11 Mar 2014
Words Tim Admin

Securing your next top up

A key strength of management rights is that in the absence of termination, virtually nobody can take away from the resident manager its rights, remuneration and balance years remaining in its long term agreements with the body corporate. No matter how much a body corporate may feel that a resident manager may be overpaid, or that the duties reflect a late 1990’s world rather than the one we live in today, the body corporate cannot single handily amend its contracts with the manager without the manager’s agreement. But it must be remembered, on the flip side, a manager cannot amend its agreements without the body corporate’s consent. One of the most significant changes in the management rights industry we have seen over the past two decades has been the increased awareness amongst body corporate committee members and their advisors as to the commercial pressures that can be exerted on a resident manager from time to time. The harsh reality is, in an environment with agreement term limitations, unless a resident manager has 20+ years remaining on their agreements, it will almost always need to approach the body corporate for its consent to a variation of its agreements. Whether this be for a ‘top up’ of term, the removal of certain duties or an additional increase in remuneration, very rarely are these processes any longer ‘automatic’. When faced with an approach from the manager for a variation, even the most compliant or inactive committee can turn into a green eyed monster, often following advice from a zealous strata manager or seasoned body corporate lawyer. Like it or not, in response to a recent stagnation in booming property prices and pressures to keep levies low, bodies corporate through their committee are appreciating that supporting a top up of the manager’s years on their agreement is giving the manager an item of value for which, rightly or wrongly, they consider it reasonable that something be given in return. Fortunately in Queensland, the law prevents a body corporate from charging money in response for its support for a five year top up in term. However these laws do not prevent committees refusing to support and promoting a ‘no vote’ amongst other lot owners at a general meeting. Bargaining position over variations is most often determined by the balance years remaining on the agreements. For example, a body corporate is more likely to negatively negotiate with a manager over a top up if there are only four years remaining on the agreements rather than say 18 years. The other obvious factor in bargaining position is the manager’s general lot owner support (be they investors or owner occupiers). The need to negotiate with a committee over their support for a motion is reduced if the manager is confident of canvassing support amongst balance lot owners at a general meeting. Investing in these relationships via monthly newsletters and educating owners as to the ‘routine nature’ of top ups can all assist in ‘having the numbers’. But what happens when all else fails? Giving something to the body corporate in return need not reduce a resident manager’s eventual sale price. Introducing a frequency or restating a generic duty can sometimes be enough to see a body corporate support a top up. A one off temporary freeze on the annual increase in the caretaker’s remuneration is becoming ever more popular, the theory being that the minor 2% or so reduction in future remuneration would almost always be far outweighed in value by the additional five years on the agreements. And what better way to garner support than promoting to lot owners that their support for your variation will reduce their levies? Of course, every situation and body corporate dynamic is different and requires attention to strategy. Pevy Lawyers assists at least a dozen resident managers every month in securing more years on their agreements or other desired variations. Do not leave your agreements in the bottom drawer until thoughts turn to selling. An annual review or ‘health check’ on your agreements can substantially increase the likelihood of perfecting your agreements, and in turn assist in securing a future sale in a competitive market place when that time comes.