L I F T - O U T I N F O R M A T I O N F E A T U R E - M A N A G E M E N T R I G H T S

HOTEL MOTEL & RESORT NEWS - 2007

There is a common misconcep-tion in some sectors of the man-agement rights industry. It goessomething like this: ‘I under-stand Queensland MLRs there-fore I have got a handle on theindustry generally’.

While there are similarities to theQueensland model in other statesthere are also many traps for youngplayers. Having said that, there issome real value to be had in NSWfor the well researched investor. Ifthe old adage about seeking expertadvice is true for Queensland thenit’s doubly so in NSW.

Choose your financier carefully andensure they have a working knowl-

edge of the NSW legislation. Alsomake sure they have access to anexpert management rights valuerwith experience interstate. The leg-islative environment in NSW is notas well progressed as Queenslandand this is reflected in the multipli-ers. However, lenders who have tak-en the time to understand the NSWmarket remain comfortable withproviding finance for selected goodquality properties.

There are many considerations re-lating to purchasing managementrights in NSW. From a lender’s pointof view two of these are critical.

First, unlike Queensland, the StrataSchemes Management Act in NSWdoes not allow for a lender’s rights

and responsibilities. In Queenslandthe Body Corporate & CommunityManagement Act addresses the ob-ligations of the body corporatewhen a lender is relying on themanagement rights agreements assecurity. The corresponding legisla-tion in NSW does not currently doso. As a result a deed of consentmust be entered into between thebank and the owners’ corporation.Those of you with experience in theindustry will recall that prior to 2003these deeds were also used inQueensland. The problem that of-ten arises is that the lawyers advis-ing the owner’s corporation will re-quest changes in the bank’s deed ofconsent. The outcome is that oftenthere ensues a back and forth

Choose your Financier Carefully

process of neg-otiation aroundthe content ofthe deed. Theprocess chewsup time andmoney as theparties attemptto ensure thattheir particular,often conflict-ing, wishes aresatisfied.

Experienced specialist MLR lendershave pre-empted this problem inNSW. In consultation with the in-dustry it is possible to draw up atemplate deed that, for the mostpart, satisfies the requirements ofall parties. In this way most (if not

Mike PhippsNational BDM,Management Rights,Suncorp

TIPS FOR MANAGEMENTRIGHTS IN NSW

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2 HOTEL MOTEL & RESORT NEWS - 2007

agers, recognising that co-opera-tion and understanding betweenthe resident manager and thestrata manager is key part of thesuccess of any scheme.

We met with the Real EstateInstitute and have been invited tohave further discussions with thispeak real estate industry body onholiday letting practices.

ARAMA has met with theoffice of the minister for FairTrading and with the Office of FairTrading. As we operate in a highlyregulated environment, dialoguewith the regulators is an ongoingissue, especially as both strata leg-islation and licensing requirementshave a great impact on the opera-tion of our industry.

Two state committee membersaddressed the Owners CorporationNetwork. Readers will recognise ascorrespondents to Resort News,

tips for management rights in NSW

One Voice for NSW

Year 2006 commenced withfour independent groups ofmanagement rights operatorsin NSW. By October we saw theformation and first annualgeneral meeting of an incorpo-rated not-for-profit associationrepresenting managementrights operators throughoutNSW: the Australian ResidentAccommodation Managers As-sociation (NSW) Inc. These fourindependent groups of resi-dent managers operated inSydney, Byron Bay, Mid NorthCoast centred on Port Macquar-ie and Forster and in Merimbu-la on the far South Coast. WhileCol Myers, a Southport-basedsolicitor, had been workingwith each of these groups, theywere mainly local bodies ad-dressing local issues.

ARAMA has recognised the signif-icant industry benefits if resourcesand experiences could be sharedas part of a state and national ap-proach. QRAMA, established in1991, had recognised a similarneed to establish links with inter-state operators of managementrights. In early 2006, ARAMA es-tablished a state managementcommittee (with two representa-tives from each branch) that looksat state issues such as legislativeand licensing, communicationwith other industry stakeholdersand provides support for membersto improve practices and operatingissues.

ARAMA members have been

provided with access to the re-sources of QRAMA, with recom-mended operating practices andadvice on national issues such asGST. ARAMA welcomed an ap-proach from Resort Brokers Aus-tralia who shared our vision for im-proved cooperation and coordina-tion nationally. Resort Brokersfunded part of the developmentcosts ARAMA.

ARAMA’s inaugural AGM inOctober 2006 brought owners ofmanagement rights in NSW to-gether to set common objectivesand work practices. The next chal-lenge for the state committee hasbeen meeting with other industrystakeholders. These industry stake-holder meetings have all been con-structive and the efforts and objec-tives of ARAMA have been appre-ciated in every case.

One such meeting was withthe Institute of Strata Title Man-

prominent OCN members StephenGoddard and Jimmy Thomson.

This meeting highlighted thelack of understanding by ownersof the role of the managementrights model and the much widerresponsibilities that the residentmanager has than acaretaker/building manager whodoes not own a unit in thecomplex, is not a member of theowners corporation, is not licensedby OFT and does not operate aletting business for owners.

A common point from the dis-cussions was the lack of under-standing by other stakeholders ofthe role and benefits provided bythe resident manager, an issuethat needs to be addressed byARAMA and its members. Whilethe owners in holiday complexesgenerally understand the role ofthe resident managers as anowner, letting agent and caretak-

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all) of the possible owner’s corpora-tion objections to the deed’s stan-dard content are addressed fromthe outset. Saves time, money andstress which has got to be a goodthing.

