain thirteen (13) years.
If you or your Body Corporate require further assistance, please feel free to contact me directly.
This post appears in Strata News #385.
Voting “NO” to Extensions and Assignments of Management Rights Agreements
Recently I published a series of newsletters that looked at terminating management rights agreements, but termination isn’t the only type of dispute these agreements give rise to. More and more, I hear Bodies Corporate complaining about 5-year extensions that effectively lock them into never-ending 25-year contracts and assignments that create a revolving door where existing managers are routinely replaced with new managers.
Oftentimes, Bodies Corporate feel helpless to resist this merry-go-round of Extensions and Assignments, but a recent decision of the Queensland Civil and Administrative Tribunal shows that this needn’t be the case.
The facts of this case are fairly complicated (see below). In summary, however, this decision demonstrates that Bodies Corporate, acting reasonably, are perfectly entitled to:-
- Refuse Extensions or 5-year “top ups”; and
- Not consent to Assignments.
This decision should also act as a warning to caretakers and letting agents that Extensions or Assignments may not always be granted and, provided the Body Corporate has acted reasonably, there may be little they can do to challenge it.
The Body Corporate for Island Park Gardens CTS 20219 (Body Corporate) and K&A Property Services Pty Ltd as trustee for K&A Holding Trust (K&A Property) were parties to caretaking and letting agreements (Agreements).
In January 2014, the Body Corporate held its annual general meeting (AGM). At the AGM, K&A Property sought approval to extend the Agreements by five (5) years (Extension). The Management Rights Extension was refused.
In 2015, K&A Property entered into negotiations with Smartnet Management Pty Ltd as trustee for the Feng Family Trust (Smartnet) to purchase the Agreements.
On 1 August 2015, Smartnet met with the Committee for the Body Corporate about the Agreements being assigned to them (Assignment). During that meeting, Smartnet indicated that it required the Management Rights Extension to secure favourable loan arrangements with their bank and, without the Extension, one of their representatives would need to remain in his existing employment to meet loan repayments. In response, the Committee indicated that:-
- It was very unlikely a Management Rights Extension would be approved; and
- It would not consent to the Assignment.
On 7 August 2015, the Committee for the Body Corporate held a meeting and carried motions to the effect that:-
- The Committee declared it had a policy of not granting further Extensions (Non-Top-Up Policy); and
- At the next general meeting of the Body Corporate, the Non-Top-Up Policy would become the “standing policy” of the Body Corporate and added to the Body Corporate’s records, such that any future purchasers of the Agreements would be aware of it (Motion 2).
K&A Property applied to the Queensland Civil and Administrative Tribunal (QCAT) for (amongst other things) declarations that:-
- The Body Corporate had no authority to implement a Non-Top-Up Policy;
- Motion 2 was invalid;
- The Body Corporate’s refusal to consent to the Assignment was unreasonable; and
- The Committee should be restrained from informing future purchasers of the Non-Top-Up Policy.
QCAT partly found in favour of K&A Property, in that it declared that Body Corporate had no authority to implement a Non-Top-Up Policy and that Motion 2 was invalid.
However, on the substantive issues, the Body Corporate prevailed insofar as QCAT found that:-
- The Body Corporate’s refusal to consent to the Assignment was reasonable given what Smartnet had informed them of at the meeting on 1 August 2015; and
- The Committee was entitled to inform future purchasers that future Extensions may be unlikely, provided such communications were balanced and provided in good faith.
Why is this decision important?
One could argue that K&A Property applied to QCAT with the objective of pressuring the Body Corporate into agreeing to both the Management Rights Extension and the Assignment. Certainly, that was one of the arguments made on behalf of the Body Corporate.
In the end, the decision not to grant the Extension was upheld, along with the decision to refuse the Assignment. Therefore, this decision is important because it shows that Bodies Corporate, acting reasonably, are perfectly entitled to refuse Extensions and not consent to Assignments.
What that could eventually mean is that management rights agreements in Queensland start to dwindle. The legislation allows management rights agreements to be routinely topped up in 5-year increments provided (amongst other things):-
- The total unexpired term of the agreements is not more than 25-years after the Extension; and
- No more than one Extension is granted in each financial year.
If Extensions are not granted, however, then the management rights agreements will eventually run their course and expire. That may, in turn, allow Bodies Corporate to take ownership of their own management rights which could include entering into discrete agreements with service providers on (say) 1 year terms. For example, a 1-year cleaning contract as opposed to a 25-year caretaking contract.
If your Body Corporate is dealing with an Extension or an Assignment, or you simply wish to discuss the contents of this article in more detail, please feel free to call or email me.
This post appears in Strata News #114.
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