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Friday, March 31, 2017
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Consent to transfer of management rights agreements: what’s reasonable?

Some time ago, Resort News published an article by me on what I thought was reasonable for a body corporate to request from a buyer of management rights, in considering whether or not a body corporate committee should consent to the transfer of management rights agreements to the buyer.

This is an important issue, because under the Body Corporate and Community Management Legislation, a body corporate committee must not unreasonably withhold approval to a transfer.

Under the legislation, one of the matters which a body corporate committee may have regard to is the financial standing of the proposed transferee. My opinion, as expressed in my previous article, was that it is doubtful that it is reasonable or necessary for a body corporate committee to require detailed financial statements from a buyer who has approval from a bank for substantial financing to complete the purchase of management rights.

A bank has a better system of determining whether the financial standing of a buyer is sufficient to take over management rights agreements, and in any case, it is not as if the body corporate will be dependent on payments being made by the caretaker to the body corporate.

And so it came to pass that an adjudicator appointed by the body corporate and community management commissioner, was asked to consider whether it was reasonable for a body corporate committee to require declarations in a particular form, in support of financial statements provided by the buyer. After exhaustive analysis, the adjudicator decided it was not reasonable.  As part of that analysis, the adjudicator stated: “It is usual in my view that sufficient evidence of financial soundness would be acceptable by confirmation from a financier that the borrower had passed stringent lending criteria.”

Evidence of financial approval for a substantial level of borrowing should be sufficient evidence of this.  The adjudicator also stated: “I find that while the body corporate is entitled to understand the assignee’s financial standing, they are not entitled to test the veracity of their evidence of financial standing when the assignee’s bank had tested their financial capacity.” The end result was that the body corporate’s legal and administrative costs relating to this unreasonable requirement for a specific form of declaration of the buyer’s financial position, could not be passed on to the seller, leaving the body corporate, its solicitors, and the body corporate manager to fight it out over whether the costs that could not be reclaimed from the seller should be paid by the body corporate.

Since the body corporate’s actions led to the buyer pulling out of the sale, it is likely that the seller would have a claim against the body corporate for damages suffered as a result of the loss of the sale. An adjudicator appointed by the commissioner has no power to hear a dispute over a claim for damages, but it is likely that a seller of management rights would be able to have such a claim determined by a court or jurisdiction, having the right to determine contract disputes between a caretaker/letting agent and a body corporate.

As an aside, the adjudicator also found that the body corporate acted unreasonably in making it a condition of consent that the buyer undertake a horticulture course.

Another argument I put forward in my previous article, was that it is not reasonable for a buyer to obtain and provide to the body corporate committee, criminal history checks, when such checks are already carried out by the Office of Fair Trading under the process of granting or extending the real estate agent’s licence the buyer must obtain to continue to operate the management rights business the buyer is purchasing. My investigations with the Office of Fair Trading have convinced me that the information arising from police checks requested by bodies corporate, and those requested by the Office of Fair Trading, both before issuing a new licence, and extending an existing one, provide exactly the same information.   It is a short step to the position that body corporate committees act unreasonably in requesting that police checks be provided by the buyer when the Office of Fair Trading already go through this process.

I believe that body corporate committees and their legal advisors are putting their body corporate at substantial risk of having to pay damages, because of their excessive demands in relation to considering consent to transfer of management rights agreements.

About Martin Punch

Martin Punch
Martin Punch is a Partner at Short Punch & Greatorix, a property and business based legal firm with an emphasis on property and business development, management rights and commercial property.

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