Everybody's Guide to the Assignment of Management Rights Mini

Author: Tim Sheehan, Director SSKB

Everybody’s Guide to the Assignment of Management Rights

email: [email protected]: www.sskb.com.auinfo: www.livinginstrata.com.aublog: www.stratablogger.com.au

Contents

Introduction ............................................................................................1

Background ............................................................................................3

Getting Started ......................................................................................5

Role of the body corporate lawyer ........................................................5Understanding the duties required under the caretaking agreement ..............................................................................................7

Future changes in operations .................................................................. 8Agreement Length ......................................................................................8

Some specifics about the new building manager and how they will deliver their service .............................................................9

Personality of the new building manager ...........................................9Experience of the new building manager ............................................9Employees of the building manager ..................................................... 11Residence ....................................................................................................... 11Exclusive Use and Occupation Authorities ........................................... 11

Committee’s views about caretaking .............................................12

Training ....................................................................................................13

Training needs .............................................................................................. 13What training is being provided to the new manager?................... 13Training in the body corporate accounts ............................................. 14

Handover ................................................................................................15

Materials, Plant and Equipment Hand Over ..................................... 15Petty Cash and Chart of Accounts ......................................................... 16

Settlement...............................................................................................17

What is the date for settlement? ............................................................ 17How is the last payment to the building manager to be made? .. 17

After Settlement....................................................................................18

Reporting and future dialogue ............................................................... 18Looking back: Why has the building manager decided to sell? ... 18

Everybody’s Guide to Assignment of Management Rights

Page 1

Introduction 1The assignment of management rights is a regularly occurring event in the life of all bodies corporate that have an on-site manager. The typical tenure of a building manager is in the three to four year range. Where the current building manager, for whatever reason decides their time has come, and they wish to sell and move on, then there will be an assignment. The assignment is the committee of the body corporate providing its consent to the transfer of the rights and obligations of the building manger to a new building manager.

It is important. Assignment of management rights is a good thing. Using a sound methodology in the assignment process will set the scene for a smooth transition of management rights ownership, and it will give the body corporate the best possible opportunity to ensure it receives quality service from the outgoing and incoming building manager.

However, often the assignment process is seen as a bothersome administrative nuisance. Moreover, it is possible that the services required by the body corporate and the lot owners can be of secondary importance to completing the transaction. This guide sets about to promote the importance of the service by pointing out to everyone the nuances of the transaction.

This is our guide to producing a clear understanding between the parties involved where a management rights changes hands. Our experience is that where there is clarity on expectations and responsibilities between the parties then there is a better chance of a good solid and longer term relationship.

We recommend that every prudent committee should have an understanding of the matters outlined in this Guide and have an understanding of the answers to the questions raised in this Guide before they are comfortable with voting to consent to the assignment. There should be a paper trail behind to support the committee.


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Background 2Management rights are a business. It is a business to provide caretaking services to the common property of the body corporate, and to provide property management services to the owners of the apartments in the body corporate.

The person who owns the management rights is the building manager. The building manager who is selling is called “the assignor” and the person who is taking over is called “the assignee”.

There are not hard and fast rules about management rights, but management rights are generally considered to include the following:

• There is a caretaking agreement (sometimes called a building management agreement)

• There is a letting agreement, which is sometimes not a separate agreement but included in the caretaking agreement, allowing the building manager to offer a service of apartment management to owners of apartments.

• There is an on-site office

• The building manager has a representative living on site

• The building manager has a real estate agents licence

Assignment of management rights can involve a lot of paperwork behind the scenes but the essence of the assignment is a formal meeting between the committee and the old building manager and the new building manager.

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With very few exceptions caretaking and letting agreements between the building manager and the body corporate will have a clause which allows the building manager to assign the agreement to a third party, providing the building manager obtains the consent of the committee of the body corporate. Consent is not an arbitrary matter for the committee. The clause which provides for the assignment and also legislation will set out the factors which the committee may have reference to in order to form an opinion about providing consent. It is standard for the body corporate to be obliged not to unreasonably withhold its consent to the assignment.

What is reasonable in consenting to the assignment is always a question of fact in the circumstances of each assignment. It is rare and inadvisable for a committee to deny consent, but that should not equate to the committee being obliged to rubber stamp the approval of a new building manager. The purpose of this Guide is to ensure all parties consider relevant factors to making the change of building manager a constructive process.

