This article concerning Management Rights Agreement terms has been contributed to by Lisa Rutland, MyBodyCorpReport.com.au and Frank Higginson, Hynes Legal. Lisa Rutland is a Body Corporate Search Agent and Frank Higginson is an expert in Body Corporate and Management Rights Law.
Lisa recently came across this issue when carrying out a strata report and sent the following question into the LookUpStrata site:
Question: Management Rights Agreement terms
This relates to a QLD scheme approximately three years old. The first motion at the first EGM was to acknowledge the creation of the scheme and adopt the Community Management Statement as lodged under the standard module. The same motion was later confirmed again at the first AGM. I reviewed the CMS and yes, it’s a standard module.
That’s important because also at the first EGM the body corporate resolved to enter into a Caretaking and Letting Agreement for 25 years. I reviewed the Management Rights Agreement terms and yes, it’s for 25 years.
The problem is, in Queensland body corporate’s registered under the standard module may only enter into Management Rights agreements for a maximum of ten years. That would mean the motion passing the agreement is invalid, since it breaches legislative restrictions, and consequently the agreement is also invalid.
When I did the search I asked the BCM about it and their reaction was essentially, “Huh, how about that”. They had no clue as to what to do about it, and neither do I.
My question is – what happens next? Who’s to blame and who will suffer? To me it seems a win for the lot owners, a ten year commitment being far less than a 25 year one. But that ignores the almighty dispute that’s likely to erupt. What should the body corporate / lot owners do?
Frank Higginson provides the following response:
One of the biggest differences between the Modules is the maximum length of term a management rights agreement can be for. The Standard Module is 10 years and the Accommodation Module is 25 years.
The BCCM Act Modules both make it pretty clear that:-
- A management rights agreement remains governed by the term limitations of the Module that applied to the body corporate when the agreement was entered into (i.e. you can change Modules but the management rights agreement still have the benefit (or burden) of the Module that applied at the time the agreement was entered into); and
- If a management rights agreement purports to be longer than the maximum allowed by the relevant Module it is read down to that maximum term.
As an example, if for some inexplicable reason the term was stated to be 50 years, the term would be read down to 25 years or 10 years – depending on which Module applied at the time the body corporate resolved to enter into the agreement.
The same thing applies here. The body corporate has only ever been regulated by the Standard Module and the maximum term it could ever grant would be 10 years. Even though the agreement says 25, my bet would be is that it is almost certainly 10. That it surer than a Jonathan Thurston bit of magic in golden point extra time, which was always going to happen on the recent NRL grand final!
What has gone wrong? Possibly inexperienced people acting in the set-up of the body corporate and management rights. Someone not checking the detail for the stuff that matter.
If the management rights owner has bought it based on there being 25 years, they are potentially going to get a rather nasty shock at some stage when they try to sell and the buyer does a proper due diligence. For us, this is one of the major things we always look for, because it can happen.
Are you interested in more information about Management Rights Agreement terms or information particular to strata legislation QLD? Visit our FactSheet: Building Managers OR FactSheets: Strata Legislation QLD pages.
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