Body corporate regulation modules were created under the BCCM Act 1997 to define how a building is managed.
There are five body corporate regulation modules at present: standard, accommodation, commercial, small schemes and two lot.
This article is about what regulation modules are and why you should be wary if your body corporate wants to change module.
Why different modules?
The BCCM Act 1997 has tried to create a framework within which all types of schemes can operate, from the very big to the very small, the residential to hotels and industrial complexes, all with different needs.
The Act itself creates the broader rules under which all schemes must operate.
Each type of scheme is then subject to further rules depending on what regulation module it’s registered under.
You may be thinking, how complicated, why bother? I know I used to.
But there is a reason for it, and it’s all about tailoring management to meet the needs of the scheme and it’s owners. The Office of the Commissioner Body Corporates puts it this way:
| Standard | Highly regulated, suitable for predominantly resident owners |
| Accommodation | Less regulated, suitable for predominately investment owners who let their lots |
| Commercial | Some regulation, suitable for business premises |
| Small Schemes | Little regulation, available to schemes of six lots or less |
| Two-lot Schemes | Little regulation, available to schemes of two lots |
The main differences are centred around the use of the scheme.
Duplexes need very little in the way of regulation, more a framework for when things go wrong. Small schemes are similar but with a little more regulation because, as we all know, the more people involved the more complicated it gets.
Standard module schemes are the most highly regulated because, it’s supposed, these are the people who own and live in the schemes. It’s to everyone’s benefit to make a level playing field.
Accommodation module schemes are intended for investors who are more commercially minded and therefore more capable of taking care of their own rights. Commercial module takes that concept even further.
Different rules apply in different circumstances.
So for instance, under the standard module the committee spending limit is by default $200 per lot (although it may be varied) however in a commercial module has no committee spending limit at all. They could refurbish the entire building and it’s left to owners to recoup their own loses should difficulties arise.
How it works in practise
The idea here, though you will be forgiven for not noticing, is to simply.
Each scheme is it’s own little kingdom and the owners can do whatever they choose within the guidelines of the legislation. The different regulation modules recognise that and attempt to add or remove restrictions to meet each schemes circumstances.
Which would be great if every building was registered under the module that best suits them, but that is not the case.
There are many buildings in Queensland, particularly on the Gold Coast, which are registered under Accommodation module when the owners are predominantly resident.
Or predominantly investor buildings with standard module registration.
And a large number of duplexes are registered under a standard module, creating far more restrictions and responsibilities than they ever need or can fulfil.
The problem arise because the incorrect module was chosen at registration, or, the scheme voted to change regulation module.
Changing regulation modules
Any scheme that meets the criteria for the module they’re changing to, can enact that change to the regulation module by passing a special resolution at general meeting.
A special resolution is passed if:
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at least two-thirds of the votes cast are in favour of the motion
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the number of votes against the motion is not more than 25% of the total number of lots
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the total contribution schedule lot entitlements of the votes against the motion is not more than 25% of the total contribution schedule lot entitlements for all lots in the scheme.
The meeting must follow the rules for notice and a Form 19 must be included (in most cases, refer to the Form 19 for details).
Once the resolution is passed the scheme has three months to prepare and register a new Community Management Statement to enact the change.
Why change regulation module?
There are benefits for smaller schemes to change their module from standard to small schemes or two lot. It will reduce the amount of “hoops” to jump through, a benefit to all owners.
Changing from standard module to accommodation module, or accommodation to standard, is more problematic, and that relates to the key difference between those two regulation modules.
In standard module schemes a Caretaking and Letting Agreement can be entered into for a maximum of ten years.
In an accommodation module scheme Management Rights may be for a maximum of 25 years.
The larger term is worth more. A lot more.
Management Rights & Regulation Modules
Queensland is the only state that allows 25 year terms for Caretakers. Consequently we have a thriving Management Rights industry, where these businesses are bought and sold on the open market.
When you’re buying Management Rights the term of the contract will affect whether or not you will be able to obtain finance.
Banks won’t lend on standard module contracts with less than seven years to run. For accommodation module they won’t lend on less than 12 years to run.
Because the module makes a difference to the term of the Management Rights contract the regulation module a building is registered under is often determined not by the make up and needs of the lot owners but by the profit margin of the developer or the Caretaker.
