QLD: Q&A Management Rights – Caretaking and Letting Agreement + Extensions

Our body corporate management company recently reviewed the CPI calculation for the on-site caretaker (contractor) salary increases from 2011-2022 and noticed a discrepancy. The body corporate management company’s accounting department incorrectly calculated the CPI. Therefore, the caretaker was overpaid during 2011-2022 period.

The body corporate asked the caretaker to repay the overpayment. The caretaker is asking for a tax adjustment for the error. Is the body corporate or the body corporate management company responsible for the tax adjustment payment?

Answer: If a mistake has been made it should be corrected.

This one is a bit messy, and how it has come about is relevant, but in very broad terms:-

The contract is the contract, so whatever should have been paid is what should have been – so if a mistake has been made, it should be corrected.

On the caretaking side, if the caretaker has paid tax on income received and it now has to be refunded, I don’t see why they wouldn’t be able to get an adjustment on their next tax return on that (but bear in mind, I am not an accountant and they should get their own accounting advice). If that refund will come from the ATO, I don’t see why the body corporate would have to pay it.

Frank Higginson Hynes Legal E: frank.higginson@hyneslegal.com.au P: 07 3193 0500

This post appears in Strata News #680.

Question: What happens if a caretaking agreement becomes inconsistent with later BCCM regulations?

What happens if a caretaking agreement becomes inconsistent with later BCCM regulations? Could an adjudicator determine if there is a significant inconsistency requiring a deed of variation? Could we undertake a statutory review? Would this situation meet the strict criteria for a review?

Answer: Typically, the agreement would have a clause that deals with this circumstance.

Typically, the agreement would have a clause that deals with this circumstance. For example, it could say any clause that is invalid is severed (or ignored) from the agreement.

An adjudicator would not make a determination that a clause is invalid. A specialist adjudicator or QCAT may, but a deed of variation is a voluntary process by each party that would amend the terms of the agreement. This is usually the best solution.

A statutory review only relates to remuneration or duties (and only applies in limited circumstances), so would not apply here.

Todd Garsden Mahoneys E: tgarsden@mahoneys.com.au P: 07 3007 3753

This post appears in Strata News #651.

Question: Our caretaker, who does not own a lot, has requested an extension. Are we compelled to put forward a general meeting motion for the top-up?

Our scheme operates under the Accommodation Module. Our caretaker has asked for a 5-year extension or top up to his existing contract. The caretaker doesn’t own a lot.

Can a motion to grant a top-up only be submitted for voting at a general meeting by either a lot owner or the body corporate committee? Further, is a committee compelled to put forward a general meeting motion for the management rights top-up simply because the caretaker requested it?

Given caretakers will often sell the management rights soon after being granted a top-up, is there any scope for a body corporate to contractually compel the caretaker to remain as caretaker for a specified time? Some owners don’t understand that the caretaker’s asking to have the contract term extended, not necessarily his relationship with our scheme.

Answer: There is no right of a caretaker or obligation of a committee to have an extension motion considered.

Only the committee or a lot owner has a right to a motion being included in the general meeting agenda. There is no right of a caretaker or obligation of a committee to have an extension motion considered.

If the caretaker does want a top up, and the committee is happy to support the top up on the basis that the caretaker remains the caretaker for a period of time, this can be achieved by structuring the deed of variation in a particular way. A lawyer should be engaged to ensure the wording adopted is appropriate for this to be achieved.

Todd Garsden Mahoneys E: tgarsden@mahoneys.com.au P: 07 3007 3753

This post appears in the November 2023 edition of The QLD Strata Magazine.

Question: In student accommodation, the caretaker has an occupational authority to manage the car parking. They run this on a lottery system. Some owners complain this is a breach of by-laws. How can we move forward?

We have a 170 lot student-only accommodation building. The caretaker has an occupational authority (OA) over the common property security gated car park.

They manage the car park via a lottery system. Provided tenants can support their “student” status as specified in the Development Application (DA), they apply for a parking space each semester.

The caretaker also has a letting agency that handles the letting of approximately 80% of units to students. The remainder are either self-managed or managed by external agents.

A group of self-managed owners are concerned about the management of the car park. They believe the caretaker is breaching the by-laws by providing only some residents full access to the common property car park. Does the OA allow for the caretaker to manage the car park, or is this a by-law breach?

Answer: An option would be an information session for owners, residents and other interested parties about the myriad issues at play here.

This is not a query that can be simply answered with a general response. There are issues involving by-laws, occupational authority and several related matters, and it is impossible to give a determination on these things. It all depends upon the particular circumstances of your scheme – and each scheme is different. I’d recommend you seek specific legal advice.

Another option would be some kind of information session for owners, residents and other interested parties about the myriad issues at play here. While that would not offer a determination per se, it may assist in providing clarity to all concerned and ease some of the tensions.

This is general information only and not legal advice.

Chris Irons Strata Solve E: chris@stratasolve.com.au P: 0419 805 898

This post appears in the July 2023 edition of The QLD Strata Magazine.

Question: Can a caretaker contract state the following: “First extension, the end date referred to in clause 1.4 shall be automatically extended for a period of five years”? Is this legal in QLD?

Answer: It is possible that a management rights agreement has an automatic extension option clause for a further five years.

