This Q&A article concerning Management Rights QLD has been contributed to by Frank Higginson and Todd Garsden, Hynes Legal.
Question: Our committee is considering rejecting the proposed assignment of management rights by the current manager. Our solicitor will engage an “independent” person to make a decision on the suitability of the proposed assignee and has advised the Body Corporate should follow this recommendation.
I am seeking information and hope that you can please help. I am the chairperson of the Body Corporate for a 75 town house complex in QLD.
We are currently going through the proposed assignment of management rights by the current manager. The proposed assignee has not produced documents (references/qualifications etc) considered relevant or suitable to the position. The committee is considering rejecting the assignment.
We have engaged a solicitor to represent the Body Corporate, but the interests of this solicitor appear to be more directed towards themselves and the seller’s solicitors than the Body Corporate. I have been advised, in the event of a dispute as to whether to accept the assignment, our solicitor will engage an “independent” person to make a decision on the suitability of the proposed assignee.
When questioned as to who this may be, the solicitor advised he uses a person that is not involved in the Body Corporate or strata management field and in fact, is a quantity surveyor. I was further advised that if the “independent” make a decision, the Body Corporate should follow this recommendation.
This process sounds to me, very odd, in the least. Is this the usual practice and is it correct?
Answer: Any decision to engage a third party should be that of the committee and no one else.
The body corporate’s lawyer should be acting on the committee’s instructions. Any decision to engage a third party (or in relation to the assignment) should be that of the committee and no one else – it may the be advised to recommend that engagement but ultimately that is up to the committee.
This post appears in Strata News #241.
Question: Our Caretaker’s Management Agreement expires soon but contains an option for the Caretaker to extend for another 5 years. What are our options?
Our Caretaker’s Management Agreement expires soon but contains an option for the Caretaker to extend for another 5 years.
Our Committee issued a notice for an EGM on or before the expiry date to approve the extension but has since cancelled the EGM without giving notice of another date to vote on the extension.
If we don’t extend the agreement by the expiry date, does this mean we will no longer have on on-site Caretaker?
If so, can we draw up a new Agreement and sell it to the highest bidder?
Also, if the current Caretaker lets the Agreement lapse, what happens to the Caretaker’s Unit which is included in the caretaker’s bank mortgage for the business?
I hope you can advise us about our options.
Answer: Normally it is up to the manager to choose to exercise the option, and once exercised, the additional term comes into existence.
There are a few angles to this one but our response would be:
- Normally an exercise of an option does not require a general meeting – it is up to the manager to choose to exercise it, and once exercised, the additional term comes into existence (but this depends on the specific wording of the option clause in the agreement).
- Once an EGM has been called it cannot be cancelled – it has to go ahead.
- If the agreement comes to an end because the option is not exercised (which seems unlikely) the agreement will not exist and so the manager and body corporate will not be bound by the caretaking agreement.
- If there is no agreement – that does not mean the body corporate can then sell it – the legislation specifically prevents that.
- The financing arrangements all depends on how it is structured between the bank and the manager – but ordinarily, the manager would just become a lot owner like all the other lots.
Question: Why are Developers allowed to sell a 25 year Management Rights QLD agreements?
Why are Queensland Developers the only developers in any state in the world allowed to sell 25 year caretaking/letting contracts that must be paid for by new unit owners for the duration of the contract?
The Queensland Government refuse to provide a rational explanation for this fraud on new unit owners.
Answer: Management Rights are Big Business
This is an issue that has been going around in Queensland strata circles for decades. Interestingly, before we had the BCCM Act there was no term limitation. The BCCM Act actually introduced a cap on term retrospectively from October 1994.
Queensland has the most sophisticated disclosure regime for off the plan sales in Australia. Every single thing is disclosed up front, including the term of management rights agreements. Most would be lot buyers are sold on things other than that minor level of detail and the closest most go to reading the disclosure statement is to understand what the levies are forecast to be. Some don’t even go that far.
No one can ever say they were not told what the body corporate arrangements were going to be on completion. There remains a constant source of tension between balancing the obligation to disclose arrangements (which can become voluminous) against the need for consumer protection.
In addition, management rights are big business. Changing the fundamental nature of any industry (with tenure being a key part) may well have an adverse impact on values and while that would clearly impact on resident managers enormously, it would also impact on the major banks who also have a large stake in the industry through lending to resident managers.
All in all? It is getting harder every day to unscramble the egg. Every so often the government of the day issues a discussion paper on management rights and tinkers with the fringes of the industry. Whether any government could further limit tenure without significantly affecting all of the industry stakeholders remains an interesting question.
A reply to Frank’s view from another interested party as follows:-
The single biggest problem with 25 year caretaking contracts is that they deprive the body corporate of their authority over the caretaker. The body corporate is responsible, under the BCCM Act, for control and maintenance of the common property; however, if a caretaker has a 25 year contract he can (and does) thumb his nose at the Committee and the body corporate.
The Rocks Resort was a recent case where the QCAT member found the most implausible excuse to reject the Committee default notice because the Committee had not allowed the full 14 days for default rectification – by 00.01 of a minute. Albeit hat the exact same wording was allowed by District Court Judge McGill in Patterson v Body Corporate for Palm Springs Residences.
If the Government was even half serious about 25 year contracts, it could start introducing 3 year contracts (not retrospectively) and then potential caretakers would not have to borrow from the banks to fund the ridiculous good will that attaches to Management Rights (MR) that cost unit owners millions of dollars over the 25 years. This would allow many young professionally qualified couples to get into Management Rights, thus saving unit owners millions of dollars and raising the tone and level of the industry. But you will never see this while developers are allowed to contribute to political parties.
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?
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 proper due diligence. For us, this is one of the major things we always look for, because it can happen.
This article is not intended to be personal advice and you should not rely on it as a substitute for any form of advice.
Are you interested in more information about Management Rights QLD Agreement terms or information particular to strata legislation in Queensland? Visit our Building Managers OR Strata Legislation QLD pages.
- QLD: Something can be done about unfair and unbalanced Caretaking Agreements
- QLD: Common management rights misconceptions
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