What are management rights?
Management Rights is the name given to the business of living in and care-taking a unit or townhouse complex with the added bonus of running your own business from home. It is different to a motel or hotel, where the business owner either owns the land and buildings or leases them from a landlord. Management rights is a business but the units being rented out are generally owned by a group of various people within a unit complex. The buyer of management rights also generally purchases the manager’s residence at the same time.
What agreements are put in place?
The two agreements generally put in place is a letting agreement and a caretaking agreement. The letting agreement is between the owner of the management rights and the Body Corporate, which generally grants the sole rights to operate a Permanent and/or Holiday letting business from within the complex. A caretaking agreement is between the owner of the management rights and the Body Corporate and it provides for the long term caretaking of the common areas, such as any pool or gardens. In Qld, a Property Occupations Form 6 is generally signed between the owner of the management rights and each owner of a unit in the complex. Pursuant to relevant legislation, if a form 6 agreement is not signed, then the management rights owner is not entitled to any commission.
How does the management rights owner earn income?
1. Body Corporate Salary contained in the caretaking agreement
The Body Corporate generally pays a salary, monthly in arrears, to maintain the common property, see that the By-Laws are adhered to, and report on any matters pertaining to the complex. This is generally known as a caretaker’s salary.
The Body Corporate also pays for all the day-to-day expenses of looking after the common property. Such things as mower fuel & repairs, pool chemicals & fertiliser are expenses for the Body Corporate, not the business owner. Usually all the necessary equipment is owned by the Body Corporate, and provided for the use of the business owner.
2. Letting Commission Income contained in the letting agreement
The business owner has the right to act as on-site Letting Agent for investor owners wishing to rent their units to tenants. They are paid commission and management fees by the individual unit owners for securing good tenants, accounting for the rent, and ensuring that the rental property is kept in good condition.
Other sources of income include repairs and maintenance for landlords, cleaning charges and monthly statement fees. In holiday complexes the business owner can earn a substantial additional income from such additional areas as room cleans after each guest books out, linen hire, telephone and Internet usage, sporting equipment hire and tour and hire car bookings.
What special qualifications are required to buy management rights?
To legally operate the Letting business, a buyer needs to obtain a Resident Letting Agent’s Licence. This is not as difficult to obtain as a full Real Estate Agent’s Licence, but does involve the study of 6 subjects through a registered training organization (RTO) such as Property Training Queensland, Australian Property College, REIQ or a local Queensland TAFE. These subjects are generally undertaken in a classroom environment but some RTO’s offer courses “on line” or by correspondence. As of 1 July 16, the course content has been altered to the Property Services Training Package. It takes approximately 4-6 weeks to obtain the licence with the Office of Fair Trading in Qld.
The sale or purchase of management rights is more complex than a sale of a business. This is because it involves obtaining the consent of the body corporate to transfer the caretaking and letting agreements and then assigning the various agreements between the seller and each owner of the units in the complex. It is crucial that the contract of sale be prepared properly to cover all the issues relating to the sale and it is crucial to a buyer to conduct extensive due diligence inquiries in relation the business. Parker Law QLD have the experience and knowledge to assist you in this journey, whether you are a seller or buyer.
