Good Governance

New entrants & committees can better prepare for MR

With over 4,000 sets of management rights in Australia changing hands (on average) every 3-4 years, a residential strata committ ee could expect to receive an application from the caretaker to assign management rights at least once every decade.

It is estimated that approximately 1,000 applications for assignment occur annually across Australia.

Engaging the right (body corporate and management rights) specialist lawyer is the fi rst step for all parties.

The respective legal team will make sure all the fi nancial due diligence and compliance matt ers are taken care of for their client’s best interests, but what about the operational due diligence around the caretaking aspect?

Caretaking Agreement and duties delivery standards due diligence

Management rights arrangements frequently include these two contracts:

A Lett ing Agreement

A Caretaking Agreement

The lett ing arrangements are private aff airs between the landlord and the lett ing agent, details of which outside parties are not privy to, so this side of the management rights assignment rarely comes into focus. It is the delivery of the caretaking duties that bodies corporate are most interested in.

Beyond the fi duciary and statutory compliance aspects, the delivery of the duties within the caretaking agreement (to an acceptable standard) is where the interest lies for the Committ ee for the body corporate.

What is an acceptable standard for delivery of caretaking duties?

Lynda Kypriadakis, Diverse FMX

has been associated with management rights and caretaking agreements in the past decade will agree with me when I say the diffi culties arising between the parties to the caretaking agreement are well documented, with literally millions of dollars being spent every year on managing squabbles between bodies corporate and their caretakers (usually) over cleaning and gardening breaches. While the lawyers are managing the legal and fi nancial compliance aspects of the management rights assignment and transfer, how do we take steps to ensure the caretaking duties will be delivered to the correct standard once assignment occurs?

The ABMA Building Management Code is the Australia-wide, statespecifi c guide to caretaking and facilities management standards for the compliant maintenance and care of common property in residential and mixed-use strata, commercial properties, and aged care facilities. Measurable and justifi able standards for delivery of caretaking duties are

Assessment of competency to deliver caretaking duties

The risk of failure to deliver the caretaking duties to the correct standard exposes all parties to the caretaking agreement. The body corporate holds the risk of potentially shelling out fees for caretaking, only to experience that the duties have not been delivered to the correct standard, and the caretaker holds the risk of receiving a remedial action notice for breach of contract in circumstances where the Committ ee are not happy with the work they are doing (or not doing, as the case may be).

So how do both parties (i.e. the potential purchaser and the body corporate) exercise diligence at the assignment interview interface? How do both parties enter a new contractual found within the ABMA Code.

arrangement on a sound footing?

Herein lies two questions:

1. How does a potential purchaser gain the required skills to present itself in a positive light as the new caretaker? and

2. How does the Committ ee for the body corporate reassure itself that the potential purchaser is the ‘right’ person for the caretaking job?

Pre-assignment competency assessment

Both the committ ee for the body corporate and the potential purchaser can proactively take steps to assess whether the potential purchaser holds the skills, capability, and knowledge to deliver the caretaking duties to an acceptable standard. Engaging with a specialist consultant can assist in a myriad of ways to support the potential purchaser to be prepared for the assignment interview from the caretaking duties delivery perspective; and the committ ee for the body corporate in gett ing answers to the ‘tricky’ questions, such as:

Is the potential purchaser going to “fi t in” with the personality of the committ ee?

What staff is the potential purchaser intending to engage and how do we gain genuine verifi cation of this?

How many hours of work should we expect for the remuneration being paid under the Agreement? Assignment Interview (and rarely is asked) concerns the view held by the committ ee around supporting future top-ups or extensions of the agreement(s). Increasingly, committ ees are becoming philosophically opposed to supporting applications for top-ups or extensions due to all sorts of reasons. Potential purchasers that rely on extensions to achieve fi nancial goals really should ensure that this question is raised at the Assignment Interview.

Anyone who has been successful in business for an extended length of time understands the importance of dealing with facts – even the inconvenient ones!

Potential purchasers of management rights are usually successful businesspeople

It takes a signifi cant amount of money to buy into management rights, so any potential purchaser is already a fi nancially astute and successful person, but do they hold the unique skills required to keep a committ ee happy and deliver compliant duties on the common property while making a profi t.

Being successful in other fi elds of endeavour does not automatically prequalify you to be a successful caretaker. This job is harder than anyone thinks!

A Pre-Assignment Competency Assessment is a form of protection. On one hand it will assist the potential purchaser to understand what the committ ee need to engage in a space of trust and cooperation.

On the other hand, the process will reassure the committ ee that the potential purchaser is the ‘right fi t’ for the job – or alternatively expose reasons why the application may be doomed…