A 'vanilla' management rights business is one that comes
with a standalone unit (with an office component of some type
forming part of it) and the business, which will usually be a
caretaking agreement, and letting agreement and a bundle of letting
As time goes by, we are seeing variations to this traditional
structure in a number of ways.
Obviously, a different management rights structure raises
different issues that need to be considered. In order to provide an
idea on these variations we have listed some of the more common
More than one lot
This usually occurs when the office lot is on a separate title.
There are increased costs in holding two lots (rates and levies
being the start). There are also increased costs in the purchase
and sale process with the extra conveyances. The benefit is that
you get two votes at any general meeting (yes you can vote on
motions that are yours – click
here). Two votes might not mean much until you find yourself in
a tight voting situation on a variation to your agreements where
every vote in your favour is like gold.
Not owning a lot
People chasing a pure management rights return love this style,
as they do not have to buy a lot with the corresponding lower
investment return. The downside is that you do not have a vote at
general meetings, and therefore no right to be involved at general
meeting level as you are purely a contractor, not an owner. You may
also need to secure the right to operate onsite, which usually
comes with an occupation authority over part of a common property
or a long term lease over a unit from an investor. That is
obviously not as secure as holding a piece of real estate that you
actually own and can operate from.
Banks can also be a little bit tighter on funding ratios without
the security of real estate and if you are not living on site you
will also need a full real estate agent licence.
Different styles of agreements
Some bodies corporate have more than one 'caretaking'
style agreement. This agreement might relate to additional services
not covered by the original caretaking agreement, or it could
relate to services provided to individual owner's lots. Again,
there are usually some additional costs in any purchase or sale,
but depending on how the agreements are structured, there can be an
additional legal benefit in terms of having different sets of
income in different agreements and not having it all bundled into
one agreement. This can provide some asset protection if something
goes wrong with the other agreement.
More than one scheme
We have plenty of clients who have ended up purchasing the
adjoining management rights business to their own. This leads to
some economies of scale in terms of costs and an increase in the
size of your business. The downside to this is usually that you
also have to purchase a lot in the adjoining scheme. We have worked
with clients to excise lots from that adjoining scheme in certain
occasions so that they end up holding only one lot and effectively
operating two businesses. Managed correctly, this provides the
ability to sell it in tandem or separately and also ensures that
there is not as much money tied up in the lower returning real
The trick here is licensing, and the magic word is
'contiguous.' If a public road does not separate the
schemes, you can operate them under your resident letting agent
licence. Otherwise, you will need a full real estate agent
These occur relatively frequently. It means that the buyer is
going to need a full licence to run them (as do you while you are
doing it). In this variation, a different multiplier is usually
applied to the outside letting income, as outside lettings are not
'true' management rights letting appointments.
From a legal perspective, it is important to ensure that your
agreements and by-laws allow you to manage outside rentals, as each
management rights set up is different and there is no 'one size
fits all' approach to this.
Sales (both inside and outside the scheme)
We have some clients who end up making more from selling real
estate than they do from managing it. Obviously, you need a full
licence (or access to one via another arrangement). Management
rights valuations we have seen are yet to include any of this
income as part of the management rights income (or apply a
multiplier to it), but the ability to earn extra income may well
attract a wider range of buyers.
Again, from a legal angle, it is important to ensure that your
agreements and by-laws allow you to sell real estate. Sometimes,
the agreements and by-laws will draw a distinction between the sale
of units in the scheme and units outside the scheme.
We wish all our readers a very merry Christmas.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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