The recent decision of Vie Management Pty Ltd (Receivers and
Managers Appointed) (In Liquidation) v Body Corporate for Gallery
Vie  QCAT 164 (published on 29 May 2015) casts serious
doubt over the value of security taken by financiers with respect
to management and letting rights ("MLR") agreements in
MLR agreements are entered into by the body corporate of a
community title scheme and an onsite manager. The onsite manager is
paid a fee for performing services for the body corporate and is
also entitled to conduct the onsite letting arrangements.
The MLR industry has flourished in Queensland over the last 20
years with significant value being placed on MLRs. Financiers have
commonly lent against the value of MLR agreements and assumed that
they will have recourse to the MLR agreements following a
In the Gallery Vie case, the Queensland Civil and
Administrate Tribunal ("QCAT") confirms the right of a
body corporate to terminate the MLR agreements following
enforcement action by the financier where other subsequent breaches
of the MLR agreements occur (even if the breaches are beyond the
control of the financier or result from the actions of a third
party). In the Gallery Vie case the appointment of a
liquidator to the onsite manager gave the body corporate the right
to terminate the MLR agreements notwithstanding the financier had
taken over the performance of the MLR agreements by the appointment
of a receiver.
Previously in Queensland a financier would enter into a
"side deed" with the body corporate to regulate the
respective rights of the parties in an enforcement scenario. Whilst
this remains the market practice in most other states, such
agreements were outlawed in Queensland in 2003. Section 126 of the
Body Corporate and Community Management Act 1997
("BCCMA") deals exclusively with the rights of the
financier where the onsite manager breaches the MLR agreements.
Unfortunately, due to what appears to be inadvertence in the
drafting of the provisions, the statutory protections given to the
financier are inadequate.
The QCAT determination means that once a financier has
"stepped in" any further breach of the MLR agreements
(such as the appointment of a liquidator to the onsite manager or
other technical defaults) will potentially trigger the termination
of the agreements and the destruction of the financier's
security. This is irrespective of whether the duties of the onsite
manager under the MLR agreements are being duly performed by the
financier or a receiver.
Unless the decision is overturned, statutory amendment will be
required to restore comfort to the position of MLR financiers.
Alternatively, financiers will seek amendments to MLR agreements to
exclude matters beyond the financier's control from the list of
defaults that give the body corporate the right to terminate the
MLR agreements. However, reaching an agreed list of breaches with
the body corporate is likely to be tough negotiation.
We are currently assisting several of our clients to respond to
these developments from a policy and credit perspective. We will
keep you informed of any further developments in this area.
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.
Kemp Strang has received acknowledgements for the quality of
our work in the most recent editions of Chambers & Partners,
Best Lawyers and IFLR1000.
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