The answer to this question depends on a number of other terms of the agreement. It is possible that a management rights agreement has an automatic extension option clause for a further five years. However, whether the option is valid will depend on a number of things, including the module, how the option was approved, what the balance term of the agreement is, etc.

Todd Garsden Mahoneys E: tgarsden@mahoneys.com.au P: 07 3007 3753

This post appears in Strata News #651.

Question: The developer of our scheme sold the 25 year caretaking agreements. We changed from the Accommodation Module to the Standard Module. What term can the building manager offer when selling the management rights?

The developer of our scheme sold the 25 year caretaking and letting agreements to a building manager. We were originally under the Accommodation Module. After three years, the building manager sold the management and letting rights. We then changed to the Standard Module.

The new manager thinks he can sell a 10 year agreement. Can he only sell the remainder of the term under the original caretaking agreement? Is he able to offer a 10 year agreement? Notwithstanding the change of module, does the original agreement term remain in force together with any approved extensions?

Answer: The management rights agreements entered into, pursuant to the Accommodation Module, will continue to be regulated by the Accommodation Module (i.e. be able to be extended up to 25 years).

Section 128 of the Body Corporate and Community Management Act 1997 (Qld) provides that when a regulation module is changed:

The provisions of the existing regulation module applying to the engagement or authorisation continue to apply to the engagement or authorisation until the engagement or authorisation, including any renewal or extension of the engagement or authorisation, comes to an end.

Accordingly, the management rights agreements entered into, pursuant to the Accommodation Module, will continue to be regulated by the Accommodation Module (i.e. be able to be extended up to 25 years).

There is a view adopted by some lawyers that upon a novation of a management rights agreement (which is one way of structuring a sale), the management rights agreements will then be regulated by the module in place at the time of the novation.

When an agreement is “sold” the remaining term is sometimes discussed with reference to:

The current term (being what is already available, including any options) – which is what the original poster is referring to; or

The available term (this may be what the manager is referring to, taking into account the novation argument).

Todd Garsden Mahoneys E: tgarsden@mahoneys.com.au P: 07 3007 3753

This post appears in the June 2023 edition of The QLD Strata Magazine.

Question: Our building manager is about to sell the management rights. Are we entitled to know how much they are selling the management rights for and how much they paid for them two years ago?

Answer: A body corporate is entitled to ‘the terms of the transfer’ as well as to an understanding of the buyer’s financial position.

At law on an assignment, a body corporate is entitled to ‘the terms of the transfer’ as well as to an understanding of the buyer’s financial position. Collectively, to me at least, this means the body corporate is more than likely entitled to know what the management rights transaction price is once a deal is struck and the buyer is presented to the body corporate for the purposes of consideration of the assignment. However, I don’t think that extends to what the vendor purchased them for as that is not relevant to the transaction at hand.

Frank Higginson Hynes Legal E: frank.higginson@hyneslegal.com.au P: 07 3193 0500

This post appears in Strata News #637.

Question: Is it ethical for a solicitor to act for both the caretaker and the body corporate committee?

Answer: It depends.

For me, the answer is ‘it depends’.

And what it depends on is what the issue is that the advice / acting relates to. We act for plenty of bodies corporate and caretakers in the same building. An issue that doesn’t present a problem (as an example) relates to by-laws. Everyone has an interest in making sure the by-laws are what they should be. In a matter like that, we act for the body corporate and not anyone else.

Where (to me at least) it is problematic, is where the caretaker and the body corporate’s interests aren’t necessarily aligned – say on the sale of the management rights. I personally think it is pretty hard to suggest that the same firm could act for a body corporate and a caretaker in relation to that and say they are giving completely independent advice to their respective clients. But that’s a personal view. In theory, it is lawful, provided both clients are aware of the fact the firm is acting for both of them and that if there is a conflict between them, both are referred elsewhere.

Frank Higginson Hynes Legal E: frank.higginson@hyneslegal.com.au P: 07 3193 0500

This post appears in the May 2023 edition of The QLD Strata Magazine.

Question: I applied for a 5 yr extension of the Caretaking Agreement. The motion was denied. The body corporate had written to all the lot owners asking them to vote no. Is this allowed?

As a caretaker of a strata building in Queensland, I applied for a 5 yr extension of the Caretaking and Letting Agreements as shown in my purchase contract. At the AGM, the motion was not passed.

The body corporate had written to all the lot owners asking the lot owners to say no to the motion because they want to change the caretaking and lettings.

Can the body corporate act against me in this way to refuse an extension? What is my position in this matter?

Answer: Providing the body corporate hasn’t been defamatory in the information it has presented to owners, there isn’t an issue with people talking to each other

It sounds like the body corporate process is working well here.

Extensions aren’t automatic – as you say, you have to apply and all applications can be accepted or rejected.

When you submit a motion for an extension there is a vote and owners will vote according to what they believe is in their best interest. There are lots of arguments about the pros and cons of caretaker extensions but if people don’t think an extension is beneficial to them, they won’t vote for it. Providing the body corporate hasn’t been defamatory in the information it has presented to owners, there isn’t an issue with people talking to each other.