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Getting Started 3The formal assignment process kicks off when the building manager writes to the body corporate manager advising that they are requesting a consent to an assignment.

From that point the body corporate manager will work with the committee to appoint a body corporate lawyer and to coordinate the holding of a committee meeting to consider the request for the consent to the assignment. In most cases the body corporate’s reasonable costs directly related to the transfer process, including the appointment of the body corporate lawyer, are paid by the building manager as part of the conditions of assignment.

Role of the body corporate lawyerThe paperwork is generally handled by the lawyers. The building manager will have a lawyer. The new building manager will have a lawyer. Also, the body corporate should have a lawyer who works in conjunction with the strata manager to assist the committee to make informed decisions on behalf of all owners.

The committee will have many commercial decisions to make as part of the assignment process. The lawyer is to make sure the documents reflect these commercial arrangements.

Your body corporate lawyer will manage the following aspects of the assignment process for the body corporate:

• Advising the body corporate on the imposition of a transfer fee, which may be applicable depending on the dates of the agreement and legislation.

• Ensuring that the deed of assignment is in accordance with the terms of the caretaking agreement and that its provisions reflect the commercial instructions provided by the committee

• Making sure the body corporate gets its costs paid for by the building manager upon the settlement

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Understanding the duties required under the caretaking agreement

4Any thorough assignment process should involve the body corporate committee and the new building manager having a discussion about how the caretaking function will be performed. Up front discussion about expectations and execution will serve to dispel misconceptions and avoid frustrations and disappointments.

Has the new building manager read the caretaking agreement and the by-laws in their entirety?

From reading the agreement, are there any areas of uncertainty as to what is required to fulfil the obligations in the caretaking agreements? For instance, can the new building manager explicitly provide to the committee:

How much gardening will be done?

The methods to be used to keep the common property clean?

What will be the office hours of the new operation?

The probable number of working hours required to performing the caretaking duties?

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Does the new building manager understand what equipment is supplied by the body corporate and what equipment the manager must supply themselves?

Future changes in operationsWhat opportunities has the new building manager identified in the way the current building manager delivers the service and the way the new building manager wishes to deliver the service?

Does the new manager require an increase in profitability in order to achieve their personal business projections?

Will the new building manager be doing property sales?

Agreement LengthDoes the new manager know the unexpired term of the current agreement, including remaining option periods?

Page 9

Personality of the new building managerOn-site building management is a service about people. It is provided by individuals, and assessing those individuals is part of the due diligence. Appropriate questions need to be asked.

If the new building manager is a company or a partnership, which individuals control the company / partnership?

Who will be the licensee?

Who will be the new personalities on-site?

Why did the new manager select this management rights?

Experience of the new building managerQuestions to help determine the relevant experience of the new building manager:

What is the new building manager’s previous business experience?

5Some specifics about the new building manager and how they will deliver their service

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Has the new building manger ever owned or worked in management rights before?

What experience does the new building manager have in property rentals and property sales?

What experience does the new building manager have in facility management?

Has the new building manager ever done any professional cleaning?

What does the new building manager know about gardens?

Has the new building manager ever had a job dealing with the public?

Does the new building manager have any trade or professional qualifications?

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Employees of the building managerIf the building manager has employees, what is happening to these current employees on settlement? Will they still be providing services to the body corporate? Does the committee have any views about the effectiveness of these current employees, which should be communicated to the new building manager so they can act appropriately when assessing the future of the current employees?

ResidenceWhere is the new the building manager going to live when they take over?

Who will be living on site?

Is there an obligation in the caretaking agreement to live on site?

Exclusive Use and Occupation AuthoritiesAre there any areas which the building manager has an occupation authority over or exclusive use of?

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An assignment provides a committee with an opportunity to express its views about caretaking services and the direction it wishes to see in the future. A prudent new building manager would ensure it receives this feedback.

How would the committee characterise its current relationship with the present manager?

How does the committee characterise the performance of the current manager?

What operational improvements would the committee like to see from the building manager?

What is the committee’s view about any future request by a building manager to renew the caretaking agreement, or to grant an additional option term?

Committee’s views about caretaking6

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Training needsHow much due diligence has the new building manager done on the present operations? Explain how the due diligence has been done?

What training is being provided to the new manager?It is industry standard for the building manager to provide the new manager training during the period 2 weeks before settlement and 2 weeks after settlement.

