Assignment of Management Rights
In the Body Corporate industry it is common place for bodies corporate to enter into a series of contracts that provide for the care and maintenance of the common property and to also grant the exclusive rights to conduct a letting business. Collectively these agreements are referred to as Management Rights.
These Management Rights can be worth significant sums of money and it is quite common for Management Rights to be bought and sold just as other types of businesses and investments are bought and sold. For many years there have been a considerable amount of misconceptions held by those in the Body Corporate Industry about the protections afforded to a Body Corporate. Chief among these misconceptions is that a Body Corporate “must” agree to the sale (“Assignment”) of its Management Rights from one person to another.
To some extent these misconceptions have been allowed to exist because for a long time bodies corporate have been naïve about their rights and the considerable effect that a Manager / Service Contractor / Caretaker / Resident Unit Manager (these are all names used by the industry but all are essentially the same) can have on the harmonious community living experienced at a Body Corporate.
The Importance of Obtaining Legal Advice
We are often surprised when we first meet with a Committee of a Body Corporate that is experiencing difficulties with their Caretaker and they inform us that they did not obtain legal advice or have anyone represent the interests of the Body Corporate when the Management Rights were last sold.
The Agreements that form Management Rights are complex and are worth significant sums of money. For example a 25 year Caretaking Agreement with remuneration payable at $100,000.00 per year is a contract that equates to $2.5 million and this does not include CPI increases in the remuneration and the profit that the Caretaker can generate from conducting an exclusive letting business.
Would you as an individual obtain legal advice if you were considering entering into a contract that lasted 25 years and was worth $2.5 million? Every time we ask this question of Committee members the answer is always “yes”. Your Body Corporate is no different. There is a reason that the seller is represented by a Solicitor and the purchaser is represented by a Solicitor. They engage Solicitors to protect their interests. It is only appropriate that the third party involved in the transaction, the Body Corporate, is also legally represented.
It is also normal for the outgoing Caretaker to pay the reasonably incurred administrative and legal costs incurred by the Body Corporate during the Assignment.
Your Body Corporate has rights in the Assignment of Management Rights that need protecting, both the outgoing and incoming Caretaker are normally represented by Solicitors and it is normally the responsibility of the outgoing Caretaker to pay the legal costs of the Body Corporate. In these circumstances, the Body Corporate must obtain legal advice to protect its rights.
OMB Solicitors provide balanced advice to the Committee’s of its Body Corporate clients, so that those Committees can understand the process that they must follow during an Assignment, the rights that they have to properly consider the incoming Caretaker and negotiate on behalf of the Body Corporate to ensure that the Deeds that document the Assignment of the Management Rights accurately reflect what is occurring and are sufficient to protect the interests of the Body Corporate, rather than just giving away rights to the outgoing and incoming Caretaker.