Off The Plan Management Rights
For the developer, or original owner, the Management Rights are a tasty “extra” on the sale of the lots.
All that’s required to create the rights is to prepare the contracts and pass a resolution at general meeting, which as the owner of all the lots, they can easily accomplish.
Consequently, there’s a lot of profit in that sale of Management Rights.
And again, a contract worth 25 years is worth more than one worth ten years. Consequently new buildings are registered as accommodation module, even though they may actually have a high percentage of owner occupier.
Existing Management Rights
The same potential exists for existing Management Rights, initially offered under a standard module.
If the Manager can purchase the rights, pass a motion to change regulation module to accommodation, and then enter into another agreement, now for 25 years, then the profit potential is enormous.
Consequently it’s not uncommon to see motions on the agenda to change regulation module of a standard module scheme.
The Implications for Lot Owners
The implications for lot owners are summarised well in a report by the Office of Fair Trading:
This practice has become an issue for many lot owners who are of the view that long term contracts for services may be sub-standard, overpriced, or inappropriate for many schemes. There are also claims that there is an increasing corporatisation of the management rights sector and that this, together with rapid turn-over in ownership and a significant increase in the value of management rights contracts in the past decade, has led to predatory and unconscionable conduct.
Of course then there’s the dissenting view:
Other stakeholders disagree with these claims and are of the view that management rights arrangements in Queensland are generally working well and that lot owners in schemes under management rights arrangements are actually better off than those in self-managed schemes.
In my opinion both views are valid, and just like most things body corporate, it will depend on the personal circumstances of the particular scheme which group you fall into.
It’s ridiculous to see a 20 lot scheme in a suburban neighbourhood registered under accommodation module and saddled with a 25 year contract. That’s a big commitment, and the scheme will completely miss the benefit from the more onerous playing field of a standard module, which they’re likely to need.
Equally a very large building will benefit hugely from a professional, corporate Building Manager, and in that case a 25 year contract is as much protection for the body corporate as the Caretaker.
Regulation module should match the majority wishes
I believe the body corporate should do exactly what reflects the wishes of the majority.
If that means changing the regulation module and extending the agreement, then so be it.
Or vice versa; changing to a standard module and limiting the term of the agreements.
What concerns me is how many people are voting on these motions without really understanding the consequences of that decision, which is the reason for this article!
If your scheme puts forward a motion to change regulation module be wary. Will it really be beneficial to the lot owners as a whole, or is it really prompted by profit?
I’d love to know if you’ve experienced a change of regulation module and how that worked out for your scheme. Leave a comment and let us know.
Unless stated otherwise all the information on this website relates to Queensland legislation.
Dear My Body Corporate Report,
Thank you for the great information on your website. Our building has permanent and long term rentals and we are considering changing from an accommodation module to a standard module.
There is also a commercial component to the Manager’s management agreement as there are cafés under his care also.
The manager has the rights up for sale applied for an extension of 5 years and was closely defeated to this application. He has 13 years of his accommodation module left to run.
I believe we have to honour his 13 years but if we change to a standard module now do we have to pay him out the extra three years? How does that work?
I would appreciate your advise.
Regards Jan
Hi Jan
Good question and kudos to your scheme for taking control of their needs. Unfortunately I don’t know the answer. In fact I think that ones a question for a Solicitor since it’s much to do with contract law.
The term of the agreement would need to be honoured. In it’s current form at least. A new contract could be negotiated with the Manager – ie the current agreements are terminated and new agreements entered into but I think there would definitely need to be something “in it for them” to get agreement. Paying them out could be a solution, although it may work out easier to just wait it out.
Its a good idea for the body corporate to seek advice from a specialist body corporate Solicitor on the matter. Sorry I couldn’t be more help.
Hi Lisa, Our Caretaker has his management rights up for sale with a heading
Management Rights: Resort/Holiday
Our building is presently under the Accommodation Module however we have 73 Owner occupiers and 24 units in the letting pool with long term rentals. The Committee is looking to change to a Standard Module and we do not wish to have holiday short term rentals. Will changing to a Standard Module prevent the Caretaker from having overnight short term and holiday rentals ?
I would appreciate your opinion.
