The term “management rights” refers to a contractual arrangement between a business entity (individual, partnership, corporation or trust) and the body corporate of a community title scheme. A body corporate is a legal entity established upon registration of a community titles development and is responsible for managing the scheme.
The business entity is often referred to as the ‘resident manager’ and provides on-site caretaking and management of the common property as well as letting services for individual unit owners who wish to let out their properties.
Management rights are often established by developers, to provide long-term services for the common property and unit owners. These rights are usually ‘sold’ to an operator looking for a business opportunity. Alternatively, management rights may be purchased by assignment from the existing manager.
A management rights business generates income (paid by the body corporate) in accordance with agreed fees for caretaking services and commission (from unit owners) from letting of units. The resident manager may offer additional services to tenants and individual unit owners such as cleaning and linen supply.
A management rights business (or the individuals behind it) will usually own a lot in the community scheme. This may include an office/reception but sometimes these areas are part of the common property of the scheme and are made available to the manager as part of the management rights contract.
The licensing requirements for the letting business are governed by the Property Occupations Act 2014 (Qld). A person conducting the letting business must hold an individual or corporate resident letting agent licence or real estate licence.
The caretaking and letting arrangements are documented in an agreement (or agreements), setting out the services to be provided and the rights and obligations of the parties.
The agreements should take into consideration the laws governing community developments and the by-laws particular to that scheme. The Body Corporate and Community Management Act 1997 (Qld) regulates the operation of bodies corporate including engagement and conduct of letting agents and caretakers.
In addition to their obligations under the contract with the body corporate, resident manager must comply with the codes of conduct set out in Schedules 2 and 3 of the Act relating to caretakers and letting agents. This includes having a working knowledge of the Act and the regulation module applying to that particular scheme, acting honestly, fairly and professionally and exercising skill, care and diligence in carrying out the required duties.
Community title schemes can range from small residential developments to large multi-purpose schemes comprising accommodation and retail outlets. Consequently, the provision and scope of services provided under a management rights agreement can vary substantially.
Management rights are complex business arrangements with many managers entering the business for the first time. Contracts generally require the verification of financial information, extensive legal due diligence of all body corporate contracts and letting arrangements, satisfying the requirements of financiers and obtaining the approval of the body corporate for the assignment and/or amendment of agreements. Appropriate legal and financial advice should be obtained from professionals with expertise in this highly specialised area.
Our management rights team has provided expert advice to buyers, sellers and developers of management rights for more than 20 years and can assist with all management rights and associated matters.