What can you do next? Presumably, you are able to present extension motions again in the future so the matter can be reconsidered. If so, then you will have to think about what is required to change voters’ minds moving forward.

William Marquand Tower Body Corporate E: willmarquand@towerbodycorporate.com.au P: 07 5609 4924

This post appears in Strata News #636.

Question: By agreement, our caretaker’s office hours have changed. This is causing building access issues. Can I submit a motion to have the decision overturned?

Our Caretaker submitted and won a motion at an AGM to have their agreement changed regarding office hours. They were required to keep the office open 8:30 am – 5:00 pm Monday to Friday. This was changed to “they must be available on-site between the hours of 8:30 am – 5:00 pm”.

The office is regularly closed. When the office is closed, the front auto door cannot be opened without a key and the building is essentially locked. This is causing a lot of issues and there was no monetary compensation from the Caretaker. As an owner, am I able to submit a motion at our next AGM to have this overturned and reverted back to the original clause in the Agreement?

Answer: A variation cannot be imposed on a manager.

A lot owner can submit a motion to be considered by the body corporate at any time. If that motion were to propose further changes to the agreement (such as to reverse the first round of changes) then it would be of no effect unless:

The body corporate passed the motion; and

The manager separately agreed to the variation.

This is because a variation cannot be imposed on a manager. It must be given effect to by mutual agreement.

An alternative would be to propose a motion that revokes the body corporate’s original approval for the change. However, even if this motion passed, the manager may have rights that have already crystallised if a deed has been entered into (and signed by the body corporate) that gives effect to the initial changes.

Todd Garsden Mahoneys E: tgarsden@mahoneys.com.au

This post appears in the February 2023 edition of The QLD Strata Magazine.

Question: Does a Body Corporate have to go to tender to assign a caretaking contract or can we just get two quotes? Is there a legal requirement to go to tender?

Answer: I suspect when the body corporate is referring to a tender, it is referencing the grant of a new agreement.

Only a party with an existing agreement in place can assign an agreement. Accordingly, I suspect when the body corporate is referring to a tender, it is referencing the grant of a new agreement. If that is the case, there is no requirement to go to a tender. However, the regulation module will require:

A general meeting considering the motion by ordinary resolution without the use of proxies (assuming the term of the agreement is more than 12 months);

A secret ballot (if a letting authorisation forms part of the tender proposal); and

Two quotations to be considered (assuming the cost of the proposal is more than the major spending limit).

Todd Garsden Mahoneys E: tgarsden@mahoneys.com.au P: 07 3007 3753

This post appears in Strata News #602.

Question: How much would a review of the caretaking agreement cost?

Answer: The costs will depend on the extent of the review you want and the complexity of the agreement you have with your caretakers.

Contact a couple of legal firms to see what they say – there are plenty of good ones commenting on these pages.

There probably isn’t a standard answer because the costs will depend on the extent of the review you want and the complexity of the agreement you have with your caretakers. The quotes you received would probably be an estimate of the time it would take to do this multiplied by the hourly rate of the company.

William Marquand Tower Body Corporate E: willmarquand@towerbodycorporate.com.au P: 07 5609 4924

This post appears in Strata News #545.

Question: As caretakers of a body corporate in SEQ, we wish to move offsite. Our contract states we must live on site. How do we remove this clause from our agreement?

We are caretakers for a body corporate in SEQ. We have outgrown our current on site premises and wish to move into a bigger dwelling close by. It is a condition of our contract that the caretaker must live on site. How do we go about removing this from clause our agreement?

Answer: You’ll need to convince people that living offsite won’t change service standards.

The obligation to live onsite is a matter of contract. That means that if you want to remove that obligation the body corporate needs to agree to the variation of that part of your agreement by ordinary resolution – which is more votes for the change than against it from those who choose to vote. The biggest issue with this, in my experience, is convincing people that you living offsite won’t change the service standards that have been available in the past.

Frank Higginson Hynes Legal E: frank.higginson@hyneslegal.com.au P: 07 3193 0500

This post appears in the May 2022 edition of The QLD Strata Magazine.

Question: Our caretaker has been a thorn in the side of many committees over the years. He has been allowed to run his own race and make changes to common property without committee approval. How do we turn this into a better relationship?

Our caretaker has been a thorn in the side of many committees over the years. He has been allowed to run his own race and do as he pleases without any committee approval. He threatens committee members with lawsuits If they challenge him.

He has erected fences on the common property to segregate his space, has built a deck on his assumed property and has installed 5 air conditioning units sitting on common property.

He is aware he is required to ask committee approval for any changes but ignores this and goes ahead anyway.

We have been advised to never stop paying him and that serving him with breaches is simply a waste of time as the BCCM rarely rules against Management Rights holders vs Body Corporates. What can we do about this situation?

Answer: An avenue for action may be the unapproved alterations as the body corporate can and should act to rectify any issues that affect the common property.

As you indicate, most caretaker issues are extremely difficult to negotiate as their contracts give them a great deal of protection. It’s a long road following the steps of breaches and legal action, but that is the main path that is available and is still preferable to giving up. One way of looking at it is that instigating legal action is a prelude to an improved negotiating position with the caretaker. The ultimate end game of terminating a contract may not be achievable, but If you can make their life more difficult they may be prepared to raise the service level they offer to ease that pressure. If you have that in mind as your goal from the beginning it may be possible to create a win-win scenario for both parties as opposed to just viewing the legal process as a punitive action.

