The commercial considerations to be made when buying an existing management rights are many and varied. These include:
- How many units in the complex?
- How many units are in the letting pool?
- What is the mix of units in the complex and in the letting pool (e.g. 1 bed, 2 bed, 3 bed etc)?
- Will the units in this building appeal to Owner occupiers?
- What new unit projects are approved and or under construction for the immediate vicinity?
- What is the rental market doing generally?
- What is the remaining term of the Appointment Agreements?
- What are my duties: are they sufficiently certain?
- Are there any commercial use areas within the building (i.e. shops or offices) and if so how are these titled and will they potentially impact my management rights?
- Does the classification and facilities/structure of the complex lawfully allow short term letting (less than 3 months)? Should I be concerned about non-compliance with any managed investment scheme provisions?
- Is there a manager’s unit in the complex and if so, is there a requirement to live on-site?
This is just the tip of the iceberg. For seasoned managers the questions and answers may be reasonably straight forward. For first time buyers these issues will be part of any already stressful buying decision.
What if you are looking at buying management rights in a new building that is yet to be constructed? That is, buying management rights off-the-plan. What other issues do you need to add to the list and consider?
Again here we are not trying to be exhaustive but rather just giving an indication of some of the things that might apply:
- Are the proposed development plans finalised and approved by the Local Authority?
- What DA conditions are there that might affect the complex and my business?
- Whether or not there is a DA, what rights does the developer have to change the project design, the office area, the number of units, size and type of units or any commercial components of the project?
- Is the project to be completed in stages? If so:-
- How many stages, when will each stage be completed, and how many lots in each stage and what are the developers rights to alter these things?
- What common property is being delivered in each stage and what are the developers rights to alter this?
- Are any staged constructions issues likely to impact amenity and let ability of units in earlier stages?
- What if a later stage is delayed or potentially not constructed at all? What rights do I have then?
- When am I am obliged to open the office to commence my duties and who is obliged to fit-out the office? What other additional obligations do I have at this time?
- Have I considered the impact on estimated income calculations resulting from changes in the content or timing of the project?
- How will my ability to borrow and repay bank funds be impacted by a change in development content and timing?
- What will my bank expect in terms of funding and security on an off plan/ staged project?
- What do I need to oblige of the developer in terms of receiving signed appointments to act for buyers and how will that process be handled?
- When is settlement and what price adjustment provisions do I need to protect me in the event of changes in the project including unit numbers, unit types, stage timing and number of appointments available at settlement and in the period thereafter?
- What risk is there to my income from unsold lots still held by the developer and what should I do about that?
- Do I understand the plans and common property and what will be built and what my duties are and can I accurately determine what work is involved when I can’t walk around and touch and see the property and speak to an existing operator?
Buying Management rights off the Plan can often present a fantastic opportunity to managers for income and capital growth. When management operations at new complexes are started and run well, the complex as a whole benefits and the rewards for the manager are likely to follow. Developers who are looking to sell management rights off-the-plan, particularly for large staged projects, are looking for experienced managers able to present an excellent CV and show a proven ability to deliver a high quality service to owners. The Developer is relying on the manager to operate the management rights in a way that adds value to owners units and to any units the developer might still own and need to sell in the existing complex or future stages.
Nicholsons has acted for both Developers and Managers in numerous Off Plan management rights transactions over many years. We are very familiar with the issues from both sides of the table and can assist both developers and Managers in these transactions.
Please call Matthew Weaver or Matthew Russell if we can assist.