Management Rights Transfer FAQs
October 1, 2021
If you are involved in a strata community with an on-site manager or caretaker, there may come a time when the agreements in place commonly known as management rights, change hands.
If this happens, you will no doubt have lots of questions about what the rights and obligations of each party has including time frames.
In this article we cover some of the frequently asked questions we receive and provide the answers to assist your strata community in dealing with this inevitable transaction.
There are multiple stages of a management rights sale transaction which are usually referred to as a deed of assignment or transfer. The starting point for a body corporate is when notice is received seeking approval of the transfer. An early indicator of the transaction being considered in the future is when a request to extend the agreement term is submitted for approval at a general meeting, but this could also be for different reasons such as financier requirements. Below we cover some of the FAQ’s we receive when committees are facing this issue for the first time.
What constitutes notice seeking transfer approval?
The agreement to be transferred will state how notice is served however in practice, this is simply by submitting a letter to the Body Corporate. The letter in most cases will be submitted by the current caretaker’s solicitor on their behalf to the Body Corporate Manager who is usually the registered address for service of notices to the Body Corporate. This notice should be accompanied by the relevant information. If not, the information required to make a decision should be requested and when received, the decision making time period can commence.
How much time do we have to make a decision?
Section 143 (4) of the Standard Regulation Module (same for Accommodation) states:
“The body corporate must decide whether to approve a proposed transfer within 30 days after it receives the information reasonably necessary to decide the application for approval.”
There is no reference to business days or otherwise so 30 days should be taken as 30 calendar days. If the notice is received just prior to the end of year holiday period, it could be considered reasonable to seek an extension of this time frame.
What information is reasonably necessary to consider transfer approval?
Section 143 (3) of the Standard Regulation Module (same for Accommodation) states:
“In deciding whether to approve a proposed transfer, the body corporate may have regard to—
(a) the character of the proposed transferee and related persons of the proposed transferee; and
(b) the financial standing of the proposed transferee; and
(c) the proposed terms of the transfer; and
(d) the competence, qualifications and experience of the proposed transferee and any related persons of the proposed transferee, and the extent to which the transferee and any related persons have received or are likely to receive training; and
(e) other matters stated in the engagement or authorisation.”
To assist with determining if the information is reasonable, a standard questionnaire has been developed by a Strata Industry Umbrella Group which consists of Strata Community Australia (Queensland) – SCA(Q), Owners Corporation Network (Queensland) – OCN(Q) and the Australian Resident Accommodation Managers Association – ARAMA.
- Download the Assignment of Management Rights Interview Questions.
Is the information provided to the body corporate kept confidential?
No. The body corporate must keep all documents provided to it on the body corporate record. Interested persons have the right to inspect the body corporate records, with the exception of the material being defamatory or subject to legal professional privilege.
Once notice and relevant information is received, who approves the transfer?
Section 143 (2) of the Standard Regulation Module (same for Accommodation) states:
“To avoid any doubt, it is declared that the approval may be given by resolution of the committee, unless the decision on the approval is a decision on a restricted issue for the committee, or by ordinary resolution of the body corporate.”
In majority of schemes, this matter will not be a restricted issue so the committee may make a decision however, if time permits, the committee decision could be to seek approval by ordinary resolution at a general meeting.
Is there any legal costs of transfer fee payable by the caretaker?
The caretaker selling the management rights business in most cases is required to pay the body corporate’s reasonable legal and administration costs related to processing of the transfer request.
Division 2 Payment of amount on transfer of the Standard Regulation Module (same for Accommodation) includes all of the specific provisions including definitions of initial contract date. In summary though, If the agreement is to transfer within 1 year of the original contract date, 3% of the fair market value for the sale transfer payable to the Body Corporate sinking fund. More than 1 year but less than 2 years from the original contract date, 2%.
There are also terms within this section for claims that the transfer fee is not payable due to power of sale and hardship provisions.
Does the transfer have to be approved?
Section 143 (6) of the Standard Regulation Module (same for Accommodation) states:
“The body corporate must not—
- unreasonably withhold approval of the transfer;
- Require or receive a fee for approving the transfer”
Provided that the incoming caretaker has satisfied Section 143 (3) criteria it would be reasonable to approve the transfer. If there are any doubts about the criteria being satisfied and to determine if it is reasonable to withhold consent, we strongly recommend legal advice is sought from a specialist strata lawyer so that a legal position can be established if required.
Should the body corporate get legal advice?
Yes. The body corporate will be asked to sign legal documents prepared by a lawyer for the benefit of their client (the caretaker). A body corporate manager can offer guidance on the process, but is not a lawyer and will therefore decline to provide advice on legal documents submitted.
We hope that the answers we have provided for these recurring questions we receive, assist you and your committee through this process if it ever occurs. And as always, we suggest Committees seek advice from the professionals when qualified information is needed to make informed decisions on behalf of the owners you represent.
Download the Assignment of Management Rights Interview Questions