From the description, it seems like the caretaker is engaging in behaviour that is also causing an issue around their activity as a lot owner or on how the common property is being managed. That may provide a greater avenue for action as the body corporate can and should act to rectify any issues that affect the common property. Is it possible, for instance, to remove the fences or air conditioning units? We can’t tell from the information here, but a bit of careful strategising could give you some of the leverage you are looking for.

William Marquand Tower Body Corporate E: willmarquand@towerbodycorporate.com.au P: 07 5609 4924

This post appears in the April 2022 edition of The QLD Strata Magazine.

Question: Our management rights agreement says we are to reside onsite, however, we wonder if this is negotiable.

We own permanent management rights in QLD. Our agreement says we are to reside onsite however we wonder if this is more of a ‘you choose to live onsite however you don’t have to’.

Has there been a change to onsite living?

We are thinking of putting a caretaker into the supplied unit for free rent in return for being on call from 5pm to 8am and we will live off site.

We can’t separate the office and the residence as we use the garage for our office.

Should this be possible? What would we have to do to set up this arrangement?

Answer: If your management rights agreement says you need to reside onsite from a contractual perspective, you still must do that.

The legal position changes with the arrival of the Property Occupations Act which we wrote about here: Education – News & Webinars

That removed the need to reside onsite from a licencing perspective.

If your management rights agreement says you need to reside onsite from a contractual perspective, you still must do that. It is a question of what your agreement says about whether that must be you or whether you can put someone else in there. Each management rights agreement is different. There are no hard and fast rules.

Secondly, the splitting bit we wrote about here: Separating your lot from your management rights business – and it seems you have done your research about the practicalities of that.

So what you need to do is understand your management rights agreement, and then have a chat with your committee about what it is you need to do. The committee might be able to consent to what you want, or you may have to go to general meeting. It all depends on the specific clauses that you have to address.

Frank Higginson Hynes Legal E: frank.higginson@hyneslegal.com.au P: 07 3193 0500

This post appears in Strata News #545.

Question: If our caretaker does not perform their duties to committee satisfaction, can there be a monetary fine for not completing satisfactory work?

Answer: The simple answer is no, not to my understanding. However….The simple answer is no, not to my understanding.

I’m an advocate for the committee having their say and being involved and not just accepting things as they stand. The committee can have their say even though there’s not a monetary fine. By communicating and holding caretakers accountable for their performance, you are creating documents sitting on body corporate Records, which then paint a picture for prospective management rights buyers when they do their due diligence.

I’m an advocate for trying to work with your committee, and with your caretakers. I think it’s very important to be commercially minded in how you do this, and I think it’s very important to try to negotiate an outcome whereby both parties interests are protected. If that doesn’t eventuate, you can look at doing remedial action notices. Ultimately, for the caretaker’s purposes, or at least the feedback I get, is that if they have documents sitting on record whether it’s emails, letters, performance, common property condition reports, remedial action notices. All of those documents sit on record. They’re discoverable by prospective purchasers in their due diligence, and ultimately prospective purchasers go ‘Oh, I’m not only coming into an agreement that I have to get on top of all of the new duties and a new scheme and everything else, but I’m coming into a relationship that perhaps is fragmented’. That can be seen adversely by prospective buyers as well.

Prospective management rights buyers would ideally want to come into a scheme where there is a harmonious amicable relationship sitting there with the committee. So, just because there’s not a monetary fine doesn’t mean that you’re not taking steps to make sure that the performance of the caretaker is met – it doesn’t mean that you shouldn’t do that. You should still do that. There are still implied consequences of a caretaker just shrugging their shoulders and walking away from things.

Jessica Cannon Cannon + Co Law E: jessicacannon@cannonlaw.com.au P: 07 5554 8560

This post appears in Strata News #541.

Question: Can a Resident Manager keep requesting new extensions each year?

Answer: Yes, your caretaker can put up a motion each financial year for an extension but it is the body corporates decision as to whether that top-up should be given.

My opinion is that there is the ability to seek a top-up every financial year, but it is the body corporates decision as to whether that top-up should be given to the caretaker or not. Now, Neil Hope and his respective authors in this research paper: Management Rights Agreements for Body Corporates in Queensland: Must They Expire, or May They Be “Topped Up” Indefinitely? say there should be a cap. I know there are other strata lawyers out there to take different opinions. My position is that yes, your caretaker can put up a motion each financial year for an extension, but it comes down to you as owners, you as committee members, making sure that owners are educated enough to know that this is an additional right being given and they do have the ability and the right to reasonably vote ‘No’ to that.

Jessica Cannon Cannon + Co Law E: jessicacannon@cannonlaw.com.au P: 07 5554 8560

This post appears in Strata News #520.

Question: Our BC believes we meet the requirements of Section 130 to review the remuneration payable under our caretaking and letting agreement. What are our next steps?

Our BC believes we meet all the requirements of Section 130 to enable us to review the remuneration payable under our caretaking and letting agreement. Can you please clarify, that if the remuneration is not deemed fair and reasonable, but the caretaker won’t agree to any changes in the agreement, what our next steps would be?

