CAN MANAGEMENT RIGHTS BE “TOPPED-UP” MORE THAN ONCE
In recent years, it has been suggested by some in the industry that caretaking agreements can only be extended (“topped up”) once and never for a term exceeding the maximum allowed in aggregate.
While Mahoneys did not consider there to be any merit to the “one-time top-up” myth, there had not previously been an opportunity to obtain a ruling on this issue from an Adjudicator.
The Adjudicator’s Order, Atlantis West [2024] QBCCMCmr 340, finally puts any uncertainty to bed – in that the Adjudicator clarified the position that caretaking agreements can be extended any number of times, provided the cumulative term does not exceed the maximum term permitted under the module and the individual extensions do not exceed five years.
The application was filed by an owner in the Atlantis West community titles scheme who sought a declaration that the body corporate’s resolution to extend the existing caretaking agreement was invalid. He argued that the extension exceeded the statutory term limit for such agreements and was therefore unreasonable.
The crux of the matter lies in the interpretation of Sections 140 and 141 of the Standard Module, which govern the term limit of service contracts and letting authorisations, respectively. The applicant argued that the module restricts the number of times a caretaking agreement can be “topped up,” or extended. The applicant further claimed that the body corporate failed to obtain legal advice before approving the extension, which he considered unreasonable.
The Adjudicator, however, dismissed the application, upholding the body corporate’s decision to extend the caretaking agreement. He concluded that Section 140(2) of the Standard Module allows for multiple extensions as long as the total term does not exceed 10 years at any given point in time (the maximum permitted under that module) and the extensions do not exceed five years in length.
This interpretation is consistent with the “orthodox construction” of the provision, which prioritises the text of the statute over extrinsic materials.
The significance of this decision cannot be overstated. Had the Adjudicator ruled in favour of the applicant, the ramifications for management rights holders and bodies corporate would have been substantial and costly as most agreements have been extended more than once or their aggregate terms have exceeded the maximum allowed under the relevant regulation module.
A ruling in favour of the applicant would have created significant uncertainty and legal challenges for management rights holders and bodies corporate, potentially leading to the termination of their agreements and significant financial losses and disputes.
The Adjudicator’s Order also serves as a timely reminder to bodies corporate and owners that, while it is advisable to obtain legal advice before approving any significant amendments to caretaking agreements, a decision to extend the term of such agreements is not necessarily unreasonable or illegal. The critical factor is whether the proposed extension adheres to the statutory term limits and procedural requirements outlined in the relevant module.
Article contributed by Todd Garsden, Partner, Mahoneys Lawyers and Advisors
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Our building has covered off this issue with an owner’s motion at a general meeting.
This motion directed the committee to seek and provide independent legal advice to owners before any top-up request is granted. In general, you will not receive any legal advice suggesting a top-up is beneficial to owners unless there is some form of commercial compromise offered from the Caretakers.
My personal thoughts are that BC’s should move to the ‘Carmel by the Sea’ model, i.e. short term caretaking agreements that benefit owners and not caretakers.
Hi Mark
Under the current legislation – it does not matter whether it is fair and reasonable to compensate the body corporate for the extension. This is prohibited under sections 115 and 116 of the BCCMA. This does not prevent a commercial negotiation as to the ongoing terms of the agreements but does limit the direct type of arrangement suggested in your comment.
When an application is made to extend the management agreement, is it fair and reasonable for the beneficiary to provide to the body corporate some financial compensation for the extension. Any assignment of the agreement would have a greater value with an extension, wouldn’t it?
Fair and legal that caretaking agreements can be extended “forever” if a body corporate chooses to do so, however, it’s evident many bodies corporate simply don’t understand the impacts of possibly being locked in to inappropriate agreement terms (or people) for many years to come. ARAMA regularly boasts that 85% or so of caretaker agreements are extended because owners are happy with caretaker performance. I’d argue many owners (especially non-resident owners) don’t know enough or care enough to question matters. It’d be interesting to see in how many of those extended agreement instances the caretaker has used the opportunity to sell the (now longer) management rights shortly thereafter. No doubt, one day, we’ll see an owner going after both committee and caretaker seeking to prove neither acted in the best interests of owners through not properly investigating and/or comprehensively informing owners of the potential impacts of extending management rights agreements. If any committee failed to seek legal advice prior to a caretaker request for top-up, that’d be a great starting point for such an owner.
Hi Martin – I agree. Many owners do not take enough interest in the administration of their body corporate. Getting correct legal advice is a good starting point to protect all owners from not understanding what is being asked of the body corporate for any issue – not just a proposed top up.