Transferring contracts: caretaking services
The information service of my office has received a number of enquiries lately for general information about the transfer of caretaking service contracts.
To start with the basics, as you will probably be aware, the definition of a ‘caretaking service contractor’ is a service contractor for a community titles scheme who is also a letting agent for the scheme or an associate of a letting agent for the scheme.
Sometimes this role might be called the ‘onsite manager’ or ‘restricted letting agent’ or ‘resident unit manager’. A common term in the industry for the overall arrangement is ‘management rights’. As is the case with any other kind of business, from time-to-time the management rights are proposed for sale (or to use the more technical term, ‘transfer’).
It is the transfer of the rights from one entity to another that the legislation refers to as a transfer of an engagement or authorisation. There are specific provisions that relate to a transfer and they are separate from an amendment to an existing caretaking service contract. These two elements should not be confused.
The information service of my office specifically receives two common enquiries about the transfer of management rights. One relates to what is considered by the committee and the timeframe to do so and the other relates to amending the engagement before approving the transfer.
The regulations provide that in deciding whether to approve a proposed transfer, the body corporate may have regard to:
- the character of the proposed transferee and related persons of the proposed transferee;
- the financial standing of the proposed transferee;
- the proposed terms of the transfer;
- the competence, qualifications and experience of the proposed transferee and any related persons of the proposed transferee; and
- the extent to which the transferee and any related persons have received or are likely to receive training.
The committee, on behalf of the body corporate, has the authority to consider and approve the transfer. For the ‘seller’ of management rights, they must ensure the committee has sufficient information to be able to decide whether or not the transfer is approved. Once the committee receives the information reasonably necessary to decide the application for approval, it must decide within 30 days.
A number of sellers call the information service raising concerns about the committee taking too long and thus, impeding the sale. Often times, this discussion can reveal that the seller has failed to firstly allow sufficient time during the sale process to enable the committee the full 30 days, as well as not providing all the relevant material to enable the committee to consider the transfer. If the seller does the proper groundwork first, the process may flow more efficiently.
On the other side of the coin, the information service hears from committee members considering a transfer where they are trying to impose an amendment to the existing engagement as a condition to approve the transfer. These amendments can relate to important matters such as amending duties, hours of work, or remuneration.
The committee is not permitted to authorise an amendment to an existing engagement or authorisation. This must be approved by ordinary resolution at a general meeting. While the seller and buyer may be willing to negotiate these amendments prior to the sale, they are not obligated to under the legislation.
Also, the body corporate cannot pass a general meeting motion to approve an amendment to the contract with the expectation that the caretaking service contractor must agree, as this is not always the case. These are contractual arrangements that in most circumstances both parties (body corporate and the caretaking service contractor) may need to agree to before amending. If the amendment is approved, by both parties, the transfer can be decided by the committee, based on the amended engagement or authorisation.
So like any contract, it is important that the terms and conditions are read in full and understood by both parties. Communication is the key and it is not uncommon for my office to hear of a relationship breakdown simply because of a lack of or inappropriate communications between these parties.
The other key to this discussion is that, because contractual terms are at play, qualified legal advice would be essential in any issue to do with a transfer or proposed transfer.
Chris is the Commissioner at BCCM (Body Corporate and Community Management), an office that provides services like information, dispute resolution and more for those who live, invest or work in a community titles scheme in Queensland.
This is a perfect time for Body Corporates who wish to get rid of their Resident Management contract by being the purchaser. As I read the legislation Body Corporate’s are legally able to this. But before any decision is made the financing structure needs to be in place and cost effectiveness needs to be thoroughly examined prior to any offer. To be economically viable it should be self-funding. The saving made should off-set the cost of financing and outgoings without raising levies.
There are, as I see it, distinct cost recovery and management advantage in this approach.
1. If the service manager doesn’t perform the Committee can sack them. No QCAT or Courts; no huge legal bills.
2. the cost of a non-resident manager should be cheaper especially if it is tendered out to a service or facility management company.
3. the manager’s unit could be either leased out or sold off to recover part of the purchase price
4. the manger’s office could be rented either to the service contractor or a letting agent
5. the rent roll if part of the purchase could be sold off to recover some of the purchase price.
6. better control over outgoings
7. better control over amending duties, hours of work, or remuneration
8. not encumbered by an unconscionable, price bloated, excessively long term agreement made by a developer to their benefit which to the Body Corporate is an excessive cost burden.
Hopefully, the new legislation may consider “greasing the wheels” for Body Corporates to purchase “Management Rights” or Service Contracts. It certainly needs to follow NSW legislation regarding developers selling off these rights. I seriously doubt it. The status quo is far too comfortable.