Management Rights and Advisory Service

Frequently Asked Questions

These FAQ's are kindly supplied by Mahoneys (ph 3007 3777 email info@mahoneys.com.au). See the usual lawyer's disclaimer at the end of this page.

What are "management rights"?

Management rights is a successful system of caretaking and letting in townhouse and unit developments.

What are Caretaking and Letting Agreements?

Caretaking and Letting Agreements are the Agreements with the body corporate that enable resident managers to conduct their business. They are the most important legal documents governing management rights. These Agreements also have other names such as Management and Letting Agreements, resident manager Agreement, and even "Village Co-ordinator Agreement"!

What are the duties in Caretaking and Letting Agreements?

The duties in caretaking and letting agreements usually extend to maintaining the common property, and providing a letting service to the owners that want such a service. The agreements are very complicated, and must comply with many rules that parliament and the courts have imposed. It is vital that an experienced solicitor check these documents thoroughly.

How do I choose the best business?

It is always best to deal with a reputable agent when buying management rights. Make sure you ask lots of questions to build up a knowledge base about the complexes you are interested in. The better the business, the higher the price that will be asked for it based on a multiple of the income the business generates.

How much does it cost to buy management rights?

The cost of buying management rights depends on your desired income, the type of unit you want, and the multiplier. If you want an income of $100,000 per year and to live in a $350,000 unit, and the multiplier is 5 –

Business price $500,000
Unit price $350,000
"In" costs at 6% $51,000
Total acquisition costs $901,000
<em>Note: these figures are an example, and are only approximate.</em>
How much equity / capital do I need to buy management rights?

The equity / capital requirements for a purchase of management rights vary depending on the source of finance. Make specific enquiries with your financier or broker. Financiers will generally require between 20% and 50% of total purchase price and "in" costs as cash or equity.

Who should I see about financing Management Rights?

Financing management rights can be very involved. Most resident managers need to rely on the business component to fund the loan. It is important that you seek out a bank or finance broker with significant experience in Management Rights. The cheapest rates or fees aren't always the best when you consider the extra costs and delays that incompetent finance could cause. Elsewhere on this site are details of banks and brokers that specialise in management rights lending.

Do resident managers Need to be licensed?

Resident managers must have either a full real estate agents licence, or a “resident letting agents licence” (formerly a “restricted letting agents licence”). A resident letting agents licence is not difficult to obtain. In some complexes, a resident manager may also need a liquor licence or other licences relating to food preparation. There are other licences that may be needed when operating hostel type accommodation.

How do I get a resident letting agents licence?

In order to obtain a resident letting agents licence, you need to complete a course of study through the TAFE, REIQ or other recognised training provider. The course takes 1-2 weeks full time or longer if by correspondence. You also need to apply for a licence through the Office of Fair Trading. Body Corporate authorisation as a Letting Agent is also required – Management Rights purchase contracts are subject to that authorisation.

Can I live off site?

Resident managers are in general required to live on site. The rules are quite complex. In general terms – a licensed person must reside on site for each complex unless they are contiguous and not separated by a public road. Obtaining a full real estate licence may resolve this issue.

How do resident managers get paid?

There are several sources of income for a resident manager. There is Body Corporate remuneration for maintaining the common property. There are commissions and other charges for letting units. Private lawn mowing, or an on site kiosk, and travel bookings, may provide other income.

What is "the multiplier"?

The multiplier is a multiple of the nett profit of the business used to determine its value. If the nett profit is $150,000 and the multiplier is 4, then the value of the business is $600,000. The multiplier is a subjective figure. It is critical to be conscious of the multiplier when buying or selling. There is no multiplier that can be applied generally to all complexes. It depends on the position, income and all other features of the business.

Can the multiplier change?

Yes. From the early 1990’s until around 2009, there were steady increases in the multipier from around 2.5 - 3.5 to 4.5 – 6 or even higher in large complexes. Since 2009, the multiplier has come back to a range of around 4 to 5.8 or so and seems to have stabilised, but no one can predict the future.

Will I sell at a profit?

There are only 3 ways to make a profit – increase the sale price of the real estate, increase the nett profit, or increase the multiplier. You also have to take into account the "in" and "out" costs totalling perhaps 9% - 11% of the purchase price.

What are "in" and "out" costs?

Management rights "in" costs include legal fees, stamp duty, loan costs, licenses and accountancy fees. Generally allow around 6% of the total purchase price for "in" costs. "Out" costs include agents commission and legal costs on the sale. Also allow 4% - 5% of the total purchase price for "out" costs.

Can I lose money in management rights?

