Resources

Why Committees Should Seek Guidance On Assignment Of Management Rights

Kelsey Huebner, Partner (non-principal), Body Corporate and Management Rights

Management rights encompass the caretaking and letting operations in a strata scheme which are predominately governed by the Body Corporate and Community Management Act 1997 (Act) and the associated Modules (Standard and Accommodation being the predominant modules) in Queensland, together with a set of caretaking and letting agreements between the caretaker/letting agent and the Body Corporate which set out duties, obligations and scope of works a caretaker/letting agent must abide by and any assignment provisions.

These caretaking and letting agreements are regularly sold and transferred every 2 to 3 years or so (sometimes longer or shorter depending on the manager) and a Committee will be asked for their consent to the assignment unless it is a restricted issue for the Committee or there is no Committee or valid Committee in existence, in which case a general meeting may be required.

A Committee must be aware of what they are entitled to consider or request as part of an assignment and what is outside the scope of an assignment, for instance, variations to the existing management rights agreements, unless a variation or new agreements are also being considered at the same time, are not part of the assignment process.

Under the legislation this includes:

• character of the transferee and related persons of the proposed transferee (and who is a
  related person);
• financial standing of the proposed transferee (e.g., do they have equity to fund the purchase
  or have they sought finance for the purchase);
• proposed terms of the transfer (i.e., those set out in a deed of assignment between the body
  corporate, transferor and transferee);
• the skills, qualifications and experience of the transferee to operate a caretaking and letting
  business, including any tuition, licences, etc.; and
• any other items in the management rights agreements themselves, for instance, nominee
  requirements for who is performing the duties or who the owner of the associated
  management lot is (if any) and if a lot owner covenant is included in the deed of assignment.

Whilst a buyer will typically prepare a business plan, personal and business references, resumes and police checks it is not uncommon for a buyer to provide insufficient credentials as they have not properly considered who truly makes up the entity buying the management rights (for instance a primary shareholder of a company or the make-up of a trust who is the ultimate holder of the management rights).

Committees will need to look at what experience a transferee brings to the table and if an existing operator, how they will operate multiple schemes or if they have previously operated management rights, any references as to their performance from the previous complex. It is important that the Committee acts within the parameters of the agreements, Act and relevant Module without being discriminatory or making unreasonable requests of the proposed transferee.

A Committee also has to consider whether a transfer fee is due and payable, and in some instances, whether it should be waived for hardship. A Committee must be careful about any waiver of hardship as it cannot simply be waived because the Committee wish to make the transfer an easy process or because they like the Seller.

Whilst Committees must decide whether or not they consent to the transfer, it is not for the Committee to make legal assessments of what is permitted under the legislation, and what requests or conditions may unreasonable and go too far, or if the Committee are waiving a requirement to a transfer fee the Body Corporate should be entitled to. A Committee should obtain independent legal advice and assess each assignment on a case-by-case basis and ascertain if there are genuine concerns with the transferee and, if there are any avenues for these to be addressed.

MBA Lawyers is here to provide step by step advice to Committees on an assignment and the credentials and experience of a proposed transferee. If you require clear, practical and reasonable guidance 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.