Answer: You need to be very careful to make sure you meet the statutory threshold.

The statutory review provisions are there for that very reason. The ultimate arbiter of a dispute like this is QCAT, but you need to be very careful to make sure that you meet the statutory threshold to be able to undertake one. The window of time to make an application can be quite tricky to prove up.

Frank Higginson Hynes Legal E: frank.higginson@hyneslegal.com.au P: 07 3193 0500

This post appears in Strata News #511.

Question: Our body corporate has a 25 year Caretakers Agreement. Why isn’t more detail of the payment shown on the Balance sheet or notes?

Our body corporate here on the Gold Coast has a 25 year Caretakers Agreement. Other than the monthly payments on the income and expenditure report, no other information is shown on the Balance Sheet or Notes.

Can you tell us what are the legally required entries to the Annual Financial Reports or if any changes to term or duties would need to be added to the Annual Financial Reports?

Our own Auditor has advised that the entries to the Income and Expenditure are all that is legally required.

Answer: The answer from the auditor is that the entry is all that’s legally required.

Well, there you go, you’ve had the answer from the auditor, the entry is all that’s legally required.

Unfortunately, I understand what this person saying. They don’t really feel there’s enough financial reporting. It’s a large financial expense. It might be hundreds of $1000s and that’s all you see . You’re asking ‘Hang on, how come we’re recording every tiny little item that goes out, but then we have this one substantial payment and we’ve really got no idea what happens to that’. Sorry, the legal requirements have been met within that. So that’s really the end of the answer.

I guess there’s a wider question here around how people feel about the caretakers and the frustrations they have, as contracts. I’m a body corporate manager in the service industry and we’re not allowed to have a 25 year contract. I can’t think of any other circumstances in our lives where we signed 25 year contracts. It baffles me that this situation with the caretakers is being allowed to continue.

I can’t see any benefit for the consumers having these contracts. Personally, as a body corporate manager, we represent consumers. That’s what we do. I can feel the pain of the owners out there who have a lot of frustration and I can only say I’m personally disappointed that there’s not wider action at the government level to try to resolve some of these situations.

I’m not going to be making myself popular with all the caretakers out there but from a consumers perspective, it just doesn’t make much sense.

Interview Comment: We do have lots of questions coming in across Queensland about saying no to extensions, and the way that the caretaker agreement is set up, and whether caretakers are doing the things that are listed on their agreement, and what happens if they’re not? It does seem to be a big problem, obviously, across Queensland.

I used to work in New South Wales and it’s a totally different situation there. Most of the building managers are on a short contract of 1-3 years and they have to work to keep their contract. Most of them do a good job. I always had excellent relationship with all of the building managers that I worked with and I thought they tried really hard. They are motivated by the fact that at the end of that contract period, if they’re not meeting the standards, then the owners have the option of changing and that seems reasonable. That’s how our whole consumer society is structured. It’s very strange to have this one particular anomaly that doesn’t really adhere to that.

Interview Comment: We’re certainly not saying that there aren’t good caretakers out there. There are plenty of great caretakers out there and they do form part of our audience, and we’re delighted to have you and it’s great to be keeping yourself informed.

There’s plenty of people doing a good job and are trying really hard. I’ve got no problems with that. But it’s just the contract. Those people who are doing a good job and we’re trying hard, they’d still be keeping their contracts, and they’d still be getting the benefits from that anyway.

William Marquand Tower Body Corporate E: willmarquand@towerbodycorporate.com.au P: 07 5609 4924

This post appears in Strata News #510.

Question: In Queensland, can the Body Corporate buy it’s own Building Management rights?

In Queensland, can the Body Corporate buy it’s own Building Management rights?

We could then employ a caretaker. I have heard there is an issue that might tangle us up relating to the use of the apartment that comes bundled with those rights. What are the considerations please?

Answer: In short – yes. However, the rights aren’t necessarily purchased, they are terminated in return for a settlement sum.

In short – yes. However, the rights aren’t necessarily purchased, they are terminated in return for a settlement sum.

There are a number of different considerations as to how to implement such an arrangement (and whether it would be worthwhile to do so) depending on the specific circumstances of the building.

This would include a consideration of, for example:

How the purchase is funded (as this would not have been budgeted previously);

Whether owners would approve the arrangements;

The terms of the management rights agreements;

What type of letting licence the manager has;

Whether the manager (or a related entity) owns a lot in the scheme;

Whether the by-laws give the manager’s lot any specific rights or privileges;

Without reviewing these details it is not really possible to give any specific guidance but if the committee were considering going down this path it should ensure that it receives proper advice on at least these issues.

Todd Garsden Mahoneys E: tgarsden@mahoneys.com.au P: 07 3007 3753

This post appears in Strata News #509.

Question: Our caretakers has requested a 5 year extension on the management rights agreement. Can we charge the market value of granting the extension.

I am an owner of a unit in a Qld Resort in Noosaville. Our body corporate agrees to extend the caretaking agreement and the letting agreement for another 5 years if the owners vote yes to the motion. Am I missing something here? The caretakers had a (free) 5 year extension a few years ago – to help sell the management rights, which never actually happened. The asset value of the caretaking (resort management) rights would increase when the 5 year option was granted.

