Layman’s Guide to Managed Investment Schemes
You may have heard the terms MIS and wondered what it’s all about.
If you operate a holiday letting or serviced apartment complex in any state of Australia, read on.
If your complex is solely permanent rentals, the MIS will not apply to you.
MIS is short for managed investment schemes, which are dealt with in the Corporations Act 2001. This is commonwealth legislation that affects the whole of Australia.
How does this relate to management rights?
A MIS has three features:
Managed: an on-site manager handles the lettings for all owners who elect to place their units in the letting pool (letting owners).
Investment: Letting owners contribute their unit for letting out by the on-site manager.
Scheme: the units of the letting owners are promoted and handled as a group by the on-site manager to generate returns for letting owners.
The Australian Securities and Investments Commission is responsible for administering the act. ASIC believes that short term letting operations will be a MIS where it is a serviced strata scheme, that is where there is reliance on:
• use of other owners units in the letting pool; and
• the operation of the serviced strata arrangement to generate a return for owners.
Consequently, holiday letting and serviced apartments are, on face value caught by the MIS provisions of the act.
Excluded from MIS provisions: Permanent rentals are not considered to be a MIS and accordingly are not required to comply with the MIS provisions of the act.
Also where there are 20 units or less in a short term (holiday/serviced apartment) letting pool, the on-site manager is not required to comply with the MIS provisions of the act.
There are also certain class order exemptions that apply to management rights schemes.
What does this mean?
Where there are 21 units or more in a short term letting pool (or the on-site manager is a promoter of such schemes), the on-site manager must comply with the onerous MIS provisions of the act unless they fit into a management rights exemption.
The most common exemption that applies to management rights schemes is class order 02/305. The on-site manager must comply with all of the requirements of this class order to be exempted from the MIS provisions of the act. The main requirements to note are:
• Product disclosure statement: a statement complying with the act must be provided to a person before they agree to place their unit in the on-site manager’s letting pool. The initial PDS should be prepared by your solicitor to ensure it complies with the act in all respects. Thereafter you can produce the PDS yourself to provide to individual owners.
• Residency permitted: each unit must be able to be lawfully used as a residence. If there are restrictions in place which mean that each unit cannot be used as a permanent residence (such as town planning restrictions, physical layout of the units), then you may apply to ASIC for specific relief from this requirement, provided you comply with all other requirements.
• Withdrawal: either party may withdraw from the scheme on a maximum of ninety (90) days notice.
• Forced sale provisions: the letting appointment between the owner and the on-site manager must contain the ‘forced sale provisions’ which allow a majority of owners in the letting pool to force the on-site manager to sell the management rights to another unrelated party for market value.
You should obtain specialist legal advice to ensure your management rights scheme complies with all of the requirements of the exemption as there are other requirements, including particular obligations on the on-site manager.
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