Top-ups, the process by which the term of management rights agreements are extended, is an essential component of the management rights industry and why these businesses command a significantly higher value than most other businesses.
It is the expectation that the term of management rights agreements will continue almost indefinitely, which generates the premium placed on the values of such businesses.
But is a top-up automatic? As more and more managers are finding out, far from it! Many managers have a mistaken belief that a body corporate cannot refuse – unreasonably or otherwise – to grant a top-up. That is not so. There is no obligation whatsoever on a body corporate or an owner to vote in favour of a top-up and if they fail to do so, the manager has no recourse to the body corporate commissioner’s office or QCAT alleging that the body corporate acted unreasonably.
A top-up must be earned. A manager must be able to demonstrate to owners why it is in their interests to support a top-up. In these times of low returns on most property investments, and minimal if any capital growth, unit owners are even more concerned to ensure that they are achieving the best return they can and not spending body corporate levies unnecessarily.
A top-up is not something a manager should think about only at the time it is requested. The need for a top-up and developing strategies to ensure one is achieved should be front of mind of every manager from day one. Don’t wait until it is too late.
I remember speaking at a seminar attended by potential management rights buyers some years ago, when an attendee asked one of the speakers, a very competent and experienced manager, if he was at all concerned about getting a top-up, “Not at all. That is the last of my concerns”, came the response. “I know that if I do a great job for my owners, they will support me when I want a top-up.”
I would take that step further and say that it is not just a matter of doing a great job, but making sure owners know that you are doing a great job. As I have repeatedly stated in many articles, keeping your owners informed of the good things you do and of the good feedback you receive from tenants, guests and owners, through regular newsletters is essential.
Some managers who might be receiving remuneration well above market or receiving high fixed annual increases might have to ask themselves if they need to offer some concessions to get owners to support a top up. While a very high remuneration or regular five percent annual increases might be attractive to you as manager, to many owners it is an aggravation and in some cases a major cause of disputation.
In such cases, it might be necessary to give something back to the owners. That may be dropping increases back to CPI or even having a moratorium on increases for a year or two as an incentive. After all you are better off with a long-term agreement and a reasonable remuneration than a short-term agreement at a higher remuneration.
In summary never take a top up for granted. From the time you become manager, plan for it and do what you have to do to ensure that when the time comes, owners recognise that you deserve it.