The second critical matter is theterm of the agreements. Followingchanges to the NSW legislation in2003 (the changes in Queenslandin 2003 are coincidental in terms oftiming) the term of the manage-ment agreement was limited to 10years. The term of the exclusive a-greement to provide letting serviceswas not included in this restriction.While the changes were not retro-

spective the net result is that post2003 agreements will often have d-iffering terms. From a lender’s view-point this creates some challenges.Given that MLR value is, to some de-gree, predicated on term of agree-ments, what is the asset reallyworth? Also, over what termshould the finance be provided giv-en the differing termination dates ofthe assets being funded?Notwithstanding the possibility of aterm top up via new agreementsthese are serious considerations.

In summary, some great opportuni-ties in a growing market. Just makesure you get the right advice!

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3HOTEL MOTEL & RESORT NEWS - 2007

ing contractor, resident owners incity buildings have shown verylittle understanding of the con-tracts associated with their proper-ty purchase.

Many have failed to understandthe limited obligations and services

provided by acaretaking con-tractor who hasnot made an in-vestment in thecomplex by pur-chasing themanagementrights. The rightsof investor own-ers are fre-quently ignored by owner occu-piers.

The viability and future ofmanagement rights in NSW will beenhanced as we establish our po-sition in the industry. The industryonly succeeds if each stakeholdergroup has clear objectives and un-derstands what other stakeholdersare contributing. We must earnthe support and respect of otherstakeholders by the standardsachieved by our members.

Jeff BeerePresident ARAMA

You too can benefitfrom the expertadvice andexperience ofthe managementrights industryspecialists.

GOLD COASTSeabank Building12-14 Marine ParadePO Box 10586Southport QLD 4215P 07 5532 7539

BRISBANE40 Prospect StreetFortitude Valley QLD 4006PO Box 567Stones Corner QLD 4120P 07 3252 2219

E pcs@pcsfinance.com.auwww.pcsfinance.com.au

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Accountants & Auditors to theManagement Rights Industry

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Buying & Selling in NSW

From an accounting perspective thereare not a lot of differences betweenbuying in Queensland or NSW.

The following matters need also tobe considered when buying aManagement Rights business in NSW:

• The type of business structure thatwill acquire and operate the man-agement rights.

• The profit verification procedurethat is required.

• Use an industry experienced investi-gating accountant.

• Ensuring all Income Tax, ABN andwhere applicable GST, registrationsare in place.

• That finance arrangements arestructured to maximize interest taxdeductibility

• Recognise the taxation and cashflow implications for debt reduction.

• Trust Account software be compati-ble with NSW legislation.

• The Trust Account Auditor needs tobe a Registered Company Auditorwith ASIC

• Unlike Queensland with 3 visits onlyan annual audit visit is required.

• Stamp Duty rates differ in each s-tate.

The following matters need also tobe considered when selling aManagement Rights business in NSW:

• Keeping accurate and up to date ac-counting figures.

• The figures should be prepared byan accountant who knows the in-dustry.

• Ensure all management agreementsare current and complete.

• Being aware of the capital gains im-plications including rollover or de-ferment of tax.

As with all Management Rights sales andpurchasing it pays to seek the specialistadvice of those who serve the industry ona day to day basis, especially companieswho have been at the forefront of the in-dustry from it’s inception such as BAMRWindow de Stoop

By Phil De Stoop - Director, BAMR

I know that this sounds basicbut it is really important to un-derstand what you are buyingwhen you decide on purchasingmanagement rights in NewSouth Wales.

• What sort of an agreement are

you purchasing? One that is

caught by the 10-year term

limitation or one that is not?

• Are your duties ‘do’, ‘supervi-

sory’ or a combination of

both?

• Is the remuneration that you

will be paid by the Owners

Corporation reasonable, inade-

quate or excessive?

• What are the consequences if

the remuneration is excessive?

tips for management rights in NSW

• Are there any terms in the

agreement than can be regard-

ed as harsh or unreasonable?

• Will the agreements survive a

later challenge by a rogue Ex-

ecutive Committee?

• Are the by-laws adequate to

empower the entering into of

the agreements and is there

sufficient protection against

on-site competition for let-

tings?

• Does the complex that you are

buying into have a history of

building problems or disputes

with its manager?

• What sort of licence will you

need to operate the business

and what is the best way about

obtaining this licence?

A lot of negative thoughts but youhave to look for the negatives tothan extract the positives!

The term limitation applies toagreements entered into from the10 February 2003.

If your agreement was entered intobefore that date and you have thesupport of your Owners Corpora-tion, you have an unrestricted op-portunity to top up your caretakingagreement. However, do it thewrong way and you forfeit thatright forever.

Make sure that your purchasingstructure is right. Talk to your ac-countant or your lawyer to discussthe pros and cons of acompany/trust structure. When youhave come up with a structure thatsuits your particular circumstances,

make sure it isallowed underthe by-law andthe agree-ments.

Some agree-ments specifi-cally do notallow a splitstructure suchas individualsowning the management unit forcapital gain tax purposes and acompany or trust owning the man-agement rights.

Only a specialist management rightslaw firm like Small Myers Hughes(SMH Lawyers) can give you theanswers to the above.

Before you buy, have a talk to ColMyers and understand what you arelooking at buying into!

Col MyersPartnerSMH

Understand What You are Buying!

4 HOTEL MOTEL & RESORT NEWS - 2007

Copyright 2007 •

Phone 07 5442 7600

For For over 20 years Col Myers and his

team of specialists have been providing

unparalled legal service to the New South

Wales management rights industry.

Benefit from our expert practical knowledge

gained from our grass roots involvement in

the growth of the NSW industry.

At Small Myers Hughes, it’s all about

relationships!

� Structuring

� Variations

� Renewals

� Purchasing

� Selling

� Establishment of Management Rights

� Licences & Letting Appointments

� Advice on all Owners Corporation issues

P: 07 5552 6601

F: 07 5528 0955

W: www.smh.net.au