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Why You Should Maintain Tenure On Your Management Rights Agreements

Kelsey Huebner, Partner (Non-Principal) Management Rights and Body Corporate

Management rights agreements are typically for a period of 10 or 25 years depending upon the legislation governing the Scheme. Once you have purchased your management rights business it is important to diarise the term of your agreements plus any options. As you continue to own and operate the management rights your tenure will reduce over time and therefore it is vital that you top-up the agreements to increase the tenure as close to the 10 or 25 year limit. Importantly, the term limitation is on the unexpired term remaining on the agreements not every term and option added up over the duration of the agreements themselves which is something that is regularly confused by lot owners and managers alike.

Topping up of the agreements is a complex process that is dictated by the requirements of the Body Corporate and Community Management Act 1997 and associated regulation module governing the Scheme. Failure to get this right may mean that the top-up itself is defective and impacts that option term coming into existence or cause a manager a concern on a refinance or the eventual re sale of their business.

A manager can either top-up the agreements:

• by way of a deed of variation, motion and statutory BCCM Form 20; or
• if the manager wants to reduce the number of agreements and ancillary deeds in existence or pursue a top-up of greater than 5 years at a time then they can do fresh new concise agreements (there are a few different manners in which you can draft these depending on what you’re looking to achieve).

A top-up is a routine request from managers in strata complexes and depending on the module and tenure remaining this process occurs every two to three years. Despite it being a regular process and governed strongly by legislation, it is not uncommon for the body corporate to seek advice on the top-up as regular committee members do not have the expertise to review the legal drafting themselves, and the body corporate may ask for the manager to bear these costs. The body corporate may look to negotiate changes to the agreements, and this process is worthwhile if the parties can reach an agreement that is beneficial to both parties (for example, there may be an additional duty the body corporate wish for you to perform and you may be happy to do so for the 5 year top-up).

The most critical part of this process is explaining and lobbying your lot owners to vote in favour of the top-up. For lots in the letting pool, these should be votes you can count on if you are performing a great service and have the support of your letting pool owners, although this should never be assumed. Failing to ask for support is setting yourself up to fail on the top-up from the start. You should also be lobbying your owners not in the letting pool, because again, you are still the key person in the scheme managing the day-to-day upkeep and maintenance of the building and scheme land to ensure it is well maintained, presentable and a happy and desirous place for everyone to live or invest in.

Depending on your finance arrangements (if you have bank lending over the security of the agreements), then banks will typically structure their loan out over the term remaining or a maximum of 15 years but again, longevity of your tenure will impact on the terms the bank can offer you including the interest and repayments.

Unfortunately, it is a hot topic out there that extending the term of the agreements means a manager is going to sell and whilst this does not mean a manager won’t sell, it may be next month, next year or even years away, particularly in Standard Module complexes where a manager has to top-up at least every 2 years. The reality is a well preserved agreement goes a long way to attracting more desirable managers because the business is worth more and an incoming manager can see a track record of a supportive body corporate.

Managers are best placed to remind owners that support for a top-up is support of them and the business they’re running. When a top-up isn’t supported, it can lead to a breakdown in a relationship (whether it be with lot owners and/or the committee) and can affect the service offered to the body corporate. Managers are more likely to want to perform above and beyond to deliver excellent service to the body corporate when they feel supported for the role and job they’re performing.

If you require any assistance with topping up your agreements, including lobbying material or manners in which you can negotiate support for additional term please contact Kelsey Huebner, Partner (Non-Principal) at MBA Lawyers on 0400 045 498 or kelsey.huebner@mba-lawyers.com.au.

Disclaimer: this article is provided for information purposes only and should not be regarded as legal advice.