Connect with us:

Management Rights Top Ups

Can management rights agreements be “topped-up” more than once?

  1. It is current industry practice for managers to ‘top-up’ the term of their management rights agreement when it falls below the statutory term limitation prescribed by legislation.
  2. It is also common ground and accepted that the total unexpired term of the management rights agreements cannot extend past the statutory term limitation which is ordinarily 10 or 25 years.
  3. This article is prepared in response to a number of claims that have been published asserting that management rights agreements cannot be “topped-up” more than once, contrary to industry practice.
  4. As this article concludes, the long accepted industry practice is correct.

Case law

  1. This issue has not yet been tested by the Queensland courts and tribunals, but adjudicators have at times supported current industry practice.
  2. In Willow Kangaroo Point [2021] QBCCMCmr15 the adjudicator relevantly provided (our emphasis added):

“Under sections 117 and 118 of the Accommodation Module, the maximum term for the engagement of a service contractor or the authorisation of a letting agent, including any rights or options of extension or renewal, is 25 years. It does not appear that Motion 10 offends these provisions.

In my experience, it is common for caretakers to seek to ‘top up’ the term of their agreements when they fall below the 25 year maximum. In some cases, their financiers require this.”

  1. However, without clear authority on the matter, it falls to the principles of statutory interpretation to decide the issue.

Principles of interpretation

  1. The words of a statutory provision ought to be given the meaning which the legislator intended them to have.[1]
  2. This requires consideration of:
    • the text – specifically sections 130 of the Accommodation Module and 140 of the Standard Module; and
    • context and purpose – specifically the regulation modules, the Body Corporate and Community Management Act 1997 (Qld) (BCCMA) and any extrinsic material.

Text

  1. Sections 130(2) and 140(2) are relevantly drafted in the singular, for instance (our emphasis):

The body corporate may subsequently amend the engagement to include a right or option of extension or renewal (a subsequent right or option) only if—

(a) the subsequent right or option is for not longer than 5 years; and

(b) the unexpired term of the engagement, from the day the resolution approving the subsequent right or option is passed by the body corporate, is not more than 10 [or 25] years

  1. This use of the singular is in contrast to the use of the plural in sub-section 1 which allows for any rights or options of extension or renewal in the initial engagement of a service contractor but such contrast is inconsequential.
  2. Section 32C of the Acts Interpretation Act 1954 provides:

In an Act:

(a) Words in the singular include the plural; and

(b) Words in the plural include the singular,

(Presumption)

  1. This Presumption may only be displaced by a contrary intention appearing in any Act.[2]
  2. Sub-section 2 cannot be interpreted as imposing a cap on the number of top-ups, as the substance and tenor of the legislation as a whole is not capable of displacing the Presumption.
  3. To give purpose to the singular text, this section contemplates a single option being added at any one time. The effect is that at any one time no more than one option, which must not be more than 5 years, can be included into the management rights agreement.

Context

  1. It is reasonable to expect that if there was a legislative intention to cap the number of top-ups permitted, it would appear with reasonable clarity from the terms of the legislation itself.
  2. Section 130 of the BCCMA pertains to the statutory review rights of the manager and body corporate as it relates to the terms and remuneration of the management rights agreement.
  3. Significantly, section 130(6) provides:

The contract may be reviewed under this division only once.

  1. If there was a legislative intention to impose a similar cap on “top-ups,” then arguably a similarly phrased provision would have been included in section 130 of the Accommodation Module and 140 of the Standard Module.
  2. Further, the cap on “top-ups” is inconsistent with the operation of sections 76 and 86 of the Accommodation Module and Standard Module which provide:

A motion of a following type must not be included on the agenda for a general meeting if the motion’s inclusion would result in the body corporate considering a motion of that type more than once in a financial year for the body corporate –

a motion proposing that the engagement of a person as a service contractor, or the authorisation of a person as a letting agent, be amended if, as a result of the amendment, the engagement or authorisation would include a right or option of extension or renewal.

  1. In other words, a motion to approve the variation of a management rights agreement to include a right or option of extension can only be included on the agenda for a general meeting once each financial year.
  2. These provisions were designed to limit the inconvenience to lot owners and the body corporate posed by the continuous general meetings – which is consistent with the use of the singular discussed above.[3]
  3. Arguably, if a Manager was only able to “top-up” their management rights agreement once, then only one motion would ever be able to be considered. If that were the case there would be no need for these provisions.

Purpose

  1. The proposition that management rights agreements cannot be topped-up more than once also cannot be reconciled with the purposive and extrinsic material related to the BCCMA and regulation modules.
  2. The Body Corporate and Community Management Legislation Amendment (No.1) 2003 – Explanatory Notes provide as follows (our emphasis):

“These amendments retain the term limitation provisions in the regulations, as maximum terms for agreements. However, at any time, the body corporate may grant an extension of the term of the agreement, up to a maximum equivalent to the term limitation. For example, after three years of a ten-year agreement under the Standard Module, the body corporate can extend the agreement by three years so that the remaining term is ten years.”

  1. Similarly, the Body Corporate and Community Management (Accommodation Module) Regulation 2020 – Explanatory Notes relevantly provide (our emphasis):

These limits were put in place to prevent such agreements from being everlasting agreements over which the body corporate had no control.

  1. Under current industry practice there is no legal obligation on a body corporate to approve proposals to extend the management rights agreements. It is entirely at the body corporate’s discretion as to whether it wishes to agree to a request to vary the agreement.
  2. Accordingly, the body corporate retains complete control over the terms of the management rights agreements.

[1] Project Blue Sky Inc v Australian Broadcasting Authority (1998) 194 CLR 355 at 384 [78].

[2] Section 4, Acts Interpretation Act 1954.

[3] The Body Corporate and Community Management Legislation Amendment (No.1) 2003 – Explanatory Notes, 9.

 

This article was contributed by Holly Dunne, Mahoneys

Leave a Reply