Whilst management rights are generally seen by investors and financiers as safe investments, like any business, some people are successful and others are not. Some resident managers lose money because they cannot increase the nett profit or multiplier to cover the "in" and "out" costs when they sell, or because they lose rentals from their letting pool. It is also important to ensure that the Caretaking and Letting Agreements are renewed or there will be nothing to sell.

Will I maintain the number of rentals in the letting pool?

Resident managers give better service than outside letting agents and it is unlikely rentals would be lost to outside agents unless there is severe conflict with owners. Rentals can be lost due to owner-occupiers buying the units, or investors leaving their units vacant while they try and sell, or less likely, outside agents taking over the letting of some units. The likelihood of units in the pool being sold to live-in owners is something you need to satisfy yourself about at the time you are buying. Ask your accountant when doing the income verification to determine how many units came into or out of the letting pool during the relevant 12 month period. Check with Local agents if there are any units for sale.

How can I ensure there are adequate numbers of units in the letting pool?

This is in many respects out of your control. You can try and persuade any real estate agents active in selling units in the complex to sell to investors rather than owner occupiers. Use the methods mentioned above to make sure that this is not a trend in the building for which you are buying the rights.

How can I ensure that the Caretaking and Letting Agreements are renewed?

Most resident managers are successful in obtaining renewals of their Caretaking and Letting Agreements. A resident manager cannot guarantee that the Caretaking and Letting Agreements will be renewed by a body corporate. It is a matter for the body corporate's discretion whether to grant a new agreement or not. Mahoney Lawyers do have some publications that will help you in your planning and efforts.

How many years should be left on the Caretaking and Letting Agreements?

Most Caretaking and Letting Agreements can start out for a term of 10 - 25 years. Important considerations arise if the Agreements are for less than 10 years. Caretaking and Letting Agreements are considered unsaleable with less than about 6 years remaining. If you buy 8 year Agreements and stay 2 years (i.e. there are 6 years remaining), a buyer will almost certainly want new Agreements when buying. You will need to renew in order to be able to sell.

I've got 6 years left on my Agreements and want to sell. What should I do?

If you have a short term remaining on Caretaking and Letting Agreements, you will need to get new Agreements in order to sell. You can (1) get new Agreements and then sell, or (2) make the sale contract conditional on obtaining new Agreements, or (3) sell “as is”. The first option is usually best.

What is the "transfer fee"?

The transfer fee is a fee the body corporate can charge if a resident manager sells their management rights within 2 years of becoming the resident manager. It does not apply to merely exercising a pre-existing option. The fee is 3% of the business sale price in the first year, and 2% in the second year.

I've been in the same complex for 2.5 years, and need to get a new agreement to sell. Will the transfer fee apply?

No. Current legislation means that once a resident manager has been in the complex for more than 2 years, there is no longer a transfer fee.

I've got a 10 year agreement – how often should I renew it?

If you have a 10 year agreement, you should consider renewing AT LEAST every 2 to 3 years.

Can I or the Body Corporate review the remuneration under a Caretaking Agreement?

The legislation allows the Body Corporate or the resident manager, in the case of a new complex, to apply to the Commissioner for a remuneration and/or duties review after 3 years. We have handled many successful reviews under these provisions, but they are complicated. Their existence is enough to make sure the remuneration set by developers is reasonable.

Can the terms of a Caretaking Agreement be reviewed?

Yes but the review is not able to be grounds for terminating the Agreements. The review of the terms only applies if the Management Agreement was made when the developer controls the Body Corporate.

What can a review cover?

A review of the Caretaking Agreement can cover all terms of the Agreement, including duties and salary. A review can not lead to a reduction in the term.

What Agreements can be reviewed?

Effectively new agreements entered into in the past 3 years when the developer controlled the body corporate. The provisions are much more complicated than this and proper legal advice about the review provisions is essential.

Can a Body Corporate terminate Management Rights?

Only in the event of specified events of default. In the case of a failure to carry out duties, the Body Corporate will generally be required to give the resident manager a period of time, usually 14 days, to remedy the failure. Only if the resident manager fails to do so could the Body Corporate take action to terminate the agreement/s.

Can a Body Corporate sell Management Rights?

No, the Act prohibits the Body Corporate from receiving any benefit from entering into new management rights agreements.

Can my Body Corporate force me to sell my Management Rights?

Yes – under very limited circumstances.

There are now compulsory forced transfer provisions which are similar to the Managed Investments Act / Corporations Act forced sale provisions. The BCCM forced sale provisions only apply if the scheme is not a managed investment scheme. In other words, the forced sale provisions are to apply to permanently let complexes.

