COMMON TERMS Management Rights

ABBREVIATION OR TERM

EXPLANATION

Accommodation Module (QLD only)

The regulation Module which applies to many Strata Schemes with management rights. The primary feature is the ability to have Management Rights Agreements for a term of up to 25 years, inclusive of options.

Accountant’s Financial Verification

Process undertaken by a purchaser’s accountant to ensure the accuracy of financial statements on which net profit for sale purposes is calculated

Administrative Fund

Is the fund where all spending by the Body Corporate comes out of to maintain and manage the Common Property – which is not covered by the Sinking Fund. This includes the recurring costs incurred by the Body Corporate, including the Caretaking Remuneration and Body Corporate Manager fees.

Audits

In Qld, each year the Office of Fair Trading (OFT) requires 3 audits to be conducted by the Resident Letting Agent’s accountant. One of these audits must be submitted to the OFT annually. Resident Letting Agent licence renewals are subject to the OFT receiving evidence of a satisfactory audit in the period 8 to 12 months after the licence was granted and annually within that time frame thereafter.

BCCMA (QLD only)

Body Corporate and Community Management Act 1997 (QLD). This is the legislation administering Strata Schemes in Queensland, including Management Rights Agreements.

Body Corporate or Owners Corporation

The legal term which refers to the consolidated entity which is made up of all of the lot owners within a Strata Scheme. Known as the Body Corporate in Qld, NT and Tas, and the Owners Corporation in NSW, Vic and the ACT. In SA it is the Strata Corporation and in WA it is the Strata Company.

Body Corporate Manager or Strata Manager

The person engaged to provide administrative management services to one or more Bodies Corporate. The Body Corporate Manager will attend to procedural matters such as organising annual general meetings, administering the collection of levies, recording minutes of meetings and circulating minutes of meetings to lot owners.

By-Laws

The rules that govern what owners and occupiers can and can’t do in the Strata Scheme, and how the Body Corporate is operated. In Qld the by-laws are found in the Community Management Statement for the Strata Scheme.

Caretaking Agreement

An agreement between the Body Corporate and the Resident Manager whereby the Body Corporate engages the Resident Manager to perform certain maintenance and cleaning duties for an agreed remuneration. Can also be known as a Management Agreement or a Service Contractor Agreement.

Caretaking Remuneration

The annual fee paid by the Body Corporate to the Resident Manager for performance of the duties under the Caretaking Agreement. The fee is generally paid monthly in arrears. It is important to ascertain if the fee is inclusive of GST or GST is in addition to the fee.

Claw back / Retention

Refers to a contractual mechanism which is used to adjust the purchase price of a management rights business when the number of lots in the letting pool is unknown on the date the contract is entered (i.e. for an “off the plan” purchase) or the number of lots in the letting pool changes between the date the sale contract was entered and the date the sale settles. Clawback/retention clauses are used to adjust the business purchase price by a set amount per lot lost and/or gained.

Committee or Strata Committee

Also known as the Body Corporate Committee. A group of elected owners within a Strata Scheme who are empowered to make certain decisions and recommendations to allow for the smooth day-to-day running of the Strata Scheme without the need for all decisions to go before an annual general meeting or extraordinary general meeting. They act like the directors of a company. In Queensland, Resident Managers are included in all Committee meetings but do not have voting rights. The Committee does not have the power to vary Management Rights Agreements.

Deed of Assignment

Document entered into between an outgoing Resident Manager, an incoming Resident Manager and the Body Corporate. The document allows for the transfer of the Management Rights Agreements, which must first be approved at a Body Corporate meeting. In Qld an assignment may be approved at a Committee meeting (if the issue hasn’t been listed as a restricted issue by the Body Corporate). In NSW an assignment must be approved at a general meeting of the Owners Corporation.

Deed of Authorisation

Document used to re-adopt the terms of a past letting authorisation, but with certain variations that update the past agreement, such as new commencement and expiry dates.

Deed of Engagement

Document used to re-adopt the terms of a past caretaking agreement, but with certain variations that update the past agreement, such as new commencement and expiry dates and a new remuneration.

Deed of Variation

Document entered into between the Body Corporate and the Resident Manager which varies the terms and conditions of the Management Rights Agreements.

Due Diligence

Process undertaken by the purchaser’s solicitor to ensure the management rights business and its related documentation is on legally acceptable terms and compliant with relevant legislation.

Exclusive Use

An area of Common Property that the use of is granted exclusively to the owner or occupier of one particular lot. An exclusive use right is granted by the Body Corporate and is recorded in the by-laws.

Leaseback

An arrangement whereby a Resident Manager leases lots in a Strata Scheme direct from lot owners and then on-lets them at their own discretion. Leasebacks offer the Resident Manager greater control over the lots in their letting pool and an opportunity to generate a higher return than an ordinary Letting Appointment arrangement. Leasebacks however carry more risk as the Resident Manager must pay rent to the owner regardless of the return actually achieved by the on-letting.

