27 Dec 2013
Words Tim Admin

How Long is yours - You Might Be Surprised

How valuable are your agreements? And what happens if you don't keep them topped up? For those who don't know more than 72 per cent of all resort accommodation complexes in Queensland operate under a management rights agreement with a body corporate structure. Often buying into management rights is a multi-million-dollar investment , often the biggest asset of a buyer and the value of this investment is linked to a number of factors including the length of tenure left of these agreements at the time the asset is purchased and then again on a sale. It has become evident in the last few years that buyers, financiers and Valuers are placing much more emphasis on the length of agreements that almost every other facet of the business. For the majority of time management rights have been in place accommodation module agreements with 14 or 15 years remaining on 25 year agreements was seen as acceptable and many sales took place under that amount of tenure. Standard module (10 year agreements) have almost always had to be topped back to 10 years in any sale process. Managers often have the largest single financial interest in the complex linked directly to performance of the business underpinned by numerous factors notwithstanding the tenure of their agreements. Unit owners on the other side are also affected by the managers performance and as in most complexes the yield is no more that 2-3% and if the onsite manager doesn't perform they can quickly lose faith with the manager and not be in a position to spend on updating their apartments or when the time comes choose not to extend the manager’s tenure. Now this is where the dilemma lies . Managers rely upon Body Corp AGM votes of unit owners to ‘top-up’ the managers’ tenure ensuring the manager’s ongoing equity and investment. In most cases the AGM vote is by way of secret ballot and is not based on any performance criteria and is often based on perceived bonuses the managers will receive with the top up and some are starting to say they can't see why they need to support it if the managers not performing. It's no secret management rights a far more complicated than they were 10 years ago with new workplace health and safety rules, local and state government compliances, insurances risk management, and the list goes on. Often management rights are mixed use combining investors owner occupiers, both short term and long term rentals and those outside the managers letting resulting at times in opposing views and the direction and responsibility of the onsite managers performance. Here lies the challenge, professional managers in well run complexes showing strong performances still have no guarantee there agreements will be topped up at any AGM now or in fact ever. There have been several recent cases on both the Sunshine and Gold Coasts where agreements have been allowed to lapse by owners unhappy with the performance of either the managers or the perceived value for money they are getting for the supply of caretaking services. Its critical to treat these agreements "like Gold" and to maintain a strong rapport with your body corporate managers and unit owners at all times to maximize your chances of getting the top up you require at the time you really need it. Don't wait until your agreements are down to half the original term, be proactive every few years seek a top up, consult your lawyer to ensure its done properly timely and legally and motions to do so are in correctly and on time. If you don't and leave until you agreement term is low you could be jeopardising much of the future value of your asset when you go to sell. It's that serious - don't leave it until it's too late as under the new guidelines you can only apply for a maximum 5 year top up in any year and that still might not be enough to retain your current value.