Common management rights misconceptions

Contributed by HYNES LEGAL – 8 August 2017

Common management rights misconceptions

Bush lawyers abound out there in strataland.

Someone heard from someone else that someone did something or got something and then that becomes the rumour that bounces around endlessly becoming the little spot fire that we then need to put out individually with clients when they ring to ask us:

‘I got told THIS — can we do that too?’

Valuers have it worse though.

‘So and so down the road got 5.6 times for their business so that means mine is worth 5.8 times.’

Leaving aside it was never contracted at 5.6 times in the first place, usually what has happened is the accountant tore it to pieces during the verification. They started by removing the GST the seller had included as revenue and then added back all the wages that the seller had taken out because they could work 120 hours a week on their own, as anything else was a ‘lifestyle’ choice. 5.8 times quickly turns into something more realistic.

Anyway, our furphies aren’t as exciting as that, but here is our equivalent of a helicopter bucket to clear up our most common legal spot fires/misconceptions.

The term of a management rights agreement can be longer than the term for which it was originally granted

We all know management rights agreements have limitations on term. Those are 25 years under the Accommodation Module and 10 years under the Standard Module.

One of the misconceptions out there in strataland is that if the original agreement was granted for 20 years (instead of the maximum term of 25 years) that it cannot be varied to be for a term of more than 20 years.

It can. An agreement is not limited to the maximum term of what it once was. It is limited only by the Module by which it was regulated at the time it was entered into.

Changing Modules does not mean that the term of the management rights agreements changes

Following on from the above, a management rights agreement remains governed by the Module under which it was entered into. Changing from Accommodation Module to Standard Module does not reduce the term of a management rights agreement to 10 years, and changing from Standard Module to Accommodation Module does not then increase the term of a management rights agreement to 25 years.

If you are interested in the differences between all of the Modules you can read our on-line article.

It is the committee alone who can enforce by-laws

We wrote about this more than five years ago and it still regularly comes up. Our strata practice is fairly non-discriminatory. We will basically act for anyone – be they resident manager, lot owner, committee or body corporate, provided we agree on the commercial terms.

That gives us the ability to be completely across the spectrum of issues that happen in strata and see them from every side. This really does assist us to resolve issues as we usually know where the other side is coming from.

But back to by-law enforcement. The whinges are multiple and consistent. We get complaints from this complete matrix (refer above). Take yourself back to grade two and follow whatever line you want. We get them.

The committee is the only entity who can enforce by-laws. A resident manager’s role is to report breaches of by-laws to the committee and perhaps (if they have the skill set and desire) to gently nudge people in the right direction if they stray. Body corporate managers should document reported breaches and advise committees they have a statutory obligation to enforce by-laws.

Yes, a resident manager might be able to take action against a tenant for a property they manage with respect to breaches of by-laws under the terms of the tenancy agreement. But that action (if any) only relates to the resident manager’s role as letting agent for the owner of the lot and based on the owner’s instructions. Those instructions are completely independent of what the body corporate may want. This can leave resident managers in an invidious position where they have to report to the committee a breach of the by-laws by a tenant of theirs but then can do nothing about it because the owner does not want to upset the tenant. We then come back to the committee being the only entity that can do anything about that breach.

That is where it sits. No exceptions.

The by-laws are not valid just because they are registered

Registration of a CMS means that the seal was properly affixed, the right fees paid and the exclusive use plans are in order. It does not mean the by-laws have been proofed for validity by the Titles Office.

If you want to, you can provide your CMS to us to give us the opportunity to point out some of your unlawful by-laws (yes, you will have some) and offer a fixed fee proposal to review them to make sure they are right.

There is nothing worse than asking people to comply with by-laws that are not valid. In this day and age, google will reveal mistruths very quickly.

Exclusivity of letting on relates to an onsite presence only

If the management rights agreements and by-laws are structured the right way, the resident manager will usually have the exclusive right to operate a letting business from the scheme land. That does not mean it is only the resident manager who can let lots. Owners can in their own right or through services like Airbnb. Owners can also engage agents outside the scheme to provide letting services. It would be lovely not to have competition but it abounds.

A resident manager does not report to owners

A resident manager’s role is usually acting as two things:

1. caretaker of the common property;

2. letting agent for owners who choose to engage them

A resident manager has no direct relationship with unit owners other than if they are acting for them as letting agent. In that sense, they report to owners about their rental returns, property management etc. In the caretaking side of things, a resident manager will usually be obliged to report to a liaison person on the committee about all caretaking issues.

A resident manager has no direct relationship with any owner (as an owner) on caretaking issues.

In that sense, a manager is no different to what we are as lawyers when acting for a body corporate. Occasionally we have owners email us about something we are doing for a body corporate. We simply acknowledge that correspondence and forward it to the committee as that is where our instructions come from.

Handling that delicately is the art.

HYNES LEGAL