New disclosure laws slowing down management rights deals

By Robert Lalor, Hynes Legal

Owners of management rights businesses need to be aware of new regulations in Queensland that require property vendors to disclose full information about any property included in a sale to potential buyers.

The new legal regime came into effect on  August 1 and has implications for anyone looking to sell or buy a management rights business that includes real estate. The sale of a “business only” management rights business is not captured by the new rules.

First published in the latest management rights industry magazine Resort News HERE

While the legislation had been on the books for two years, its arrival has caught the industry by surprise given the new level of detail required to be disclosed.

The changes to the Property Law Act represent some of the biggest reforms to property law in the past 50 years.

Vendors who fail to meet all the disclosure requirements may give a buyer the right to terminate a contract or, at the very least, drag out the sale process over an extended period while arguments are had about whether disclosure was effective and whether a buyer would have proceeded with the contract had disclosure been more complete.

The sale of a management rights business is a complex undertaking at the best of times. This additional requirement for disclosure may hand an anxious purchaser a trigger to abandon a contract if all the seller’s obligations are not met in full.

For strata schemes, sellers must provide buyers with a body corporate certificate that contains details on levies, insurance coverage, any outstanding contributions or body corporate debts for a lot, as well as information about how body corporate expenses are shared between owners. There is also additional disclosure required about the property more broadly.

Disclosure about body corporate issues has been in place for many years, but the new rules expand what must be included. The obligation to disclose details about the property generally is entirely new.

The new requirements are unlikely to cause significant issues in a buoyant market when sellers and buyers are motivated to finalise a deal.

However, when the market turns, vendors who are not careful to meet all disclosure requirements could give nervous buyers a reason to exit or delay a deal.

Creative lawyers working for a client who suddenly changes their mind will look for any mechanism available to exit a contract. This was a hallmark of property contract disputes during the global financial crisis.

Vendors will do themselves no favours if they provide that mechanism by failing to adhere to the requirements set out in the new regulations.

While the new requirements are administrative in nature, requiring additional reports and certificates to be compiled, they add to an already significant document load that is part of any management rights sale. The potential for slip-up or omission is real.

It would be better for vendors to prepare their disclosure when they decide to list their property for sale rather than wait until they have an offer. Doing so may save a week or two from offer and acceptance to contract.

Anyone needing advice about what the new regulations mean for their business or for a potential sale should contact a lawyer to discuss their situation.

More Resort News management rights stories in AccomNews HERE

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