This article outlines key considerations for body corporate committees regarding management rights assignments, including contract understanding, buyer vetting, and legal counsel.
Three things for committees to know about management rights assignments:
- Management rights are a contract and need to be treated as such.
- A potential buyer’s bona fides need to be checked.
- Seeking early legal advice is key to a successful assignment.
Find out more in our 3.5-minute video below:
The most important thing to remember about any management rights agreement is that it is a contract.
That contract is between the body corporate and the manager. It’s inevitable that the manager from time to time will want to sell their business, which will mean that the contract needs to be assigned to a new manager.
Why is a body corporate committee involved in a management rights assignment?
A body corporate gets involved in the assignment process because it is a party to that contract.
The seller of the management rights business needs to present the potential buyer to the body corporate, along with all of the relevant information set out in the management rights agreement and the legislation. This information needs to prove to the reasonable satisfaction of the committee that the buyer is competent, has the right qualifications and experience, is financially sound, and is capable of doing the job that the management rights agreements require.
It’s not dissimilar in a sense to a landlord consenting to the assignment of a lease, although it does differ in how the process is structured.
Can a body corporate say no to a management rights assignment?
From a body corporate perspective, it’s not like a job interview where you might have 15 applicants, and you get to interview four of them and you drill down and pick the best one.
With a management rights assignment there is only one applicant, and the body corporate cannot unreasonably withhold consent to that applicant.
In other words, a body corporate can’t say ‘no’ unless there’s a really good reason to say ‘no’.
What might be a good reason? It might be that the buyer was previously convicted for trust account fraud. It might be that they are in a massive performance-related dispute at a current management rights business with that body corporate. Those might be two relatively solid grounds to refuse consent to an assignment.
What is the process of a management rights assignment?
The assignment boils down to two aspects: the legal component and the actual assessment of the buyer.
The legal component involves the wording of the assignment motion and whether the other legal documents are acceptable. This is where the lawyers play an important part.
Lawyers can also help with the assessment component, assisting the committee to assess a potential buyer’s bona fides and qualifications. There are other third parties who can provide this service also, or the committee might undertake that assessment on its own.
Either way, it’s a structured process that the committee should take seriously to make sure that whoever’s asking to buy the management rights business is capable of performing the functions required of them.
Because if they don’t, it’s the body corporate that’s going to be living with the consequences.
And one of the best things about the process from a body corporate perspective is that the outgoing manager pays the legal costs. So as long as the costs are reasonable, it’s a cost-free exercise for the body corporate.
What you should do
We’ve published a guide for committees to help steer them through the process of assigning management rights. Download the guide to ensure the best chance of a smooth transition of management rights for your scheme. DOWNLOAD HERE: Committee Guide:Management Rights Assignments
It’s important to seek legal advice early in the process to give your committee the best chance of an optimal outcome.
Frank Higginson
Hynes Legal
E: frank.higginson@hyneslegal.com.au
P: 07 3193 0500
This post appears in Strata News #737.
Have a question or something to add to the article? Leave a comment below.
Read next:
- QLD: Management Rights Assignments For Bodies Corporate
- QLD: Q&A Management Rights – Caretaking and Letting Agreement + Extensions
- QLD: Queensland case clarifies caretaking agreement extension rights
This article has been republished with permission from the author and first appeared on the Hynes Legal website.
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