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


The Caretaking Agreement

The Caretaking Agreement is entered into between the Resident Manager and the Body Corporate.

What is the Agreement?

The Caretaking Agreement is the document which outlines the requirement to care for and maintain the common property on behalf of the Body Corporate.  The Agreement also includes the Caretaking remuneration which the Body Corporate will pay to the Resident Manager for performing these duties.

The length of the Caretaking Agreement will vary from Agreement to Agreement.  Under the Body Corporate and Community Management Act (Standard Module) a maximum of 10 years may be entered into and under the Body Corporate and Community Management Act (Accommodation Module) a maximum of twenty-five years applies.

  • The Accommodation Module is designed for investor buildings where the units are predominantly let out either by the on-site letting agent or other agent/s.  It allows for greater spending power by the Body Corporate and less formality with the holding of meetings and in particular allows the Body Corporate to grant longer Caretaking and Letting Agreements, up to a maximum of twenty-five years.  This provides greater security of management for the complex and more security for the Manager’s investment. Being in the Accommodation Module is a bonus, but not essential.

  • The Standard Module is much more regulated and is designed for owner occupied buildings where the units are predominantly occupied by owners.  It allows for a much greater input by the owners and limits the Caretaking and Letting Agreements to a maximum of ten years.  There is nothing wrong with the Standard Module from a Manager’s perspective provided the Manager maintains a practise of every few years asking the Body Corporate at a general meeting to top the Agreement back up to ten years.  An ordinary resolution (51%) only is required.

What are the duties outlined in the Caretaking Agreement?

Most Caretaking Agreements include very specific duties which the Resident Manager is required to perform and it is important to understand the exact requirements of the Caretaking Agreement.  The tasks will vary from complex to complex depending on the actual facilities at the complex and the remuneration paid. Sometimes the requirements may extend as far as daily, weekly, monthly and yearly tasks.   Duties may include any or all of the following:

  • Mowing the lawns

  • Maintaining the gardens; watering, pruning, hedging

  • Cleaning and maintaining swimming pools

  • Sweeping and hosing of common property

  • Vacuuming common areas

  • Cleaning mirrors and lifts

Are there different types of Caretaking Agreements?

Yes, there are two types of Caretaking Agreements:

  1. “DO” Agreement – A do agreement is where the manager is paid by the Body Corporate to carry out all the duties and maintenance him/herself or alternatively pay for an outside contractor to meet the requirements of the Agreement.  For example, if a Manager does not wish to mow the lawn he may pay a lawn mowing contractor out of Management income; the Body Corporate does not pay the lawn mowing contractor.

  2. “SUPERVISORY” Agreement – A supervisory agreement is one where the Manager is not required to actually carry out the duties, but to arrange contactors to attend to them.  The remuneration in a supervisory agreement is considerably less as the Body Corporate pays the contractor directly.  In this case the Manager is still required to supervise the contractor to ensure that the work has been carried out satisfactorily.

It is very important to note that at NO TIME should the manager be required to carry out duties which require a skilled tradesman for such things as electrical or plumbing maintenance.  This is a cost paid for directly by the Body Corporate.

ASIC Policy on New Management Rights

On May 5, 1999, the Australian Securities and Investments Commission (ASIC) issued a policy statement relating to new services strata title buildings.  As a result of this policy statement, purchasers of Management Rights in holiday let complexes may encounter the following clauses in management rights agreements:

Forced Sale

This clause provides that a majority of Body Corporate owners in the building may force the Manager at any time to sell his unit and Management Rights business to a nominee of the Body Corporate for fair market value. Previously the Body Corporate had to rely on the Manager’s misconduct, but now it can remove him if it resolves he is not doing a good job. Whilst there is some risk for the Manager, he is protected by the requirement for fair market value and a majority vote. Further there is no financial benefit for unit owners to replace the Manager unless he is genuinely not performing. This highlights the importance of “people handling” skills in the Management Rights industry.

Disclosure Statement

The manager must provide a Disclosure Statement to a new unit regarding the management of the building and the likely returns from letting.

 

 The Letting Agreement

The Letting Agreement is entered into between the Resident Manager and the Body Corporate.

What is the Agreement?

The Letting Agreement gives the Resident Manager the right to obtain a Resident Letting Agent’s Licence enabling him to conduct an on-site letting business for units within the complex.

What is the length of a Letting Agreement?

The Letting Agreement is usually linked to the Caretaking Agreement with consistent dates and duration.

Is there a salary payable for letting?

The Body Corporate does not pay remuneration for the letting rights.  The remuneration received by the Manager is paid by way of a letting commission received from the owners within the complex who appoint the Resident Manager as their Letting Agent. This appointment is another formal agreement that the Manager (Letting Agent) must enter into with each individual owner who requires the Resident Manager to provide this service. This Agreement (a PAMD 22A) must outline the monies payable by the owner including additional charges for services.

Additional income is also payable for providing services to tenants. This may include maintenance or repairs. In holiday rental buildings there is greater potential to earn additional income through regular cleans, linen hire, tour sales, or equipment hire.

What does the Letting Agreement require a Manager to do?

The Letting Agreement normally requires a Manager to promote the letting of units within the scheme. As the Letting Agent you are required to supervise the standard of tenants/guests and ensure they are fulfilling their tenancy requirements including abiding by the Body Corporate by-laws. You may also be required to maintain an office and reception area.

Can anyone else operate a Letting Business?

The Letting Agreement usually provides exclusivity; the Body Corporate is not allowed to permit any other Letting Agent to let units from within the complex.  This does not extend to outside Real Estate agents. Most owners choose to utilise the services of the on-site Letting Agent as there is more control over their tenants and a common interest in the maintenance of the complex as a whole.  Urgent maintenance can be attended to immediately and owners are given the assurance that their unit is being looked after 24/7.

Owners do have the right under Australian Law to not choose not to use the Resident Manager as their Letting Agent, live in their unit or leave the unit locked up.

Management Rights Articles

  • THE DEEP END OF POOLED LETTING POOLS

    We regularly review a variety of letting appointments (the agreement between the building manager acting as letting agent and the owners of the investment units used in a letting pool) and we often find that there is a noticeable gap between what the appointments state versus how they are interpreted.

    For the most part the gap can be attributed to overly simplified clauses that do not adequately state the practices that the majority of the industry operates under. In general, these inadequacies are rarely the subject of a legal dispute (when business is good) and so fixing them is often left on the “do it tomorrow” pile.

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