13 May 2022
Words Glenn Millar Informer 102

Skyrocketing prices prompt investigation into real-estate-to-business-ratio

It’s no secret that Queensland real estate prices have exploded off the back of demand generated by southern migration and record low interest rates. But concerns are arising that another cause of this explosion is linked to Management Rights’ operators splitting out the unit from the business.

With real estate values soaring sky high, this dramatically changes the real-estate-to-business-ratio. As a result, we are starting to see several Management Rights’ operators exploring the separation of their lot from the Management Rights, selling the lot and residing offsite. 

In the Sunshine Coast alone, more than 100 suburbs have been listed, with median house prices in eight suburbs increasing by more than $500,000 in 18 months. Overall, the Sunshine Coast’s median house prices increased by 48 per cent to $968,308 compared to a 27.2 per cent rise in greater Melbourne ($941,000).

Back when real estate wasn’t as expensive, and based on the informal calculation that the real estate should not exceed more than 40 per cent of the total sale value, this was not an issue. Now, with the average manager’s unit on the Sunshine Coast nudging $1 million + in many cases, the tide has turned. “With the average manager’s unit on the Sunshine Coast nudging $1 million+ in many cases, the tide has turned.”

As we all know, every Management Rights’ business is unique. There are no hard and fast rules, but in general terms, there are some challenges that you will face when splitting out the real estate portion of the business. Council by-laws usually provide a form of protection through special usage rights given to the owner or occupier of the manager’s lot. Some of these state a lot ‘associated’ with the holder of the Management Rights’ agreements. Some may allow different lots to be nominated.

Changing the by-laws will require a special resolution at a general meeting, and in some rare instances a resolution without dissent. Your local council may also need to be involved if a subdivision of the office from the residential parts of a unit are necessary.

This makes the situation much more difficult and time consuming. By splitting the unit out, it effectively takes out the non-revenue producing asset and allows it to be sold down if the agreements allow it. 

However, before you think about this, you will need to review what the Management Rights’ agreements include about owning a lot and residing onsite. The Property Occupations Act does not require you to reside onsite anymore as a condition of your resident letting agents’ licence, but that does not mean that the obligations in the Management Rights’ agreements to reside onsite have changed.    “Persuading a Body Corporate to support a manager moving offsite is often much more difficult to get passed than a top-up of term.”

If you are contractually bound to live in a lot, you have to, no ‘ifs or buts’. The reasons you should be considering this is to attain maximum flexibility without upsetting the Body Corporate.

Any changes to your Management Rights’ agreements will require an ordinary resolution at a general meeting. And as most lawyers will tell you, persuading a Body Corporate to support a manager moving offsite is often much more difficult to get passed than a top-up of term. 

Objections may be many and include the misconception that owners pay you to reside onsite. Concerns may be raised about what happens if there’s a fire or an emergency and who will deal with this. You need to be ready for this and plan your responses well.

Splitting out the unit can be done and there is no doubt the rewards are there for those who have the patience to succeed. However, the key takeaway is that it is not an easy task and one on which you must obtain legal advice early in the process.