Just sign on the dotted line…….

When Management Rights are purchased, the buyer usually enters into a contract referred to as a Caretaking and Letting agreement or something similar. In many cases the contract was originally drawn up by a Developer and passed on to the original Caretaker.

In an ideal world, the Body Corporate and the Caretaker will enter into a symbiotic relationship where both parties benefit from the terms and conditions of the contract. The Caretaker looks after the maintenance of the property for a fee and makes money from letting those apartments that are in the rental pool.

There are a number of variables that can affect this relationship that are too numerous, and probably too obvious, to mention here.

One of the basic fundamentals of these Contracts, or Agreements, is that they have a legally binding time frame ranging generally from 10 – 25 years depending on the Module of the CTS scheme and, to a certain extent, the whim of the Developer.

Many contracts in Queensland are now reaching their expiry dates. Bear in mind that Caretakers who own Management Rights consider that they have an asset that is usually worth a considerable amount of money. They naturally become concerned when they realise that the term of their contract is drawing closer to expiration.

If the contract is allowed to expire, the once valuable asset can become worthless. The obvious solution is to ask the Body Corporate to draw up a new contract with as long as possible time frames as they can get away with.

That is all fair and reasonable. There is nothing to stop the Caretakers from making a request to the Body Corporate.

The thing that I find amazing is that so many Bodies Corporate agree to a new contract with a lengthy time frame without getting anything in return.

Before you start to raise objections, I know that a Body Corporate cannot make a profit from a Caretaking and Letting agreement but the fact is that the Body Corporate has an asset. That asset is the ability to either accept or reject a new contract that could mean the difference between a Caretaker making a huge profit or losing their investment entirely.

So, if you cannot make money from allowing a new contract to be drawn up then why should the Body Corporate care whether a new contract is granted or not?

The fact is that the Body Corporate should be run like a business. Owners contribute levies towards the maintenance of the property. They are entitled to expect that their money is spent wisely.

Caretaking and Letting Agreements vary. There are usually aspects of the contract that a Body Corporate would not be comfortable with. Take one complex where there was no specific requirement for the Caretakers to keep the Office open during business hours.

The Body Corporate wanted the Caretakers to be more accessible to owners but the terms and conditions of the contract were always cited.

When Caretakers ask for a new contract to be provided to them they should expect that as an absolute minimum, the new contract will be revised to suit the Body Corporate. No revisions – no contract. If the Body Corporate wants the Office to be open from 9-5 on weekdays they can stipulate that in the contract. The Caretakers can either agree or have no contract.

There are some, including one fairly well known Gold Coast Solicitor, who seem to think that Bodies Corporate have some sort of moral responsibility to grant the Caretakers an entirely new contract, drawn up by their own solicitor, that will provide the Caretaker with a huge financial windfall. This view is not supported by common sense or even a modicum of business acumen. It is quite simply a deceitful ploy to profit through the apathy of owners.

Bodies Corporate are often governed by apathy. Many owners simply agree to a new contract without considering the implications or benefits that could be gained by negotiation.

I understand that there is a group who have initiated a “Say No” campaign to encourage owners not to agree to a new contract. Owners would certainly be well advised to "say no" until they have all carefully considered the implications of signing a new contract and probably debated the subject at a formal meeting of the Body Corporate.

They should be mindful of the fact that they have an enormous amount of bargaining power. The Caretaker stands to make a small fortune from the decision of the Body Corporate.

It is incumbent on the Body Corporate to ensure that, if a new contract is signed, the owners will benefit. Why anyone would glibly sign sign a contract without getting something in return is beyond me. Remember that the benefit to the Body Corporate does not have to be financial. It can be simply a contract that suits the Body Corporate.

Bear in mind that there are alternatives to having a live in Caretaker who controls the maintenance of the building for the term of the Contract.

I’m sure I don’t need to tell you that there a great many Bodies Corporate who are dissatisfied with the level of service provided by the Caretaker. They are often bound by the terms of the Contract and The Act and, consequently, they are powerless to take any action. However when a contract comes close to expiration there is no obligation whatsoever on the Body Corporate to extend the Contract.

There are some recent cases where the Body Corporate has voted to grant the Caretakers a new contract. I am aware of one case in particular where one vote decided the outcome. The Caretakers were then able to sell the Management Rights for a significant amount of money and the Body Corporate were saddled with a new 25 year contract that was actually drawn up by the Caretakers’ solicitor with conditions that were very generous indeed to the owners of the new contract.

I believe that owners in this building have a case to lodge a dispute with the CCT but that is up to them and it is, ultimately, another story.

Let me say that there are certainly cases where it may be beneficial to the Body Corporate to grant a new contract. I won’t go into the potential benefits as they should be fairly obvious to any one who has lived in a CTS scheme, but the Body Corporate should, at least, ensure that a new contract is drawn up by their own solicitor with conditions that suit the Body Corporate.

Once again, if the Caretakers do not like the conditions then don’t agree to the contract. There are alternatives. The fact is that the Caretakers may well agree to just about anything because they have too much to lose. This should be the basis of the Body Corporate’s position when negotiating a new contract – common sense business practice.

Best regards to you all

John

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I have spent many years participating on a number of different Body Corporate Committees. I am a dealer in Vintage Movie Memorabilia specialising in original movie posters and movie art. http://www.moviemem.com/I also present a radio programme on Jazz Radio 94.1fm Monday - Friday afternoons on the Gold Coast.