02 Oct 2024
Words Ben Seccombe, Partner, Mahoneys

Management Rights Top-Ups Saved

In a win for the management rights and strata industry, Mahoneys, supported by the Australian Resident Accommodation Manager’s Association (ARAMA) and EBM Insurance, has successfully defeated a challenge to the validity of extending caretaking agreements.

In recent years, it has been suggested by some practitioners in the industry that caretaking agreements can only be extended (“topped up”) once and never for a term exceeding the maximum allowed in aggregate.

To illustrate the potential consequences of the “one-time top-up” misconception, consider the following scenario: A caretaking agreement is initially entered into for a five-year term. This is subsequently extended by another five years. Under the incorrect understanding of a single, cumulative “top-up,” this agreement could not be further extended, even if it had less than 10 years remaining.

While Mahoneys did not consider there to be any merit to the “one-time top-up” myth, there had not previously been an opportunity to obtain a ruling on this issue from an adjudicator.

The adjudicator’s order, Atlantis West [2024] QBCCMCmr 340, finally puts any uncertainty to bed — in that the Adjudicator clarified the position that caretaking agreements can be extended any number of times, provided the cumulative term does not exceed the maximum term permitted under the module and the individual extensions do not exceed five years.

The application was filed by an owner in the Atlantis West community titles scheme who sought a declaration that the body corporate’s resolution to extend the existing caretaking agreement was invalid. He argued that the extension exceeded the statutory term limit for such agreements and was therefore unreasonable.

The crux of the matter lies in the interpretation of Sections 140 and 141 of the Standard Module, which govern the term limit of service contracts and letting authorisations, respectively. The applicant argued that the module restricts the number of times a caretaking agreement can be “topped up,” or extended. The applicant further claimed that the body corporate failed to obtain legal advice before approving the extension, which he deemed unreasonable.

The adjudicator, however, dismissed the application, upholding the body corporate’s decision to extend the caretaking agreement. He concluded that Section 140(2) of the Standard Module allows for multiple extensions as long as the total term does not exceed 10 years at any given point in time (the maximum permitted under that module) and the extensions do not exceed five years in length.

This interpretation is consistent with the “orthodox construction” of the provision, which prioritises the text of the statute over extrinsic materials.

The significance of this decision cannot be overstated. Had the adjudicator ruled in favour of the applicant, the ramifications for management rights holders and bodies corporate would have been substantial and costly as most agreements have been extended more than once, or their aggregate terms have exceeded the maximum allowed under the relevant regulation module.

A ruling in favour of the applicant would have created significant uncertainty and legal challenges for management rights holders, potentially leading to the termination of their agreements and significant financial losses.

It is also an excellent result for Mahoney’s caretaker client, whose pending sale had been delayed while this issue progressed through the dispute resolution process.

The adjudicator’s order also serves as a timely reminder to bodies corporate and owners that, while it is advisable to obtain legal advice before approving any significant amendments to caretaking agreements, a decision to extend the term of such agreements is not necessarily unreasonable or illegal. The critical factor is whether the proposed extension adheres to the statutory term limits and procedural requirements outlined in the relevant module.

Mahoneys would like to recognise ARAMA and EBM Insurance for their support in relation to this matter. Their commitment to supporting management rights owners is invaluable and greatly appreciated.

This case serves as a powerful reminder for management rights operators of the role ARAMA plays in supporting the industry and the specialist insurance provided by EBM Insurance (via the A-Legal Insurance Membership Benefits exclusive to ARAMA members).

Mahoneys team was led by industry commercial litigator Ben Seccombe supported by Gavin Handran KC and Mitchell Downes. Their status as barristers practicing in body corporate law is widely recognised, and their expertise was instrumental in navigating the complexities of this dispute and the excellent outcome achieved for our client and the industry. END