Is this amount of “on the job” training adequate for the new manager and for the body corporate?

Do the parties, including the body corporate, require some form of performance bond to ensure this training occurs?

List the procedures which the new manager will be trained in?

Training 7

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Does the body corporate want to sign off to ensure that the training is adequate?

Training in the body corporate accountsAll new managers should attend the office of the body corporate manager to receive training in the responsibilities of the building manager in producing accurate body corporate records.

Has the new building manger received training from the body corporate manager in the process for maintaining and making claims on the body corporate petty cash?

Has the new building manager received training in the approval process for authorising and coding body corporate invoices so that the body corporate accounts are accurate?

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Materials, Plant and Equipment Hand OverIt is usual that the building manager will have in its possession materials, plant and equipment which are the property of the body corporate, which the building manager uses in the discharge of the responsibilities under the caretaking agreement.

What is the complete list of body corporate plant, equipment and materials in the possession of the current manager which will be passed to the new building manager at settlement and what condition is that plant, equipment and materials in?

Who owns that plant, equipment and materials, is it the body corporate or the building manager?

Do the parties wish to do a review to ensure that all materials, plant and equipment are present?

The building manager and the new building manager should forward to the strata manager and the body corporate chairperson a signed list of the materials, plant and equipment which is handed over. The body corporate manager and the chairperson should review this list against the body corporate records to ensure it reconciles with the records.

Handover 8

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Manuals, Warranties, Plans, Specifications, ProceduresIt is fairly usual for the building manager to have in its possession much of the documentation about the body corporate assets, the common property and the building.

What is the complete list of manuals, warranties, plans, specifications and procedures in the possession of the current manager which will be passed to the new manager?

The building manager and the new building manager should forward to the strata manager and the body corporate chairperson a signed list of the manuals, warranties, plans, specifications and procedures handed over. The body corporate manager and the chairperson should review this list against the body corporate records to ensure it reconciles with the records.

Petty Cash and Chart of AccountsWhere the building manager is in possession of body corporate petty cash then this fund should be reconciled and handed over to the new building manager.

Has the body corporate chart of accounts been handed over to the new building manager?

Has the official body corporate accounts stamp been handed over?

Settlement is the day that the purchaser hands across the money to the buyer. It is usually the day that the buyer becomes ultimately responsible for all the responsibilities under the caretaking agreement.

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Settlement

What is the date for settlement?The purchaser and the current building manager must advise the body corporate chairperson and the body corporate manager of the date that settlement is to occur.

When settlement occurs the current building manager and the new building manager must advise the body corporate chairperson and the body corporate manager that settlement has occurred.

How is the last payment to the building manager to be made?The building manager is paid remuneration. Generally it is paid monthly, and whether it is in advance or arrears and the date of the month it is paid depends on the caretaking agreement and the administrative arrangements between the strata manager and the body corporate.

Only after the body corporate manager is advised in writing will the new building manager receive future payments. The payment immediately preceding settlement will be made to the building manager and it is

up to the building manager and the new building manager to apportion this payment between themselves. This is a purely private contractual arrangement between the building manager and the new building manager.

9

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Reporting and future dialogueCommunication between the parties is ultra important, and is facilitated by the creation of a regular reporting regime.

How will the new manager report to the committee?

Which committee member will provide instructions and be the liaison point for the new manager?

Looking back: Why has the building manager decided to sell?The body corporate committee and the new building manager need to give this question some consideration. Why?

Providing a building manager remains fresh then there is benefit in having the same building manager in place for an extended period. Knowledge builds up. Experience accumulates. Relationships solidify. Regular changes in building manager invariably result in inconsistent service. For this reason the committee should look to create an environment which encourages the building manager to take a long term view and to stay in place.

New building managers have an opportunity to assess why the building manager is selling. Are there reasons for the sale which will remain in place after the assignment which will be on-going pressure points for the new building manager? Should there be strategies put in place to deal with these pressure points?

After Settlement 10

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After Settlement


SSKB is a team of over 100 community management professionals servicing 500 communities. We realise the importance of the committee’s role and the role of the building manager. We have built this resource to assist committees and building managers. It is part of the LivingInStrata.com.au resources. We look forward to servicing you. If you have any feedback or would like to talk to us about how SSKB can work with your committee, then drop me an email at [email protected].

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Everybody's Guide to the Assignment of Management Rights Mini