Regards Jan
Hi Janice
Changing to the standard module won’t limit the use of the property. And neither can you make a by-law that limits the use of the lots saying no short term letting.
Short term letting is controlled by council zoning. Some areas are zoned residential and some tourist. You may have an objection under the Building Act or the development approval for the property, but there isn’t anything in the BCCM Act that allows holiday letting to be restricted. Check with your local council.
Thank you Lisa for your information.
As we have 73 owner occupiers and 24 units in the rental pool it seems to me that the Standard Module is the correct Module for our building. I understand the Standard Module has 10 year contracts Can you give me some other good reasons why it would be advantage to change from an accommodation module to a standard module ?
Thank you
Jan
Hi Jan
The checks and balances under the standard module are more onerous than the accommodation module. Things like controls on voting, length and breadth of some contracts, spending limits and of course length of time for building manager contracts. The standard module is designed specifically with owners living together in mind. The accommodation module is designed for those who predominantly live off site (always makes me wonder what about the poor tenants!) and have a more commercial frame of mind. If you’re thinking seriously about it I would have a discussion with your body corporate manager about the specific changes. For the most part though everything will pretty much run the same.
Hi Lisa
What do you mean by the scheme will completely miss the benefit from the more onerous playing field of a standard module, which they’re likely to need
Hi Jan
It’s considered if owners are resident then there may be many owners with ideas about what should / could be done and correspondingly more conflict. By making motions harder to pass, by restricting amounts of proxies, narrowing spending limits and contract lengths then the works that can get passed and actioned are also limited.
Restricting proxy amounts gives more owners more of a say. By restricting contract lengths the Caretaking Agreement attracts less commercially minded owners and (hopefully) attracts those who’re wanting a work from home job. By narrowing spending limits it makes it harder for major works to be undertaken quickly. The aim is to protect owners’ rights.
Hi Lisa,
Off The Plan Management Rights
The Disclosure statement on the Off the Plan purchase Contract 22. 7. 2002 states
What sort of serviced apartment, hotel, motel or resort complex is being operated under the scheme? How will it be operated?
It is not proposed to operate the Development as a serviced apartment, hotel, motel or resort complex.
It is proposed that the development will be operated primarily for medium to long term residential occupation. There will also be a substantial number of lots that will be owner occupied.
Is it possible that an Adjudicator may deem the present Accommodation Module unsuitable as a result of the original contract. We can then revert back to a Standard Module as there are 70% owner occupies and 30% long term rentals in our complex ? I realize we can apply to change the module anyway but I am wondering if we can do it as a result of the Off the Plan contracts not been given the correct modules.
Regards Jan
Hi Janice
That’s a technical question best posed to a management rights solicitor.
A disclosure statement is like a certificate of currency; it’s valid on the day it’s produced. In practice they can remain valid for up to a year but the reality is that things change all the time, including changes to the circumstances disclosed. In my opinion I wouldn’t think that a claim against a developer, probably long gone by now (developers form companies under which they process a development so that company can later be wound without affecting the holding company, effectively ending any liability claims against an entity that no longer exists) is a viable option. It would be a long drawn out battle at best and would more than likely cheaper to simply change the regulation module via motion at a general meeting.
That is simply my opinion however and I would check with a solicitor.
Many thanks Lisa I do appreciate your comments.
Can you recommend a management rights solicitor?
Regards Jan
Hi Janice
Sorry for the late reply, I’ve been on holiday for the last week. Here in SE Qld check out Mahoneys Lawyers, Hynes Legal, Small Myers Hughes or visit the strata lawyers section on http://www.lookupstrata.com.au/servicesdirectory
Hi Lisa,
I would really appreciate your advice. I am a tenant living in a four star hotel on the Gold Coast and managing three units from a real estate whom has 38 of the units on a rental roll. I am also subletting another unit directly through the owner. I am managing these units through Airbnb. I am a super host and they all have a 5 star rating and everyone is happy, the people renting out the units, the owners, the real estate and myself. Unfortunately the hotel management is not. It seems they are feeling threatened and have issued me with a contravention notice requesting me to immediately cease running a holiday letting business on site. The real estate said they couldn’t stop me but they have issued her with a breach. They have also contacted the owner of the unit that I have been dealing with and told him they would breach him as well but he was welcome to come on board with them. He was extremely angry and upset and asked if I could look into it. It seems we are being bullied by the Hotel Management and Body Corp. It took 20 days to receive a mail box key which cost $65 and they keep sending me overdue power bills (from Body Corp.) which are sometimes left on the door handle to the unit when all my bills are paid and are up to date. Airbnb is about hospitality (something hotels are supposed to do) but hotels are about real estate. I would appreciate any advice you would give me.
