14 Nov 2013
Words Tim Admin

The Transfer Fee Revisited

Despite the rules regarding the “transfer fee” having changed some time ago, it is surprising how many managers (and lawyers) are not aware of those changes. For sellers, understanding these rules can be paramount in determining the correct time to sell. To re-cap, those changes are as follows:- Previous - the transfer fee was linked to the commencement of the Caretaking and Letting Agreements or when a new option was added. New - the fee is linked to the commencement of the manager at the complex ie when the manager first acquired the management rights. New Agreements or adding options are irrelevant. Previous – the prescribed period, from the time of the Agreement or adding of the new option, was 3 years. New – the prescribed period is only 2 years from the time the manager first acquired the management rights. Previous – the fee was 3% of market value (effectively the business sale price) in year 1, 2% in year 2 and 1% in year 3. New – 3% in year 1, 2% in year 2. Previous - the transfer fee was discretionary. The Body Corporate was entitled to seek it if a manager sold the business within the prescribed period. It was not compulsory. New - it is compulsory and the body corporate must impose the transfer fee if the manager sells the business within the prescribed period. The hardship provisions remain unchanged. A body corporate will not be able to impose the fee where the outgoing manager is selling due to genuine hardship not reasonably foreseen at the date when the manager first acquired the management rights. The transfer fee period commences on the date a manager settles his/her Management Rights purchase. The relevant date when a manager sells is the date on which the Body Corporate consents to the assignment - so provided that date is more than 2 years after a manager settles his/her purchase, there will be no transfer fee payable.