A recent decision of the NSW Consumer, Trader and Tenancy Tribunal (CTTT) highlighted the importance of ensuring that the fundamentals are right when entering into Management Rights agreements.

The decision related to a large, mixed commercial and residential scheme in Sydney comprising 117 lots being 111 residential lots, 1 caretaker lot and 5 commercial lots.

The developer sold the Management Rights to the building and the minutes of the first Annual General Meeting recorded a resolution appointing the management company as Building Manager on the terms and conditions contained in the written agreement. However, immediately, under the resolution, the following wording was included:-

“all owners (excluding the representative of the original owner) wish to register an objection to the motion as the contract is for a 10 year period and other quotes were not tabled at the meeting”.

Three years later, the Owners Corporation applied to the CTTT to have the Agreement declared void under Section 183A of the Strata Scheme Management Act (Act) on the basis that it was unfair, harsh, oppressive, unconscionable and unreasonable.

To demonstrate that the Agreement was unfair, the Owners Corporation tabled three (3) quotes to the Tribunal for provision of the caretaking duties at a fee well under the $157,612.00 originally being paid to the Caretaker. The Owners Corporation also argued that the Agreement was oppressive in that the Manager’s Lot (a standard two (2) bedroom unit) included on the title to the property the reception area in the foyer, numerous floor spaces throughout the building and multiple office and storage areas and garages. In effect, the area of the Manager’s lot was six (6) times the area of a typical Lot, yet the unit entitlement was the same as a standard two (2) bedroom unit in the complex (warning bells!).

The Tribunal decided:-

1. That the building was a “large Strata Scheme” as defined under the Act because it has more than 100 Lots.

2. The Act requires that an Owners Corporation of a large scheme must obtain at least two (2) quotes in relation to proposed expenditure in respect of any one item, if the proposed expenditure exceeds the amounts prescribed in the regulations.

3. The regulations prescribe an amount of $25,000.00 in relation to any one item or matter, (other than seeking legal advice or the provision of legal services or taking legal action).

4. Because the remuneration under the Caretaking agreement ($157,612.00) for the first year exceeded the $25,000.00 threshold, the Owners Corporation should have obtained two (2) quotes.

5. As only one (1) quote was obtained and put to the first Annual General Meeting and voted on, the resolution was a nullity and was declared void. Any contract entered into as a result of the illegitimate resolution had to be treated as being tainted and of no force.

6. The Tribunal also found under Section 183A(2) of the Act that the contract was not only unconscionable due to the circumstances proceeding the execution, but its continued existence was unreasonable and terminated the agreement forthwith.

LESSONS TO BE LEARNED

This case highlights the importance of developers getting it right when selling Management Rights and buyers of Management Rights ensuring that they only use legal practitioners experienced in this area.

The level of remuneration being paid for the provision of the caretaking services should have rung some alarm bells. A simple division of the commencing remuneration by the number of Lots would raise concerns for this type of inner city building with next to no gardens or grounds and where the primary cleaning duties relate to foyers, hallways, car parking areas and garbage disposal. Caretaker’s remuneration can always be reviewed under Section 183A of the Act.

Also, the unit entitlement attaching to the Manager’s lot should have raised immediate concern. Clearly, the unit entitlements were stacked firmly in favour of the owner of the Management lot and this was always going to be become a problem with the other owners.

Obtaining alternate caretaking quotes will need to be addressed when new buildings are brought on line.

 

THE MBA PARTNERSHIP ACCOUNTANTS

Management Rights Accountant

PAUL GAFFNEY | MANAGEMENT RIGHTS

The MBA Partnership is one of the most experienced firms of management rights accountants in Australia. Many of their clients are new to the management rights industry, and with over 30 years experience in management rights they have the expertise to help you set up correctly from the beginning. From due diligence, accounting, taxation and auditing Paul and his team can guide you through the entire process.

Phone: +61 7 5557 8700

LEVEL 3 "PIVOTAL POINT"' 50 MARINE PARADE SOUTHPORT QLD  4215

pgaffney@mbapartnership.com.au | managementrightsaustralia.net 


 

Management Rights & Motel Finance P/L

Mark Ryall

 Mark Ryall | MANAGEMENT RIGHTS

Management Rights and Motel Finance Pty Ltd is an industry leader in providing specialist finance needs to companies and individuals embarking on the purchase of a Management Rights business. Mark and his team is dedicated to helping you with all your management rights and motel finance needs! We work around the clock to make sure you receive the best deals.

Suite 4, Level 2 / 247 Bayview St Hollywell QLD 4216

Phone: 07 55641100 | 0419 640 215
Fax:     07 30140108

mark@mrmfinance.com.au | www.mrmfinance.com.au

Australian Credit Licence No: 378366


 

Management Rights Articles

  • MANAGEMENT RIGHTS AGREEMENTS

    Usually, there are two Agreements between the Resident Manager and the Body Corporate.  They are: The Caretaking Agreement and The Letting Agreement.

SMALL MYERS HUGHES LAWYERS

COL MYERS | MANAGEMENT RIGHTS

SMH Lawyers handles all aspects of a Management Rights transaction from establishing, purchasing and selling Management Rights to advising bodies corporate on strata related issues and disputes. Col Myers and his team of experts is constantly exposed to all aspects of the management rights industry which means they can proactively advise when and how to best handle management rights to work effectively for individual scenarios.

Phone: +61 7 5552 6604 | Mobile: +61 417 620 516

Level 2, 17 Welch St Southport Qld, 4215

info@smh.net.au | www.smh.net.au  


 

Management Rights Brokers

 

 

 

 

 

Narelle Filmer | Linda & Wayne Stoll

Think Management Rights’ is a division of the nationally recognised First National Real Estate franchise. This team of specialist brokers operate throughout the state of Queensland. With over 15 years as owners, managers and sales agents in Management Rights industry, this team has a great deal of knowledge and experience to bring to the MRA seminars.

Wayne and Linda Stoll | Listings: Sunshine Coast / Gold Coast Region
Phone: 0452 181 505
wayne@thinkmanagementrights.com.au | linda@thinkmanagementrights.com.au 

Narelle Filmer | Listings: Gold Coast / Brisbane Region
Phone: 0459 229 744
Email: narelle@thinkmanagementrihgts.com.au  

www.thinkmanagementrights.com.au 


 

Visit Us

Contact Us

Newsletter Sign Up

GOLD COAST SEMINAR