Kind regards,
Andrea
Hi Andrea
This could be a problem for you. The hotel is most likely the holder of the Caretaking and Letting Agreements. The Letting agreement contain clauses that guarantee that they will be the only entity allowed to run a business on the property. Outside real estate agents may still manage the units but they cannot do so from within the building. The body corporate has no choice but to enforce the contract it’s entered into with the hotel.
If you live onsite to continue running the business you will need to move out. Maybe discussing the matter with a solicitor should be your next step.
As to the bullying, that I’m afraid is common as muck. My advice is to follow up the power bills and make sure they don’t relate to your lots (anything overdue in a body corporate has the possibility of escalating financially quickly). Other than that keep track of how you’re being treated and if you think something crosses the line seek help. As a tenant your best avenues will be through your lot owners since you don’t have a relationship directly with the body corporate.
Hi Lisa,
Thank you for your advice. Someone suggested I speak with a property services solicitor. Do you have someone you can recommend?
Cheers,
Andrea
Hi Andrea
The solicitors I know are experts in strata matters. Check out the Australian Strata Services Directory http://australianstrataservicesdirectory.net/
Hi Lisa,
Thank you for the information you have provided in this blog. I am an investor who is currently building a detached duplex on a block of land in QLD. Currently, the two detached dwellings (duplexes) being built are on a single title. I am considering changing this to strata title once construction is complete. My main motivation to do this is to have a provision in place that will allow me to sell one of the dwellings down the line.
I am interested in understanding if I can nominate a Two-lot Module Scheme for this. Note that I will be renting out both the dwellings.
Your thoughts on this will be appreciated.
Hi Upendra
Thank you for the compliment and I’m glad that you found the information useful.
Firstly, congratulations on considering strata title; for a development it offers both you as the developer and any future owners a more flexible means of ownership. It is far easier to sell half a duplex that it is two buildings on one title, simply because your market of potential buyers will be so much bigger.
Yes definitely nominate the two-lot module if you do strata title. It is purpose built for what you’re suggesting and management wise will take much of the headaches of strata off your shoulders. Formal agreements can be made by discussions between the two owners.
You might want to have a chat with your land surveyor or solicitor before completion and registration of the lots. One of the key issues with detached duplexes that are strata titled is that they’re issued as Building Format Plans. What that means is the yard areas around the lots will be issued as exclusive use yet still remain common property, ie owned by the body corporate. That will mean when problems arise, say with a sewerage pipe that runs through the exclusive use area the body corporate, or both lot owners, will be responsible for costs.
If the plan is registered as a Standard Format Plan then it’s likely the area around the lots, driveways etc, will be designated part of the lot and therefore the individual lot owners responsibility. In a detached duplex it should be possible to allocate separate areas and for all intense and purposes each owner takes care of their own holding.
I say that with a great big reservation: I am not a surveyor so maybe there are rules why detached duplexes get designated BFP. I’d check it out before the survey plan is registered.
Thank you, Lisa for your reply. I will speak to to my Solicitor regarding building format plans.
Also, I would appreciate if you can help me with another query in relation to the two lot module scheme. I came across the following criteria when I was looking into two-lot scheme module.
The Specified Two-lot Schemes Module applies if:
1. there are only 2 lots in the scheme
2. the community management statement for the scheme shows that the Specified Two-lot Schemes Module applies
3. the lots are residential, or were when the community management statement was registered.
The Specified Two-lot Schemes Module does not apply if:
1. there is a letting agent for the scheme
2. the scheme is part of a layered arrangement of community titles schemes.
I am struggling to understand who a letting agent is in this case.
As I have mentioned before, the duplex is an investment property. Both the dwellings will be rented out. I will have a Property Manager to manage the property including sourcing the tenants for me. Would this person be classified as a letting agent? I am hoping not because I really feel that the two lot scheme module will suit my circumstances the best.
