What are Body Corporate Assignments & Variations of Management Rights?
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Hi, I’m Tom Robinson from OMB Solicitors, I’m an Associate here, and today we’re going to talk about assignments and variations of management rights. I thought a good starting point would be identify exactly what we’re talking about when we talk about management rights.
Specifically, when we mention management rights, we think of them as a bit of a package deal. So, usually, management rights consist of a caretaking agreement, a lending agreement, and then also a caretaker’s law. Now, an assignment or variation of those management rights essentially happens when a request comes through from usually the current caretaker.
Starting with assignments, the legislation framework deals with how assignments can occur and the rights are behind that with respect to a caretaker being able to assign those rights, and essentially that’s exactly what it is, it’s a transfer of the ownership of the management rights from one or the current caretaker to a proposed purchaser.
So there’s normally three parties involved in that transaction; the body corporate, the current care taker being the seller, the proposed new care taker being the purchaser. What usually occurs in the first instance is the caretaker solicitors, so the seller, will send a covering letter to the body corporate, which will enclose certain documents.
That request will be a formal request for the body corporate to consider giving its consent to that transaction. That consent can’t be unreasonably withheld by the body corporate, but the body corporate can certainly have consideration to a number of of factors.
What usually comes behind that letter is also a deed of assignment, a motion, and then some resumes and references. Once that comes across, it’s important for the body corporate to consider getting its own independent legal advice.
The reason this is so important is not only because the caretaker and the seller or the purchaser are both represented by their own independent lawyers. The documents are therefore drafted by those lawyers and they’re legally binding on the body corporate, but also because the cost associated with the body corporate considering an assignment transaction are actually paid for by the outgoing caretaker.
So there’s no real reason why a body corporate would not get legal advice to ensure that what they’re voting on and the terms of that deed of assignment are in the best interests of all owners. So taking that into consideration, those documents have come across, the body corporate’s got their lawyers engage in the due diligence process starts.
Part of that process will usually be obtaining further information. Such documents might include police checks, bankruptcy searches, letting licences, and any amendments to the terms of that deed of assignment.
Now, the reason that’s so important is to make sure that the body corporate, when it’s going to determine that motion to consent to the assignment, they have all that information that they believe they reasonably need.
That can also include, obviously, an interview occurring. An interview can occur between the committee and the proposed purchaser, but it can also be done by an independent facilities management company, and that’s a decision for the committee to make.
On that point, it’s always important to remember, in an assignment matter, the committee can make the decision on behalf of all owners, they don’t have to, it can actually go to a general meeting, but it’s very common for a committee to make that decision because it’s quite easy, they can do it, and they normally get all the information they need.
Now, once that process has gone through, all the information is received, they’ve had an interview, the committee is happy and there’s no concerns, then the next step is preparing for settlement, and that starts with the consideration of the motion. So the committee will then determine that motion subject to it being resolved.
Then, the deeds and so forth will then be prepared and the committee can execute those deeds. They’ll then go through a process of stamping, settlement will be scheduled and the body corporate will obviously ask for either the caretaker’s solicitors or the purchaser’s solicitors to act as their own paid agent, and then settlement will occur.
At that time, checks will be drawn and provided to the body corporate along with a signed deed, and that’s your assignment transaction in a very simple nutshell. The main difference between though an assignment and then a variation is that the variation is obviously that varying the rights and the terms of the agreements themselves.
When we think about these variation matters, similar process as where they start is the same as the assignment matters, whereby a request by the current caretaker will come across and that will include the covering letter, a deed of variation, and a motion.
There might be some other documents provided as well, depending on what is required for that specific type of variation. But again, the transaction is only going to be between the current caretaker and the body corporate. So there’s only the two parties in this instance and the body corporate is requested to consider entering into that deed of variation.
That motion must be put to a general meeting, though, so it’s considered a lot owner’s motion. So one thing to always check is whether or not the motion is submitted by the caretaker, if they are a lot owner, or if they’re not a lot owner, who is the lot owner that’s submitting that motion?
Once that motion is put forward, it must be put to the general meeting and it will ultimately be determined by the owners. The deed of variation can be an important time for a body corporate to consider any other amendments, and that is obviously going to be a negotiation with the caretaker and of course, that means both parties need to agree.
Ultimately, if the motions put by the caretaker, it will be put in the form that it’s submitted and the owners will determine that motion. The important thing to remember is obviously in these transactions, when that advice or that initial letter comes across to the body corporate, the body corporate should consider getting its independent legal advice.
The reason that’s so important is, again, this is a legally binding document that’s drafted by the caretaker solicitors and the body corporate has a responsibility to obviously act reasonably and act in the best interests of all owners.
So costs and the variation are a little bit different to assignments, there’s no requirement for those costs to be paid by the caretaker, but it’s common that they are.
At the end of the day, it’s a relatively small fee for a body corporate to get that independent legal advice to make sure that the motion, the deed of variation, that anything else that is circulated with those documents are appropriate and valid.
So if the motion is resolved, then the body corporate is obliged to enter into those documents. Same sort of situation, the general meeting will occur, the motion will be voted on, and then ultimately the body corporate will be obliged to enter into that deed of variation if the motion is resolved and that would be the end of a variation matter, and that simply forms part of a historical document for the management rights.
Quite a lot to take into consideration with respect to variations and assignments, obviously, two different types of transactions, but very common.
They can occur simultaneously at the same time and they can occur separately. OMB solicitors, obviously, we deal a lot with these types of transactions, we act exclusively for bodies corporates. So if you are going through one of these processes at the moment, please do not hesitate to give us a call.