In my financial world, you would sell such an option, not just give it away. Should not the committee seek external professional advice to ascertain the true market value of granting the extension? This cost would then be charged to the caretakers and paid to the body corporate for the benefit of all unit holders.

Answer: The body corporate cannot receive any payment for the granting of what is known as a ‘top up.’

The BCCM legislation actually prevents a body corporate from charging a fine, premium or consideration in relation to the granting of, or variation to, a management rights agreement. That means the body corporate cannot receive any payment for the granting of what is known as a ‘top up.’

You can find the section here: BODY CORPORATE AND COMMUNITY MANAGEMENT ACT 1997 – SECT 113.

Frank Higginson Hynes Legal E: frank.higginson@hyneslegal.com.au P: 07 3193 0500

This post appears in Strata News #493.

Question: Our Caretaker has requested a 5 year extension to the management agreement. What would be the advantage for the lot owners?

I have a question about a manager asking for an extension to the “management agreement”. This would give them another 5 years lease for nothing. Would there be any advantage for the owners?

I have searched past AGM minutes and found this has happened before. The manager has applied to the AGM for approval of their option as per the agreement but added in the same motion a request for extension. Here we have two different motions in one, is this correct? One motion is just a formality unless there are issues, the other requires proper consideration before a definite vote. This looks to be a method of hiding something in plain sight. What can we do about this?

Answer: One thing to keep in mind is that the legislation specifically prohibits the body corporate from receiving a benefit in relation to any extension.

One thing to keep in mind is that the legislation specifically prohibits the body corporate from receiving a benefit in relation to any extension. However, the ARAMA website lists out a number of advantages of management rights. Commonly extensions are also required by the manager’s financiers.

This is a regular occurrence and it is likely that this has happened a number of times. It would be difficult to say that the process is hiding something as the legislation also requires specified forms to be circulated in the agenda to act as disclosure to owners. This is called the BCCM Form 20. There are also additional requirements on the motion to include the terms and effect of the change.

If there are concerns about what has been submitted, the body corporate and any owners are entitled to seek legal advice on the documents.

Todd Garsden Mahoneys E: tgarsden@mahoneys.com.au P: 07 3007 3753

This post appears in Strata News #477.

Question: What is the process for the proposal of a new management rights agreement? Does a form 20 need to accompany the motion?

Our Community Title Scheme is under the Accommodation Module. The original Caretaking and Letting Agreement is in place from the developer and there have been several changes in Caretakers since, as well as some minor variations to the agreement with some of these being time extensions.

The Caretaker has put forward a motion requesting a full 25 years renewal and for the current agreement to be contemporaneously replaced by this new proposed agreement.

Does a form 20 need to accompany the motion? If so, would this invalidate the motion as it doesn’t meet the legal requirements for all lot owners to be aware of the information that would be contained in form 20.

Answer: A BCCM20 is only required when a management rights agreement is being varied – not a new one entered into.

Surprisingly enough, a BCCM20 is only required when a management rights agreement is being varied – not a new one entered into.

You could quite easily argue that the entry into a new management rights agreement is a more significant decision for a body corporate than varying an existing one, but the counter argument to that is that when a new agreement is entered into, copies of the new agreements should go with the agenda so owners are very clearly informed about what is being put to the meeting. Copies of the existing agreements don’t need to be sent when a variation is proposed which is why the BCCM20 summarises the key terms of the existing arrangements for owners to save them the work of finding out what is already in place.

Frank Higginson Hynes Legal E: frank.higginson@hyneslegal.com.au P: 07 3193 0500

This post appears in the May 2021 edition of The QLD Strata Magazine.

Question: If we change from the Accommodation Module to the Standard Module, does this have any effect on our management rights agreement?

We are a 100+ lot complex and our CMS is registered under the Accommodation Module. A motion for our next AGM is proposing to change to the Standard Module. Our complex meets all the criteria for this.

However, the current Caretaking & Letting agreements are 5 years into their 25 year terms. I understand that these agreements will carry over as is under the Standard Module.

If the Caretaker wishes to seek an extension (after we have changed to the Standard Module) will this be governed by the 10 year limit of the Standard Module or will the old maximum term of 25 years still be applicable?

Answer: Even if you may now be governed by the Standard Module, management rights agreements remain governed by the Accommodation Module.

This is specifically covered by the BCCM Act in s 128 which provides that:

‘The provisions of the existing regulation module applying to the engagement or authorisation continue to apply to the engagement or authorisation until the engagement or authorisation, including any renewal or extension of the engagement or authorisation, comes to an end.’

This means that even though the body corporate may now be governed by the Standard Module the management rights agreements (including the right to extend them) remain governed by the Accommodation Module.

Frank Higginson Hynes Legal E: frank.higginson@hyneslegal.com.au P: 07 3193 0500

This post appears in the April 2021 edition of The QLD Strata Magazine.

Question: The body corporate wishes to decline all future requests for additional 5 year extensions to the caretaking contract. Are there any problems in doing this?

Our caretaking cost is $270,000 pa for a 25 year term with a 3% minimum annual increase.

The Body Corporate recognises the rip off and wishes to decline all future requests for additional 5 year extensions to the caretaking contract. Are there any problems in doing this?