Please let me know if you need more information.
Hi Upendra
A letting agents agreement is a contract entered into between the body corporate and a letting agent so that they have exclusive rights to rent the property from the scheme. Its a Management Rights Agreement. Even when there is a letting agreement in place other managers may rent the lots but the onsite manager will be the only one allowed to work from the property.
If you’re a two lot module I don’t think you’re allowed to enter into a Letting Agreement anyway. This clause would apply if you were changing from another regulation module. With new schemes, if it’s two lots, select two-lot module on your first CMS and away you go.
That doesn’t mean you can’t have a property manager rather you can’t enter into an exclusivity agreement regarding the property.
Hi Lisa,
Hope you are well!
Your commitment to answering all questions on this blog (pro-bono) is appreciated. For a first time investor like myself who is strata-titling their duplex in FNQ, it is great to bounce questions off someone such as yourself. So thank you!
As you may be aware from my previous posts, I currently have 2 independent dwellings (no common walls) on Torrens Title which I am in the process on converting to Strata Title. Both dwellings are purely for investment (rental) purposes. I have now found out that my council rates will be significantly higher than what I am currently paying once these dwellings are strata titled. I recently read somewhere that in QLD, approval to change to strata title and registration of the strata-title are 2 separate steps. In other words, the owner could have the strata title approval in place and only register the strata subdivision years down the track when they decide to sell one or both dwellings separately. Is this true? Can I have an approval in place that has no expiry date? The surveyor who is assisting me with this process says I have to register within 6 months once approved.
Thank you once again for your time!
Hi Upendra
I am well, thank you for asking!
I am not even sure on what approval you’re talking about but if it’s a council or DNRM approval then I would take your surveyor’s advice. Most approvals have a time limit on them. It makes sense when you consider that the approval will be granted on the legislation as it is now and years down the track the legislation could be completely different.
Strata titling is subdivision and it takes effect immediately it’s registered as part of the registration process will be to cancel the previous plan creating the new lots. Possibly what you’ve heard relates to the body corporate not “working” as such if the titles are held by one owner. It is true as a single owner you wouldn’t need to do anything, other than foot the bill, until the lots are sold to individual owners. The body corporate still exists though.
Thanks for your website. I seek advice re the benefits of changing our Standard Scheme to a Small Scheme. We are a small block of 5 apartments with only 3 separate owners (2 living onsite). We have no onsite rental management but employ a BC Manager. Your text above mentions ‘less hoops to jump through’ – can you be more specific re the benefits of changing our scheme?
Hi Simon
The most significant difference will be committee requirements – only two members are required under small schemes and there is no requirement for a Chairperson. There is no longer a requirement for audit under small schemes module and appointments for body corporate managers or service contractors may only be for one (1) year.
If you have a body corporate manager then you will not notice a lot of difference if you change regulation module as they will run the scheme exactly the same. Probably the most difference you would notice is re the committee makeup.
Can I’m change my front door lock on my unit, I am told that the front door is a fire door and belongs to common property and would breach fire regulations if I changed the lock from a master key
Hi Greg
Good question. The answer is no, you shouldn’t change the lock as it is a fire door and it can breach fire regulations.
Have a read of this article where a solicitor discusses master key systems.
Dear Lisa,
I own a unit in a 20 unit development which is under the accommodation module. All the units are holiday let. Is there anything in the accommodation module rules (or anywhere else) which prevents me at some time living permanently in the unit? I would value your advice.
William
Hi William
Yes some buildings are zoned short term only and permanent residents cannot live in them. You will need to check the council zoning of your building. Your scheme by-laws might be a good place to start too.
Hi Lisa,
Thanks very much for that advice. I’ve checked the by-laws already and there’s nothing there, so I will try the council
William
Hi Lisa I own a 2 b/room villa in a small complex of 4. Could you please give me some advice on how the body corp. legislation would apply to the owners. As we all own our villa’s. Thanks in appreciation of your advice
do we need to employ a body corporate manager.
Hi David
You do not need to hire a body corporate manager. Legislation requires you manage the scheme in a certain way but if owners are happy to do that themselves there is no issue.
