New POA presents new opportunities
I doubt if there are any resident managers in Queensland who are not aware of the end of the property Agents and Motor Dealers Act and the commencement of the new Property Occupiers Act from 1 December 2014.
ARAMA has conducted a number of presentations for its members throughout the state and various articles have been published in Resort News and elsewhere.
There have been some teething problems as you might expect from new legislation such as this but overall the changes have been welcomed enthusiastically by the industry. Much of the focus has been on the key elements of the new act such as :
• the removal of the need to reside onsite to be able to obtain a resident letting agent’s licence;
• the ability to obtain a licence without having a letting agreement with the body corporate; and
• automatic assignability of POA form 6 letting appointments.
There is one other change that has the potential to change the way many resident managers, particularly in holiday and short term complexes, do business and that is the removal of any maximum rates of commission. Whilst it will probably be the case that most managers will simply continue with the almost universally adopted commission rate of 12 per cent (the maximum allowed under PAMDA and the legislation before that), the more entrepreneurial managers will look to take advantage of the deregulation of commission.
Use by managers of leasebacks and PAMDA forms 20 with performance undertakings has been widespread in recent years. However question marks have hung over both of these concepts.
Leasebacks present potential adverse GST implications, create problems in compliance with the managed investment provisions of the Corporation Act (which in many holiday complexes require that any arrangement with an owner be able to be terminated by either on no more than three months notice), potentially impact on the calculation of the sale price of the business and also arguably require that income from guests be paid to the manager’s general account not the trust account.
PAMD forms 20a with performance undertakings have become the preferred practice for guaranteeing returns to owners and avoiding the perceived problems of leasebacks. However the concept of a performance bonus payment to the manager, resulting in a total payment above the prescribed maximum of 12 per cent, has been viewed by many as a risky alternative.
POA’s removal of the maximum commission rate will allow letting appointments to be structured so as to virtually eliminate any risk of a performance undertaking breaching the legislation as there will no longer be any restriction on what percentage of the letting income the manager can take as commission. Some tweaking of the typical performance undertakings in the market place to achieve this outcome will probably be needed.
The other opportunity that the deregulation of commission presents is the bundling of various fees charges and commission into a single fixed rate that a manager charges for most if not all of the services that the manager undertakes or arranges. I have espoused the benefits of this concept in previous articles but believe that POA lends itself even more than PAMDA to the concept.
Clients who have embraced this way of doing business have commented on the positive feedback they get from their owners who instead of receiving a monthly statement with a dozen or so charges deducted from the rent see only one or two deductions with a payment of a fixed percentage of the rent as the bottom line. This method will work for better for those complexes where bookings are of consistent length but even then the manager will need to be very careful in setting the all-inclusive percentage.
For those managers taking on a poor performing business with a belief in improving the upside for owners, there is the capacity to implement some form of sliding scale of commission so that a higher rate applies to rent/income over a certain level. A manager working under that scenario can benefit to a greater extent than previously permissible from the increased returns generated from the manager’s marketing skills.
While the deregulation of commission may lead to an overall reduction in costs to owners, as the government believes it will based on experiences in other states, I see the changes as an opportunity to reduce complexity, improve relationships with owners and reward better performing managers.