Letting Agent

A person or company that is licensed to act as a letting agent for the owners of property. A licence may also allow for the sale of property, or may be limited to only letting lots within the building that the Letting Agent resides in.

Letting Agreement

An agreement between the Body Corporate and the Resident Manager where the Body Corporate authorises the Resident Manager to provide exclusive, on site letting services to lot owners within the Strata Scheme.

Letting Appointment

A written agreement whereby the lot owner appoints the Resident Manager to act on behalf of that lot owner as letting agent, to let their lot and account for funds via a trust account. In Queensland the format of the Letting Appointment is regulated by law and new appointments must use the latest version of the POA Form 6. Pre-existing appointments do however remain valid when the law changes, including PAMDA Form 20A appointments.

Letting Pool

The generic name for all lots in a Strata Scheme which are managed by the Resident Manager under the authority of a Letting Appointment.

Levies

Amounts payable to the Body Corporate by lot owners in a Strata Scheme to ensure the costs associated with running and maintaining the Strata Scheme are met. Standard levies cover Sinking Fund and Administrative Fund contributions. Special levies can be introduced from time-to-time to cover unanticipated costs such as refurbishment and upgrade costs.

Lot Owner’s Deed (QLD only)

Document entered into between the Body Corporate and the Lot Owner, if the Lot Owner is not the same party as the owner of the management rights business. If a Lot Owner’s Deed is required for the assignment of a management rights business the terms of the deed can be incorporated into the Deed of Assignment without needing a second deed.

Management Rights Agreements

Includes a Caretaker Agreement or Deed of Engagement, Letting Agreement or Deed of Authorisation, and can include a combined agreement which engages and authorises a Resident Manager for the Strata Scheme as both a caretaker and letting agent.

Modules (QLD only)

In Queensland the regulations for Strata Schemes are divided into separate Modules that cater to different types of Strata Schemes. A management rights business will generally operate under the Standard Module (for largely owner occupied buildings) or the Accommodation Module (for largely investor owned buildings).

Occupation Authority (QLD only)

An Occupation Authority is a temporary right to use the Common Property that is granted to the Resident Manager and expires when the Management Rights Agreements expire or are terminated. In Queensland a Resident Manager may only use the Common Property to conduct their business if the Body Corporate has granted an Occupation Authority to the Resident Manager.

Off the Plan

Refers to a management rights business being purchased prior to the construction and/or completion of the development. A business that is sold off the plan does not yet exist and so what is actually being sold is the opportunity to commence the business.

On Title

‘On Title’ means that it forms part of the title to the Lot Owner’s lot. It is a term used to differentiate areas which are not included in the freehold title and that could be areas of Common Property granted by Exclusive Use or Occupation Authority.

POA (QLD only)

Property Occupations Act 2014 (Qld).  Legislation administering real estate licensing, property management licensing and real estate trust accounting in Queensland.

Rental Guarantee

An arrangement whereby the unit owner is guaranteed a minimum rent return if their unit is placed in the Resident Manger’s letting pool.  Usually given by developers to make the purchase of new units in a Strata Scheme more desirable for investors.

Resident Manager

The person engaged by the Body Corporate to manage the Strata Scheme and authorised to provide letting services to lot owners within the Strata Scheme. Also referred to as the Caretaker, Building Manager, Resident Unit Manager or On Site Manager.

Sinking Fund

The accumulated funds collected from Sinking Fund Levies go toward the capital upkeep of the Common Property. Bodies Corporate are obliged to put in place maintenance plans and budgets on a regular basis.

Standard Module (QLD only)

The default regulation Module that applies to Strata Schemes if an alternative Module is not appropriate. For Management Rights, the primary feature of the Standard Module is that the Management Rights Agreement term is limited to 10 years, inclusive of options.

Strata Scheme

The name given to a single development that once complete comprises of multiple individually owned and registered lots. It includes all the lots, the Common Property and any Exclusive Use areas within the development.

Transfer Fee (QLD only)

A fee payable by the Resident Manager to the Body Corporate if they sell the management rights business within the first 2 years of acting for the Body Corporate. The fee is determined as a percentage of the management rights business sale price, with 3% of the price payable if sold in year 1 and 2% if sold in year 2. The fee does not apply to the price of any lot selling with the business.

Trust Account

The OFT approved account into which the proceeds of all letting must be banked by the Resident Manager. Owners are paid from this account on a monthly basis net of letting commission and any other deductions such as cleaning costs, linen hire and charge backs to owners, as set out in the Letting Appointment.

Wholesaling

Refers to commercial arrangements via organisations and websites such as ‘Booking.com’, ‘Trivago’ and ‘Wotif’; whereby holiday lettings are sold by the wholesaler who in turn takes a commission percentage of the tariff.

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