Hi David
The legislation in its entirety applies to all strata schemes, regardless of how big or small they may be. Some things are not applicable based on the size and regulation module of the body corporate.
Essentially the legislation is about fairness. The goal is to make sure the common property of the scheme is maintained to a safe and habitable standard whilst allocating the cost of that fairly amongst the lot owners. Take by-laws for instance. The goal of by-laws is to set out how the common property may be used so that the lot owners each receive the benefit they’re entitled to. People being people, much of the legislation is written to address “what-if” situations. What if a by-law is breached? What if an owner doesn’t pay their levies? And so on.
From the perspective of a small group of owners you’re responsible for keeping the property functioning and sound without disadvantaging each other. If you can do that without going through the more rigid functions that larger schemes do then more power to you. At the end of the day if all the owners are happy then it doesn’t make too much difference how you actually carry out the functions.
I suggest, beyond regular maintenance, you pay attention to two main issues: 1) make sure the building is fully insured and 2) you’re building a good sinking fund so as not to disadvantage future owners.
Hi Lisa. Thank you for your prompt attention to my query and the advice that you have provided
Hi Lisa,
Thank you for your article. I currently run a MR with a standard module. We operate 20 out of 28 units in the complex. Only 2 units in the complex is owner occupied. I wanted to find out more about the benefits to me as the caretaker for changing from standard to accommodation module. You mentioned in your article it’s worth more, but how is it worth more? Thank you!
Hi Jack
The longest term allowable for MR in standard module is 10 years. The longest term available for MR in accommodation module is 25 years. If the contract is work $10,000 per year over 10 years that’s $100,000 but over 25 years its $250,000.
Hi Lisa,
Your article is the best I can find online so far. And your detailed explanation to all questions are even more powerful. Thank you!
I am a onsite manager managing a complex with total number of 64 units. 30 of them are in my letting pool under NRAS and 5 of them are outside agents. Our care tacking agreement has 17 years remaining. We had a motion for AGM next month to top up another 5 years, however, we have been noticed today Committee is proposing a Motion by Special Resolution: Registration of new CMS recording change from Accommodation Module to Standard Module.
My questions are:
1: Can they do that under NRAS?
2: According to your article above, accommodation module will suite the complex better due to the size of our complex, if they change the contract to standard module, would my contract will be change to 10 years automatically?
3: If I need to whip the votes, what would be the benefit for owners to stay in current accommodation
module over standard module? What would be my selling points?
Thanks in advance.
Hi Felix
You’d need to confirm with a strata lawyer but my understanding is that changing the regulation module has little impact on the current Management Rights Agreement. I’m fairly sure you can still top up the agreement to 25 years as well, despite the change of regulation, the provisions of the change of module only taking effect when the current agreement runs down to 10 years, but again you should check with a strata lawyer. This is complex mix of body corporate and contract law and I am not a Lawyer.
The main beneficiary of the accommodation module is going to be you, the Caretaker. You could argue that the lots are 50%+ rented out so the accommodation module suits owners. Standard module would work just as well.
Thank you very much Lisa. I would love to share the information here, that we’ve got from lawyer today, for rest of people’s future reference.
We have checked with Lawyer today, the change will not impact us, if we keep doing this business, we can top up again up again and again up to 25 years. However, once we sell the business, it will impact new OSM and change to 10 years. The reason being is because the contract we signed was for accommodation. But new OSM will be standard module.
Thank you for the clarification Felix
I had an idea that was the outcome, but didn’t know the reason why. Thanks for teaching me something!
Felix Wongs lawyer is incorrect that Felix can top up time and time again. Rubbish – if the Body Corporate wants to reject his top up request it can again and again until his term is zero. The body corporate just needs to ensure it has the owners votes !! Get the facts right please.
Hi Peter
Felix’s lawyers were assuming that the owners voted YES to top up the request. These renewals are always in the hands of the owners and reflect the majority wishes.