The forced sale provisions will apply if the resident manager fails to comply with a notice issued by the Body Corporate following a breach of the new Code of Conduct (Code Contravention Notice) or again breaches the Code after receiving such a Notice. A Notice can only be issued if the Body Corporate by secret ballot at general meeting so resolves.

To invoke the transfer, the body corporate must by majority resolution decided by secret ballot, so resolve. The majority resolution requires a majority of all owners to vote in favour of the motion.

If the Body Corporate is entitled to require a transfer of the management rights, which by definition includes any lot from which the business is conducted, then the resident manager must transfer those rights, generally within 9 months, or the Body Corporate can require the transfer to a person of its choice, at market value. If the resident manager fails to do so, the Body Corporate can terminate the agreements.

If there is less than 7 years remaining on the term of the agreements, the Body Corporate must grant the new resident manager a term of 9 years.

Can a resident manager be on the committee?

Resident managers in both the Standard and Accommodation Modules are deemed to be non- voting committee members.

Can a resident manager get secret kickbacks from suppliers, or other secret commissions?

No. There are additional rights of termination included in the module if this occurs. They include if the resident manager contravenes -

  1. a provision of the code of conduct and persists in contravening the code for 14 days or more after the Body Corporate, by written notice, requires compliance;
  2. certain nominated sections of the Act or Module.

It is therefore critical that resident managers disclose these associated benefits and commissions, or their engagement may be terminated by the Body Corporate.

Am I suited to management rights?

The key to success in Management Rights is managing your relationships with others. Good people skills are desirable if not essential. Public relations, and the owners and tenants perception of the resident manager, often determine the success of the resident manager. Cheerful hard work also helps. Good resident managers combine these qualities.

What sort of properties are best for management rights?

Any strata titled building or townhouse complex can have management rights. Complexes with less than 15 – 20 lots may not have enough profit to be viable for management rights. Complexes with few owner occupiers are generally perceived as more desirable although some resident managers are not deterred by a high proportion of owner occupiers. Smaller sized units are usually more suited to the rental market rather than larger units which might attract owner occupants.

What laws govern Management Rights?

The laws that govern Management Rights are complex. They include the Body Corporate and Community Management Act, the Property Agents and Motor Dealers Act, the Managed Investments Act 1998, the Queensland Building Services Authority Act, various codes of conduct, the Residential Tenancies Act, the Innkeepers Liability Act.

What are by laws?

The by laws and Community Management Statement are documents registered at the Department of Environment and Resource Management (Titles Office) that set out some of the rules of the complex. They may impose restrictions on keeping animals, or specify the use of particular lots in the complex. It should be made clear that the resident manager’s lot is to be the only one used for Caretaking and Letting activities.

What is an occupation authority?

An occupation authority is the right given to a resident manager to occupy an area of common property for management purposes – eg an office, or storage areas. This would only apply where such areas were not "on title" to the resident manager’s unit. An occupation authority only lasts while the Caretaking and Letting Agreements are in existence – so it is better if possible, to have those areas "on title".

Can the office be on title?

At one stage the government was considering restricting this – but that has not occurred. Offices can be on title . There are currently many complexes where the office is on common property subject to an occupation authority. The price should reflect whether the office is on title.

Where can I get more information?

There are a large number of sources of information on Management Rights. Speak to experienced people in the industry – including specialist management rights real estate agents. Join ARAMA (Australian Resident Accommodation Managers Association – www.arama.com.au). Subscribe to "Resort News" (www.resortnews.com.au). Obtain copies of the Acts and Codes of Conduct - Body Corporate and Community Management Act 1997 and Property Agents and Motor Dealers Act 2000 from theQueensland government website at www.legislation.qld.gov.au/Legislation.htm. The Office of Fair Trading website at www.dtrft.qld.gov.au/disputeres/bccm/ contains a lot of information and forms. The REIQ conducts training courses for the resident letting agent licence – look at www.reiq.com.au/ under "careers".

<em>Disclaimer: The format of these FAQ's is not designed to be legal advice. It does not attempt to be a definitive list of all considerations. Readers should not rely on it in any of their decisions without getting specific expert advice in the relevant area (eg legal, accounting , financial). They are only designed to raise relevant issues. Much of the information in these FAQ's is based on general perceptions or word of mouth and experience. Resident managers and potential resident managers should draw their own conclusions about this information after obtaining specific expert advice in relation to a particular property / business.</em>
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About Mahoneys

Mahoneys has an enviable reputation for its service to clients and for the competence of its partners and staff who offer expert services in Management Rights Law, Business and Commercial Law, All aspects of Property Law. One of their major areas of expertise is in the field of management rights.