Answer: One individual cannot ever speak for the body corporate.

The simple answer is ‘no’.

What I would suggest is that the author of the question is not the body corporate. They are almost certainly a lot owner and perhaps even a committee member. But one individual cannot ever speak for the body corporate.

The legislation allows a body corporate to agree (or refuse) to extend management rights agreements at a general meeting. If a motion to add a term to the management rights agreements is put to a general meeting the body corporate (as opposed to individual owners) will decide that as often as asked. That is the nature of a strata democracy and the legislation that regulates it.

Frank Higginson Hynes Legal E: frank.higginson@hyneslegal.com.au P: 07 3193 0500

This post appears in Strata News #458.

Question: When does the body corporate have an opportunity to vary a management agreement with the onsite manager? Surely the onsite manager is not going to agree to any proposal without compensation.

When does the body corporate ever have an opportunity to vary a management agreement with the onsite manager? Our agreement has many clauses which appear to be favourable to the manager, notably, the annual salary increase of over 4%, which is bleeding the Body Corporate dry.

How can we vary the agreement when, obviously, the manager is not going to agree to any proposal without compensation?

Answer: What needs to be remembered is that the caretaking agreement is a contract so generally, one party cannot unilaterally change the agreement without the other party agreeing to the change.

What needs to be remembered is that the caretaking agreement is a contract so generally, one party cannot unilaterally change the agreement without the other party agreeing to the change.

The only real options available to the body corporate (absent the caretaker agreeing to the change) are:

If the agreement includes a review right; or

The statutory review mechanism, which is discussed in more detail here: QLD: Statutory Reviews – A Process To Change Your Caretaking Agreement

On occasion a caretaker will ask the body corporate to agree to an extension of the caretaking agreement. That request can sometimes provide a good opportunity to discuss (and agree on) other changes to the agreement at the same time, such as a fixed 5% remuneration increase being removed.

Todd Garsden Mahoneys E: tgarsden@mahoneys.com.au P: 07 3007 3753

This post appears in the February 2021 edition of The QLD Strata Magazine.

Question: Our letting agent / caretaker is selling, can we change our management agreement with the new people and how?

Our letting agent / caretaker is selling, can we change our management agreement with the new people and how? Can you give me the legal meaning of a live in manager? They have a unit as part of their contract but they rent it out and live elsewhere.

Answer: No

No – a body corporate cannot condition the approval of an assignment to the parties agreeing to variations to the management rights agreements. It really is a ‘yes’ or ‘no’ question as a rule.

In terms of the onsite residence, what the manager is obliged to do is what the agreement says they must do, so the obligation to reside depends on the exact wording of the agreement itself

Frank Higginson Hynes Legal E: frank.higginson@hyneslegal.com.au P: 07 3193 0500

This post appears in Strata News #427.

Question: The caretaker has requested to extend his deed of variation. Who is responsible for the legal costs?

I live in a strata complex under the standard format. The caretaker has requested to extend his deed of variation. The owners Corp received an email from the body corporate managers stating that the cost to hire legal advice will be paid from our administration fund.

Is this correct? To my knowledge, this is the caretaker’s request and all costs should be paid by the caretaker.

Answer: This will always be required to be paid from the administration fund.

The first thing is that the costs of legal advice like this will always be required to be paid from the administration fund. The issue seems to be though whether the body corporate should be spending its own money in getting that legal advice.

Like anyone else, a caretaker (as lot owner) has a right to put a motion to an AGM. There is no right under the Module for a body corporate to condition consideration of motions subject to payment of any costs the body corporate incurs in getting advice on those motions. So, if the body corporate chooses to get advice on a motion it must pay for it BUT it may be that the caretaker would be negotiable around costs in exchange for committee support or some other concession from the body corporate. That is really a matter for the committee.

Frank Higginson Hynes Legal E: frank.higginson@hyneslegal.com.au P: 07 3193 0500

This post appears in Strata News #394.

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.

Mario Esera HWL Ebsworth P: 07 3169 4750 E: mesera@hwle.com.au

This post appears in Strata News #385.

Question: We have written to the strata committee requesting a top up in our management rights agreement. We’ve had no response and have now been told we did not submit in the correct format. What is the correct format?

We are the onsite managers of an apartment block in QLD.

Our lawyer has written to the strata committee requesting a top up in our management rights agreement. This was submitted to the committee a couple of months ago and we have received no feedback.

When we approached the chairman of the committee enquiring on the outcome, he said that our lawyer had not submitted the request in the correct format.

We are not aware of any correct format. I would have thought that a request for the agreement to be topped up would be any sort of written request. Can you please advise if there is any particular format that a written request should adhere to?

Answer: If you have missed the time or the right form for lodgement, the body corporate is not obliged to include it in the AGM.

There is a required format, but the key rules are:-

It has to be lodged by an owner.

Before the end of the body corporates financial year (to go on the AGM).

There needs to be a motion and ideally a deed of variation.

The required BCCM 20 Form needs to go with it.

Obviously, there is more to it than that, but those are what I would call the ‘big 4.

If you have missed the time or the right form for lodgement, the body corporate is not obliged to include it in the AGM.

