Commissioners Corner – Management Rights Transfers – FAQ’s (QLD)
The Information Service of my Office has received a number of enquiries lately for general information about the transfer of caretaking service contracts.
To start with the basics, as you will probably be aware, the definition of a ‘caretaking service contractor’ is a service contractor for a community titles scheme who is also a letting agent for the scheme or an associate of a letting agent for the scheme.
Sometimes this role might be called the ‘onsite manager’ or ‘restricted letting agent’ or ‘resident unit manager’. A common term in the industry for the overall arrangement is ‘management rights’. As is the case with any other kind of business, from time to time the management rights are proposed for sale (or to use the more technical term, ‘transfer’).
It is the transfer of the rights from one entity to another that the legislation refers to as a transfer of an engagement or authorisation. There are specific provisions that relate to a transfer and they are separate from an amendment to an existing caretaking service contract. These two elements should not be confused.
The Information Service of my Office specifically receives two common enquiries about the transfer of management rights. One relates to what is considered by the committee and the timeframe to do so and the other relates to amending the engagement before approving the transfer.
The regulations provide that in deciding whether to approve a proposed transfer, the body corporate may have regard to:
- the character of the proposed transferee and related persons of the proposed transferee;
- the financial standing of the proposed transferee;
- the proposed terms of the transfer;
- the competence, qualifications and experience of the proposed transferee and any related persons of the proposed transferee; and
- the extent to which the transferee and any related persons have received or are likely to receive training.
The committee, on behalf of the body corporate, has the authority to consider and approve the transfer. For the ‘seller’ of management rights, they must ensure the committee has sufficient information to be able to decide whether or not the transfer is approved. Once the committee receives the information reasonably necessary to decide the application for approval, it must decide within 30 days.
A number of sellers call the Information Service raising concerns about the committee taking too long and thus, impeding the sale. Often times, this discussion can reveal that the seller has failed to firstly allow sufficient time during the sale process to enable the committee the full 30 days, as well as not providing all the relevant material to enable the committee to consider the transfer. If the seller does the proper groundwork first, the process may flow more efficiently.
On the other side of the coin, the Information Service hears from committee members considering a transfer where they are trying to impose an amendment to the existing engagement as a condition to approve the transfer. These amendments can relate to important matters such as amending duties, hours of work or remuneration.
The committee is not permitted to authorise an amendment to an existing engagement or authorisation. This must be approved by ordinary resolution at a general meeting. While the seller and buyer may be willing to negotiate these amendments prior to the sale, they are not obligated to under the legislation.
Also, the body corporate cannot pass a general meeting motion to approve an amendment to the contract with the expectation that the caretaking service contractor must agree, as this is not always the case. These are contractual arrangements that in most circumstances both parties (body corporate and the caretaking service contractor) may need to agree to before amending. If the amendment is approved, by both parties, the transfer can be decided by the committee based on the amended engagement or authorisation.
So like any contract, it is important that the terms and conditions are read in full and understood by both parties. Communication is the key and it is not uncommon for my Office to hear of a relationship breakdown simply because of a lack of or inappropriate communications between these parties.
The other key to this discussion is that, because contractual terms are at play, qualified legal advice would be essential in any issue to do with a transfer or proposed transfer.
While the Information Service cannot interpret contractual terms or the legislation itself, it can help in providing the relevant legislative provisions relating to your circumstances. They can be contacted on Freecall 1800 060 119, through an online enquiry at www.qld.gov.au/bodycorporatequestion or visit our website www.qld.gov.au/bodycorporate.
This article was contributed by Chris Irons, Commissioner for Body Corporate and Community Management.
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Very informative. This article addressed my current situation and probably saved me dollars and resources.
Hello Colin and thanks for your message. I’m glad to hear the article has been useful and relevant to your current situation.
Very interesting article giving an outline of the steps and likely traps. Well done
Hello Brian and thanks for your comment. I’m glad to hear it was of interest.
Could you please advise what happens when a management rights contract for an on-site B/C manager reaches the end of the contract period.
Does the B/C have the right to re-sell the management rights in the same way that the original developer did? AS management rights to a large complex could be worth several million dollars what happens to the funds from the sale – do owners get free B/C fees for several years or are the funds distributed to the owners?
Regards,
Peter McDonald
Hello Peter and thanks for your comment. I would recommend contacting the Information Service of my Office on 1800 060 119 or http://www.qld.gov.au/bodycorporate for further information about this matter.
In response to Peter McDonald
If the management rights to a large complex ran out and was not renewed then the Body Corp could I suppose try to sell new agreements , but who would buy them ? they have no resale value if they are unable to be renewed. The person buying them would just be working to get their capital investment back as income ? Makes no sense and no bank would lend so …
Hi Peter, see my comments above – David, BC cannot sell MR contract, only original developer can. See my comments above on other options available to BC after expiry.
thanks for the article. we have experienced 2 transfers of managers. Both involved the outgoing manager “slacking off” in duties which the new manager then seeks extra BC funds to get contractors in to complete these tasks, often because the jobs get so bad.
Is it possible to condition the approval on the outgoing manager completing certain works that were supposed to be done under the caretaking agreement?
As an alternative, is it possible to retain management fees pending completion of these tasks or to pay for them to be done by outside contractors.
Many thanks for your response.
