In this video, OMB Solicitors Partner, Tom Robinson, talks about management rights particularly dealing with assignments and variations.
Transcript
Management Rights Particularly Dealing With Assignments And Variations
Hi everyone, I’m Tom from OMB Solicitors. Today I wanted to have a quick chat to you guys as a bit of a refresher about management rights.
I thought this would be a pretty good topic to discuss mostly because we are seeing some patterns with our management rights that are coming over at the moment and within our bodies corporates, particularly to do with variations and assignments, and why I’m talking about both of them is because a lot of the assignments of management rights we’re seeing are involving and are subject to and conditional upon a variation as well.
So I’m going to break those two down in a real simple form and look at maybe why we’re starting to see that change in management rights and the way that these are being proposed.
So starting with an assignment of management rights, what we’re referring to there, is the right for an existing service contractor to assign the interests in the agreements that form the basis of the management rights and of course the management lot if it’s attached to it to another person or entity.
Whereas a variation of management rights is where the body corporate will enter into a deed or variation to change terms of the existing contractual relationships, and relationship of the caretaking lending agreements.
So what we’re finding is when a request for an assignment is coming over to a body corporate it is subject to a variation and what that means is there needs to be a variation to the terms of the agreements before it can be assigned.
Now these can be done in one way and in one sense simultaneously. But obviously if the variation is not approved by lot owners then the assignment is usually going to fall over to use those words.
The interesting part about this is we are seeing that there is usually a variation request quite close to the end of the body corporate’s financial year and that’s because that’s the submission time for all lot owner emotions to be in, to be put to an AGM.
Whereas when these assignments are happening, they’re happening whenever the management rights are obviously put up for sale and whenever there’s a contract that’s then entered into.
So it’s not necessarily lining always up with the end of financial year dates relating to the variation side of things and the reason that’s an important distinguishment is because what we’re seeing with the requests from the current service contractors when.
They’re submitting the variation and the assignment is they’re also requesting bodies corporates through its committee to call and requisition an EGM, so an extraordinary general meeting and that’s because obviously the time that it might be till the AGM could be many many months away.
Which means it poses a really interesting opportunity for committees to have and give thought to those variations as they’re coming across, whilst there is the other party involved, which is the potential purchaser.
We always like to see and encourage the parties to look at what’s been asked of in those variations and really should be looked at as a bit of a negotiation to make sure that particularly when we’re bringing on a new service contractor as the way through the assignment as a proposed purchaser that there is some sort of communication there that can be opened up and used for the benefit of any future relationship.
So we like to look at it from that perspective to try to open that up from the start and that’s when that first request will come through, usually to your body corporate manager, which relates to the variation and also the assignment.
I think a reason we’re seeing a lot of these packaged management rights coming across with the variation attached to them is because there is obviously a lot of talk in the industry at the moment about changes to our legislation.
Now that’s obviously talking about potentially scheme termination and so forth, but also there’s a lot of talk in the industry about the management rights style in Queensland, particularly with respect to the length of those terms of those agreements.
So as you can imagine, those variation requests that are coming over for the assignments relate to, as we commonly call it, a top up, being a top up to the term of the agreements.
Which is by way of inserting a new clause into those agreements which gives a new option period that can be exercised by the service contractor at the time, and I think maybe with a bit of those murmurs in the industry about management rights and the terms of the agreements and so forth.
We’re seeing a little bit of a push to top these agreements up and then some service contractors may be looking to then move on from those managed rights and sell them.
Which is potentially why we’re seeing a few come across, but it’s always a good opportunity when those first requests come across that obviously your committees look to reach out to get legal advice, and the big reason for that is because whatever documents are being presented will be drafted by the solicitors, usually engaged by the current service contractor or in an assignment, the proposed purchases lawyers, and they are legally binding documents, particularly part of an assignment process.
The legislation does allow bodies corporates to recover their reasonably incurred costs in considering the decision to give consent to the transaction.
So that’s in the assignment and that would include the body corporate engaging a lawyer and having those legal costs reimbursed, and likewise any administrative costs from a body corporate manager’s time, particularly for the consent motion and meeting that the committee will hold or can hold to give its consent.
So there’s protection there for a body corporate in terms of costs and what we like to see with the variation is a bit more of a negotiation there, but I’ll probably leave it at that for today.
I think there’s a lot of information there. Like I say, there’s a lot of these requests coming over, so please do not hesitate to reach out to us if you have any questions about any of those matters.