Frank Higginson Hynes Legal E: frank.higginson@hyneslegal.com.au P: 07 3193 0500

This post appears in Strata News #300.

Question: Is the body corporate, or the Committee as representative of the body corporate, under any obligation to show cause if it just votes No to an extension of management rights?

The UOAQ recently published on the topic of extending Management Rights under the heading “Just Say No!”.

Is the body corporate, or the Committee as representative of the body corporate, under any obligation to show cause if it does just vote No?

Or, to the extent that members of the Committee are seen to be actively involved advocating a “Just Say No!” policy to reject a motion to extend the Management Rights term, are they under any obligation other than the omnibus requirement to “act reasonably“?

Answer: Ambit statement like that are not always correct.

Everyone is entitled to their opinion and the key thing is that whatever is said is not misleading.

So this can be said, in the same way that ‘Just vote yes’ can be. It is then down to the will of the people on the day.

For what it is worth, I tend not to agree with blanket statements though like ‘Just vote no’ as a policy because in my experience there are absolutely buildings that would not function without effective long term management arrangements in place – so an ambit statement like that is not always correct.

Frank Higginson Hynes Legal E: frank.higginson@hyneslegal.com.au P: 07 3193 0500

This post appears in Strata News #289.

Question: Our caretaker’s Agreement comes up for its 5 year extension in around a year. If the Caretaker decides not to ask for a renewal or extension and simply let the Agreement lapse what are our options?

We live in a Unit complex in Queensland with 47 lots.

Our caretaker’s Agreement comes up for its 5 year extension in around a year. It seems the Caretaker may decide not to ask for a renewal or extension and simply let the Agreement lapse. If this happens, do we lose the ability to have an on-site manager/caretaker and if so, what are our options?

Having an on-site manager can be seen as a beneficial selling/buying point for lot owners, what recourse would they have as this may diminish the value of their properties?

Also, If the current Caretaker/Manager chose to sell the Caretaker’s Agreement (with less than a year left) is it possible for a new Agreement be drawn up as a standard 5+5 year agreement?

Answer: At that stage the body corporate is in control of its own destiny.

At that stage the body corporate is in control of its own destiny. It can go it alone, try to renegotiate with the caretaker or come up with some other arrangement.

What it can do is grant an agreement to another caretaker and then they have the same benefit.

Not as a condition of the assignment, which must just be the existing agreement, but to be honest, if the duties and remuneration are standard or agreed, the longer the term the better for most caretakers

Frank Higginson Hynes Legal E: frank.higginson@hyneslegal.com.au P: 07 3193 0500

This post appears in Strata News #277.

Question: Some members of our committee are hell-bent on removing our Building managers for personal issues that have not much to do with the management of the building.

Some members of our committee are hell-bent on removing our Building managers for, in my opinion, personal issues that have not much to do with the management of the building. Our scheme is being managed 24/7 in a very satisfactory manner according to most lot owners.

The chairman and secretary authorised and spent, without notice to committee and owners, a large sum of money to audit the performance of the building managers.

A few minor issues arose, but certainly, nothing that warrants their removal.

The Chairman and treasurer/secretary then requested that the building managers link the security camera system to their mobile phones. This request was not agreed to by the committee and or lot owners at any time.

The building managers refused, stating their contract does not require this to be done.

Due to the refusal, the building managers have now been advised that they will be subject to a formal process to remove them.

What can we, as lot owners, do to prevent this from proceeding as I see that it will end in failure and the costs will be horrendous, going on for years.

Answer: I would suggest writing to the committee to set out your concerns and ask them to ensure that any spending is properly approved.

There is no formal process to remove them – there is a formal process to require breaches (if any) to be remedied with consequences if they aren’t.

We understand the owner’s concerns and have written about what can happen when going down this path previously: How to waste a body corporate’s money.

As an owner that is not on the committee, there is limited action that you can do unless at the general meeting you look to make these types of things a restricted issue meaning the committee no longer has the power to take action on these issues.

For now though, I would suggest writing to the committee to set out your concerns and ask them to ensure that any spending is properly approved. If you think any decision making may be unlawful then that can be challenged in the Commissioner’s Office. But the best action you could take would be to join the committee and have a vote in the decision making.

Frank Higginson Hynes Legal E: frank.higginson@hyneslegal.com.au P: 07 3193 0500

This post appears in Strata News #253.

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 townhouse 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.

Frank Higginson Hynes Legal E: frank.higginson@hyneslegal.com.au P: 07 3193 0500

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.

Frank Higginson Hynes Legal E: frank.higginson@hyneslegal.com.au P: 07 3193 0500

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 upfront, 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.

In reply

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 Act provides termination provisions for non- performing caretakers but the Commissioners Office and QCAT continue to cling to the belief that the contract is too valuable to terminate.

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.

Frank Higginson Hynes Legal E: frank.higginson@hyneslegal.com.au P: 07 3193 0500

ARTICLE: 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.

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?

Answer

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 is 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.

Frank Higginson Hynes Legal E: frank.higginson@hyneslegal.com.au P: 07 3193 0500

This article is not intended to be personal advice and you should not rely on it as a substitute for any form of advice.

Have a question from Queensland about management rights or something to add to the article? Leave a comment below.

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