Management Rights
Reform of management rights to achieve a fairer balance between the needs of all parties is a key priority for the SCA (Qld). Our position was developed following extensive consultation with members, and lengthy discussions with the State Government ranging over almost a decade. You can read our position paper here, and see answers to common questions below.
1. What is a Management Rights contract? Management Rights means a contract awarded to a business to provide caretaking and letting services within a strata (apartment, townhouse, etc) complex. Duties typically include cleaning, pool maintenance, odd jobs and managing external contractors. Management Rights contracts often include an apartment, as well as an exclusive right to offer a letting service from within the complex.
2. Why is SCA (Qld) advocating for reform to management rights? Management Rights contracts were originally conceived for holiday apartment buildings with high letting and frequent turnover, and the SCA (Qld) supports the need for this kind of arrangement in those type of buildings. However, in recent years they have been increasingly imposed on less appropriate developments, including full residential complexes with minimal letting required and infrequent turnover of residents. The existing legislation allows for contracts of up to 25 years. The SCA (Qld) believes such lengthy terms do not suit the needs of bodies corporate or unit owners. Contracts are usually put in place by the developer, with the first apartment owners having no say over who is appointed to manage their building, or the terms of the contract. The developer keeps the proceeds of selling the Management Rights, rather than reserving those funds for future body corporate expenses. The Management Rights holder then recovers their outlay – and much more – from unit owners over time. Although contracts can run for up to 25 years, they are frequently on-sold by the original Management Rights contractor after just a small number of years. Unit owners can have limited say in the appointment of a new Management Rights holder, and receive no financial benefit from the sale. Unfair, one-sided contracts often mean apartment owners have little control over “their” building manager and limited avenues for dealing with poor performance, leading to lengthy and costly legal disputes. There are around 4000 Management Rights businesses operating in Queensland – representing 90 per cent of the national market. The fact that Queensland is home to nine out of every ten contracts is a clear indicator that the state’s laws are encouraging rapid and inappropriate proliferation of Management Rights. The SCA (Qld) believes all these facts point to a clear need for reform of Management Rights laws, to create balance between unit owners and building managers.
3. What is the SCA(Qld) position? SCA(Qld) believes in modest reforms to find a sensible balance between the financial interests of developers and managers, and the rights of unit owners. We are not advocating for the abolition of Management Rights contracts, and we understand the need for on-site managers in some cases, particularly tourist areas. We also don’t support retrospective changes that will impact existing arrangements. We are simply arguing that existing contracts of 20 years or more are an unreasonable and unfair cost burden on individual apartment owners. We believe Management Rights contracts should be capped at three years in line with other contractual arrangements for a body corporate manager. Alternatively, Management Rights contracts could be limited to 10 years, as is the situation in New South Wales. We believe long-term Management Rights contracts should only apply to appropriate buildings with genuine holiday accommodation offerings – not purely residential sites. We also believe a special resolution of the Body Corporate should be required to enter into or extend contracts longer than three years. These modest reforms would allow unit owners to choose the service providers that meet their needs, rather than being handcuffed into a contract that only benefits developers.
4. Have SCA (Qld) members been consulted on this issue? Yes, members have been consulted at length. The principals of every member business were invited to the SCA (Qld) “Hackathon” on the 10th of June, where this proposal was discussed at length. Moreover, this is an issue that has been discussed formally for many years, including by our legislation committee (which has a broad and diverse membership) and it has been raised repeatedly at our conferences and events in that time.
5. How did the SCA (Qld) arrive at its position on this issue? The Board adopted the current policy position following extensive consultation with members, which showed that this is the preferred position of our members and which it considered to be in the best interests of the wider strata industry.
6. Won’t changing the laws destroy the business value of existing management rights holders? SCA(Qld) is only advocating a change to the total permissible term for future contracts. Existing arrangements would not be affected by that position, although we believe extensions of existing contracts should be authorised by special majority. (This is the same standard of resolution needed to change a by-law such as the opening hours of a common property pool.) In the future, shorter contracts would ensure rights holders are providing the standard of services that was originally promised. If they do a good job, they are in the box seat to have their contracts renewed.
7. Selling management rights helps builders and developers offset the cost of building. Will unit prices rise as a result of these changes? The price paid for long-term management rights contracts is ultimately passed on to unit owners by way of high management fees. There is no cost “offset” for unit owners – in fact they end up paying an extraordinary amount more than the original contract price over 25 years.
8. Will this affect the viability of builders? Around 90 per cent of management rights contracts across Australia are located within Queensland. This low rate of management rights contracts in other states has not had any impact of the viability of builders or strata communities. In any case, the finance of new developments should not be reliant on selling management rights at the end of the process simply to remain viable. This is a dangerous situation for the security of off-the-plan buyers.
9. We shouldn’t change these arrangements in the middle of a housing crisis. Queensland’s housing crisis is a very good reason to move quickly on this issue. There is no logic in continuing with the same policies in the housing and accommodation sector that have helped to create the crisis in the first place. The State Government should move as quickly as possible to remove any barriers to entry, including lengthy and expensive Management Rights contracts that drive up the cost of units and townhouses. We understand that the developer lobby wants to maximise profits for builders, and that’s their job. However, a crisis is not a reason to create a different type of crisis via bad policy.
10. Why move so quickly? These proposed reforms are not new or sudden. In fact, they were first proposed by the Beattie Government more than 10 years ago. It is time to get these sensible reforms completed. It’s not fair to leave people uncertain of the future of this policy area, after so much discussion. We can’t keep kicking the can down the road for another 10 years.