Hello and thanks for your comment. I would recommend contacting the Information Service of my Office on 1800 060 119 or http://www.qld.gov.au/bodycorporate for further information about this matter.
I am on a BC committee where the current caretaker has a buyer who needs a full ten year contract in order to obtain finance. The current contract is at around six years. The purchaser is willing to negotiate an amended agreement in return for ten years. The agreement would be basically the same as original but with a bit more detail about the duties and remove words such as “if necessary” as the current caretaker uses this as a “cop out” to avoid cleaning something when it obviously needs cleaning. He has a different interpretation of what is necessary. My question is: would it be possible for the new caretaker to have the amendments overturned, thereby reverting to the original agreement, and keep his ten year contract.
Hi David thank you for your query. I would recommend you consider seeking professional legal advice as my office can only provide information about body corporate legislation and not information on individual contracts. Disputes about contractual matters are dealt with by specialist adjudication or QCAT jurisdiction. My office can provide you with information about the dispute resolution process by calling 1800 060 119.
David,
Your first sentence is indicative of a common mistake so many committees make. You refer to the needs of the incumbent caretaker to sell and the needs of the potential buyer’s financier. ….. A BCC must always act in the best interests of the lot owners it represents and no other contractually opposed party.
It is my personal belief that the best advice to any body corporate shackled by the provisions of Qld BCCM Act is to never extend MR contracts. Allowing them to expire is the only opportunity owners are ever likely to have in order to regain control of THEIR asset.
MR agreements are a highly valuable body corporate asset that are kept out of reach of their rightful owners while ever the effective novated lease over them is perpetually extended and transferred.
Often referred to as a Rort.
Very helpful information Chris.
For Peter McDonald:
We often see that BC does not quite realise that MR contract is caretaker’s asset, for them to keep or sell (assuming the relevant consent of the BCC for assignment). Maybe that is why BCCs seldom seek legal, independent representation when asked to consent to assignment, or when trying to negotiate different terms of the contract.
Bodies corporate in Queensland are prohibited by the BCCM Act from selling its management rights (and retain the windfall these contracts are sold for in the market). The only entity allowed to sell MR and retain the profit is the developer. The owners are liable for honouring the MR contract the developer entered into on their behalf via levies.
Upon expiration/termination, BC can
(1) employ manager (and solve differently letting agent for letting pool in the building),
(2) form a management company with all lot owners being shareholders and arrange for management of building via such vehicle,
(3) grant new renewal of current contract, for full term (knowing that you are gifting caretaker the market value of MR)
(4) grant one year renewal until BC reconsiders the specification of the contract going forward (these contracts were drafted to achieve the best price at least 10, sometimes over 25 years ago – and seldom reflect the current market prices of services and needs for the building),
(5) renegotiate the terms of contract to reflect the current needs of the building and market prices and renew such contract for agreed term.
There are many options for BCs which make arguably more financial and practical sense to owners – the condition though is to let current arrangement under MR contract expire – therefore not extend.
Jana Koutova, Executive officer, Unit Owners Association of Queensland Inc., http://www.uoaq.org.au
I have not found the way to respond to particular comment, which is probably reserved for the author of the article only, so allow me to make another general comment.
With respect to MR, we see a lot of BCCs / owners who are asked to assign the MR / extend for the reasons financiers are giving. As Chris pointed out in his article, BCC have 30 days to decide on assignment after it receives all relevant information, and should make use of the time given by undergoing due diligence process with professional advice (independent of any solicitors acting for other counterparts – engaged and instructed by BCC only). They should require due diligence process and the outcome of this advice – why it is in the interest of the owners to enter into Deed of Variation (not in the interest of other counterparts) – to be distributed to all owners Arguably, the party whose interest it is to vary the current arrangement should bear the cost of such advice for BCC.
You have to be careful when it comes to ask for any conditions upon which the assignment is made – BC cannot require any payment of an amount or the conferral of a benefit on the body corporate. s. 114 (1) of the Act. In the case it does, it is recoverable s. 114 (2) of the Act. According to s 114 (4) the reasonable costs incurred by BC in preparing the agreement is exempt.
I do not presume to be a lawyer – but a lot of our members had a disappointing experience with the subject. It is reasonable to expect that owners are not experts in contract negotiations, nor are lawyers in the area and should have proper representation. We therefore always advise our members to seek an independent advice – at the end of the day, the committee has a duty to act in the best interest of owners.
There are a lot of articles on various topics which may benefit owners on our website.
Jana, to respond to a specific comment simply click on the speech bubbles beneath the comment name. 🙂
🙂 You learn something each day – thank you Mike!
Hello Chris,
Found your article excellent guidance. May I ask you what can a committee do if they find the proposed transferee to lack the required competence, and experience to perform the duties required in the “management rights”? I have not found an answer to my query in looking through the Commission website.
Hi Rod, Thanks for your comment and enquiry. I apologise for the delay in my response. The Information and Community Education Unit may be able to give you some information on the transfer of a caretaking service contracts. They can be contacted on 1800 060 119. Information can also be obtained from our website http://www.qld.gov.au/bodycorporate.
Very informative. Thank you!
My belief is that a contract has a start and end date. Nearing the end of the contract the caretaking position should go to tender for a maximum of 3 years with a very detailed list of duties to be performed on certain days .
The caretaker can of course re-apply and would be considered if his/ her previous duties were satisfactory. There would be no need to buy the contract .