When purchasing a management rights business you need to fully understand the caretaking and letting agreements to understand your role and function in operating the business.
What is caretaking?
A major part of any management rights business is the requirement to care for and maintain the common property.
The caretaking functions are usually set out in the caretaking agreement. Some agreements may be general while others will set out the specific daily, weekly, monthly duties.
One of the most important aspects to the caretaking function of the business is to understand whether you are required to undertake the duties personally, or whether the duties are supervisory in nature. Personal agreements require you to perform the work or allow you to pay contractors or employees. Supervisory agreements are ones that require the work done by employees or contractors paid by the body corporate .
Understanding your duties and the expectation of you is critical as often disputes that arise between bodies corporate and managers relate to issues about the performance of caretaking duties.
The body corporate will pay you a fixed remuneration, usually paid monthly, for your caretaking services. It is important that you ensure the documentation reflect the salary increasing each year, at least linked to the consumer price index.
You should also understand:
- The duration of the agreement (this is very important in terms of on-selling the business);
- The circumstances under which the agreement can be transferred;
- The circumstances under which the agreement can be terminated.
What is letting?
Typically management rights include an agreement with the body corporate authorising you to conduct a letting business within the complex.
You must have a current licence to work as a resident letting agent. To obtain this licence, you must undertake training subjects from a recognised provider and lodge an application with the Office of Fair Trading together with the required fees and supporting documentation.
The letting agreement with the body corporate usually requires you to promote the complex, supervise the standard and conduct of the tenants you find for owners and maintain an office and reception area. The agreement may stipulate set hours for reception to be open.
It is important to understand that property owners are not required to let their unit. They may choose to live in the unit, leave it untenanted or use an outside letting agent.
Payment for the letting service is made by owners who choose to use your service. You are not otherwise paid by the body corporate for providing the letting service. You must have a separate agreement with each owner setting out the charges for collecting the rent and looking after the unit, using the prescribed form.
There may be an opportunity to earn additional income through offering additional services such as cleaning, repairs and maintenance and hire of equipment, although the scope for this additional income is greater in holiday letting.
To find out more about management rights, read our further articles in the series:
- What are management rights
- Smart questions to ask before you buy management rights
If you are considering purchasing management rights, please contact us on 07 5443 9988 or [email protected] and we would be happy to assist you in understanding the documentation and guiding you through the process.
Argon Law is a Sunshine Coast law firm based in Maroochydore. We are commercial lawyers with many years of experience in business and property and are eager to assist you in any way we can.
Always ensure you seek professional advice for your specific circumstances. The above is not advice and is intended to be general in nature only.