Why any Body Corporate would agree to top up Caretaking Agreement back to a 25 year term defies logic and does a disservice to every other homeowner or unit owner in the community. Would ANYONE reading this enter into a 25 year agreement for house cleaning or garden maintenance where the homeowner cannot dispense with the service. These 25 year Caretaking contracts are only ever entered into by Developers during the developer control period (when they have control over the decisions of the Body Corporate) and are written for the 25 years with the sole purpose of allowing them to sell the contract for a huge capital gain at the end of the development, living the long suffering homeowners to carry the ever increasing overhead. Our caretaking contract is now $270,000 pa and we have costed an alternative, covering all the caretaking duties, at $60,000pa but of course we are locked in – we intend, as a Body Corporate to decline each and every top up request from the caretaker until we are able to get to zero and then call our own tender for the service. If the Developer had the interests of the community in mind WHY would they not have a 2 or 3 year term for the caretaking contract and allow the residents to determine their own overheads – the answer my friends is that they would only get around 10% of the sale price of a 25 year contract. In our case we estimate the caretaking contract would have been sold by the developer for between $7m – $9m !!!.
It is well worth noting that it has been illegal in NSW for developers to sell caretaking contracts since 2007. Queensland is living is the dark ages. If anyone doubts any of the forgoing then refer to the Carmel by the Sea on the Gold Coast example where the Body Corporate, with the support of unitholders, declined all top up requests until they got to zero and then put the Caretaking and Letting agreement to tender. They received 50 expressions of interest short listed to 6 serious tenderers (the current caretaker was invited to tender). Four of the tenderers to undertake the caretakers duties for NIL consideration and were obviously happy with the income from the Letting agreement. The new contract is for 3 years and Carmel by the Sea owners are saving $217,000pa and escalating.
For goodness sake Body Corporates say NO to ALL top up requests.
Hi Peter
Its interesting you bring this up. Whilst I do agree that the agreements would be better limited to 10 years, as NSW do I also think its not so easy to do.
There are numerous Caretakers out there who provide exceptional service to their strata schemes. They are an integral part of the strata community and have many friends within the scheme. Its enormously difficult then to vote NO to a top up when faced with this person you like who’s livelihood revolves around that vote. This is one of the reasons these votes are secret ballots, to allow owners to vote how they choose. However, when the consequence of that decision might be sharing a cup of coffee with your in the near future its hard not to be affected.
A contract purchased for up to several million looses its value every year that passes. Without the top ups these people (and though most Management Rights are in corporate names for the most part they’re just regular people who own) are watching the value of their business deteriorate each year until the value is far less than what they paid and difficult to sell. That can trap Caretakers / bodies corporate together despite their being well aware its time to part.
I guess my point is that its not just from a business decision when owners are agreeing to top ups. In most cases it is a wise decision to make for the body corporate but it does take staying power and nerves of rock.
If we could get real reform of the Management Rights laws here in QLD then transitioning the large agreements out could be done in a way that works for both parties.
Hi Lisa,
I am afraid I cannot feel any sympathy at all for a caretaker who is seeing the value of the business depreciate over time after all they made a commercial decision to purchase the business and if they were relying on having top ups to be continually approved to maintain the business value then they are naive in the extreme.
If you believe, as I do, that every single developer drafts the Caretaking and Letting Agreement during the developer control period with a view to maximising the sale price for themselves with absolutely no thought to the financial burden they are leaving the homeowners with then it is no wonder the huge disparity between the actual cost of the agreement and the real value of providing the service. As I mentioned we estimate it is costing our 220 residences $800 – $900pa more each than we could get by contracting the work at market. Now that is an inordinate amount in additional, unwarranted expense even if the Caretaker is friendly and has occasional cup of coffee with you – is it any wonder people are angry. The Queensland Unitholders Association advises that the NUMBER ONE rip off in developments is the inherited 25 year Caretaking and Letting Agreement.
There is no sugar coating this, no apologies and no excuses this needs to stop and the Queensland Government needs to outlaw the practice now.
Hi Peter,
We are dealing with the same issues in our scheme.
Can you please send me an email to colemeg@hotmail.com so we can discuss this issue.
From all of our ongoing education/research, the banks have a huge investment in maintaining the status quo in QLD, because they own a lot of the debt of Caretakers’ finance; and governments care about the banks.
Undoing the current practice is going to take a lot of work and people (such as yourself) speaking up.
It would be good to share information.
Thanks,
Meg
Hi Peter
We are dealing with similar issues – my contact details are ginafoster3@gmail.com if you are happy to discuss this with me.
Thank you
Gina