What is Management Rights?
Management Rights is a form of business enterprise where by the “Resident on Site Manager” earns commissions from the rental income generated by leasing apartments and units on behalf of the owners of the property.
You'll find most holiday resorts, townhouse/villa developments, apartment complexes, from the Gold Coast right up to Port Douglas in North Queensland, have Resident On-Site Managers.
As a part of the agreement when purchasing a Management Rights business, the owner general purchases the managers unit.
The manager makes their income from two major sources:
1. Body Corporate salary;
2. Letting Commission
In return, for maintaining the Common Property, and adhering to By-Laws, the Body Corporate pays the manager a salary. The costs of maintaining the property is covered by the Body Corporate, and the salary is usually indexed to the CPI, to allow for automatic annual increase.
As the on-site manager, you have the right to act as the on-site Letting Agent for investor owners wanting to rent out their properties. Management fees and commissions are paid to you by the individual owners. The manager can also earn a substantial secondary income by providing services such as household maintenance and repairs. In holiday lettings, the manager can also charge for cleaning, linen hire, telephone/internet, tours, sporting hire and more. The possibility to increase your income is extensive.
In Queensland, the state government regulates the industry offering legal safeguards to unit owners, Body Corporate, and Resident Managers. To legally operate a Letting business you do need to hold Restricted Letting Agent's License. This involves a short one week study of six subjects on site in a classroom situation, or in your own time online by correspondence. Courses are available through any registered training organization such as REIQ, or you’re local Queensland TAFE.
Thinking of selling? How do you choose the best Agent?
This decision not to be taken lightly as your business is a very valuable asset. Management Rights is an extremely unique industry and as such has to have special consideration given to as dealing with unit owners, bodies corporate, intense regulation, complex agreements and dealing with the public while, all this time, trying to keep all parties happy.
The agent you select to sell your business must be fully conversant with the management rights business. Preferably someone who has owned operated and managed these businesses before.
A management rights sales professional knows how important presentation of the property is as well as having all relevant documentation ready such as all your 20a’s with assignment clause in order, accurate accounts readied by a professional. Have copies of the Body Corporate Agreements, Deeds of Assignment, variations, Bylaws ECT. Ready at hand
It is imperative that you have Managements Rights Specialists working for you not just the sales agent, such as solicitor and accountant, all consummate professionals. The biggest hurdle a vendor faces is generally the due diligence investigation by the buyer’s own professional people so make sure you have every base covered.
To this end the vendor must ensure that accurate and verified profit and loss documentation for the previous 12 months or more is on hand.
Another obstacle may be price! An experienced agent is on the ground day in day out dealing with vendors and their properties they will know how important it is to market your property at the right price. An overpriced property will sit there for a very long time creating frustration for both the vendor and agent alike, as the buyers often will not even inspect the property because it is too expensive, don’t price your property out of the market, and get the price right from the start!
We recommend when selling the property to have the unit professionally valued. This will enable the agent to promote the property accurately. This is a very important factor for you as well, as some unit prices have risen considerably. For this you need an experienced and professional valuation, accounts and legal advice.
For your selling agent to do their job properly, that is to find a buyer for your management rights business at the highest possible price, the agent will depend largely on what is produced by these experts. The agent must act on their documentation as irrefutable evidence of the state of your business.
The agent will also depend on you, the vendor. You must have all the facts and figures (as can be verified by your professional advisors) at your fingertips. Your agent will also help you prepare all of the information you may be required to provide a prospective buyer.
The agent will walk you and the buyer through the whole negotiation and contract process, liaising with both sets of professionals as well as assisting you in the processes of body corporate approval and any renegotiation of agreements that may be necessary.
Most importantly have a positive energetic agent someone who is willing to go that extra mile for you the vendor. To achieve positive and successful relationships with all parties involved.
Buying Management Rights the process.
1. Offer And Acceptance: When agreement is reached, an Offer and Acceptance document is often used as a fast way to formalise the negotiations. It is a handshake document and it is not legally binding by either party.
2. Contracts: The contracts for sale are prepared by Seller/Seller’s solicitor and forwarded to the purchaser’s solicitor.
3. Deposits: The deposit amount may be negotiable to some degree but it is usual for the buyer to pay a deposit of between 5% and 10% of the purchase price.
4. Financial Due Diligence: Once the contracts are signed, the bank providing the finance will require a financial due diligence involving an on site investigation of the sellers records carried out by an accountant experienced in the management rights industry at the buyer’s expense.
5. Legal Due Diligence: The solicitor acting for the buyer will undertake a thorough search and check the Caretaking and Letting Agreements, the PAMDA Form 20A Letting Appointments and check the Body Corporate records and contract conditions.
6. Bank Loan Approval: Once the financial due diligence has been completed and found correct, the bank commences the process of approving the buyer’s loan application.
7. Body Corporate Approval: The body corporate is required to approve the assignment of the Caretaking and Letting Agreement from the existing manager to the incoming manager.
How long does it take?
Once the above requirements have been finalised, the settlement will go ahead. It usually takes around 8-10 weeks to satisfy all the requirements above. A time frame of approximately 3 months is expected from initial offer to the final settlement.
