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Have You Exercised Your Option? The Importance Of Ensuring Your Management Rights Agreements Do Not Prematurely Expire

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

Management Rights Agreements regularly requires two things: top-ups and the exercise of options. One involves adding extra years to your existing Caretaking and Letting Agreements and one is required for the option itself to come into effect.

There is always regular confusion about what exercising an option means, including: but I had my Management Rights Agreements varied to add another 2, 3, 5 or however many years were added at general meeting my Caretaking and Letting Agreements run until say 2050. However, similar to a Lease, topping up your Management Rights Agreements to add the extra years does not mean they automatically come into effect (unless that is what the option allows for).

If you have Caretaking and Letting Agreements with options (as opposed to a straight 10- or 25-year term no options), then it is critical that you, as the Caretaker and Letting Agent, understand how those options work in practice. These Management Rights Agreements are your security for your bank (if you have finance) and most importantly for your exclusivity as letting agent (i.e. you can operate a letting business within the Scheme for lot owners) and for the payment of your salary for performing the caretaking duties (your sustainable ongoing income from the Body Corporate).

When Management Rights Agreements prematurely expire, this exposes you and your financier to unnecessary risk; loss of security for your loan and/or loss of your exclusive caretaking and letting rights and caretaking income, and then it may not be possible to get new Agreements put back in place without negotiations with the Body Corporate or conceding to additional duties/reduction of salary or another item you may not have otherwise agreed to had your Management Rights Agreements remained in place.

Exercising an option means you:

• Need to know what date the option must be exercised by; is this say 3 months before the expiry of the preceding term, between a window of no earlier than 12 months but not later than 6 months before the previous option or initial term expires or is it automatic and you do no need to do anything unless you wanted to surrender your Agreements;

• How do you need to exercise it? Most options require some form of written notice to the Body Corporate but you need to check how the notice must be served (most cannot be done electronically, but regularly the assumption is that it can simply be emailed) and does the existing Caretaking and Letting Agreements require a deed to be put in place (requiring a deed of extension, motion and either formal committee vote or a vote outside committee meeting); and

• Where does the option exercise notice need to be sent? This is one of the harder ones, requiring the checking of service requirements under your Agreements.

This is why it is critical management rights operators seek legal guidance to make sure they diarise the dates so that they are not missed and to correctly and validly exercise their existing options, so the Agreements do not expire earlier than anticipated.

MBA Lawyers is here to provide step by step advice and assistance for you to validly exercise your options. If you require clear and practical help to ensure your Agreements remain in effect, please reach out on:

MBA Lawyers: (07) 5539 9688 / 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.