Introduction to Management Rights
Understanding what needs to be done, why and when, can ensure that there are no ‘surprises’ or unnecessary delays. Having an experienced management rights finance specialist, to guide you along the way can be invaluable.
Purchasing management rights is a complex process, but it doesn’t need to be a stressful one.
If you’ve ever purchased management rights in the past, you probably know that things don’t just fall into place. There are multiple steps involving finance, accounting, legal requirements, approvals and licensing. And if the process falters at any step, it can have a domino effect, throwing everything off-track. So it’s important to have an experienced management rights finance specialist, like Suncorp Bank, to guide you along the way.
If you’re considering purchasing rights for the first time, this handy guide will help you understand what needs to be done, why and when – to ensure there are no ‘surprises’ or unnecessary delays.
Compiled by experienced Suncorp Bank management rights specialists, this easy-to-understand guide is based on their daily experience with the realities you may encounter when negotiating and acquiring rights.
First, get the facts about Management Rights
Establishing whether the business you’re interested in is worth the asking price is often the best way to begin. It’s also a good idea to keep your options open by comparing several schemes, before deciding on one.
- Have the business or businesses properly evaluated by an expert.
- Accounting records and building reports will indicate the state of the business and the physical structures.
- Talk to a management rights specialist about the current state of the local market and apparent trends.
The Facts about Management Rights
Before you do anything, you should have the management rights business you're thinking of buying properly evaluated. Accounting records and building reports will indicate the state of the business and the physical structures. You’re entitled to see these records and reports and, as a potential purchaser, have them independently reviewed by an expert of your choice.
First, establish how long the current management rights agreement has to run, and whether there are options to renew.
If you’re new to the location where you intend to buy, or new to the management rights industry itself, it’s a good idea to evaluate the potential of several schemes before deciding on one.
Although there are ‘standard’ formats for agreements between bodies corporate and management rights purchasers, there can be many variables.
In this introduction to management rights, we address issues and considerations that are common to most agreements. But don’t assume that these will all automatically apply to your agreement, or that they’re exclusive. Make sure you have all the terms and conditions in writing, and have the documentation reviewed by an accountant, lawyer and any other relevant professional with management rights expertise.
A specialist broker selling management rights should also be able to provide you with background information on the current state of the local market and apparent trends.
What are you purchasing?
Whether you’re purchasing management rights to holiday, permanent or corporate accommodation, or more specialised complexes like student accommodation or retirement living, it’s important to know what you’re purchasing.
Types of management rights
Typically, when you purchase management rights to a community title scheme, you’re acquiring:
- the ownership of a residential lot (unit, townhouse or apartment) in the complex. The reception and office areas could be on the property manager’s lot title, on a separate title to be purchased by the manager, or they could be set aside by the body corporate for exclusive use of the manager
- the caretaking responsibilities for the common property, such as the pool, gardens and paths, for an agreed remuneration
- the letting agency for other lots in the scheme and receiving payment (commissions) from owners.
Management rights can be purchased in a diverse range of CBD, suburban or tourist locations and may provide accommodation on a holiday, permanent or corporate (short-stay) basis. More specialised complexes that cater for student accommodation and retirement living can also be purchased.
If you’re buying management rights to an established scheme, you and your accountant need to determine how much longer the current agreement has to run, and be satisfied that the remaining time will give you a viable income. The body corporate is under no obligation to renew the agreements, although they frequently do, unless they’re dissatisfied with the manager’s performance.
The purchasing process
To help make your purchase as stress-free as possible, our management rights specialists have put together a detailed outline of all the critical steps and events you need to complete. If you’re not clear about any of the steps or events, just ask us.
The link above takes you to a detailed diagram of the purchasing process, outlining all the critical steps or events, including:
- setting up your business structure
- arranging finance
- completing the Resident Letting Agent (RLA) licence course
- completing a verification report
- completing legal due diligence
- body corporate approval
- setting up financial services (e.g. letting trust account)
- installing banking services (e.g. EFTPOS)
- obtaining the RLA licence.
Some of these steps can only be taken after formal preliminaries are completed. If you’re not clear about any of the steps or events, feel free to contact Suncorp Bank. And remember, it’s not wise to assume anything, even if you’ve purchased management rights before.
Do you need a letting licence?
When you acquire management rights to a building or complex, you must apply for a Resident Letting Agent licence that allows you to manage and let lots within the scheme and collect the rent.
- The REIQ and TAFE colleges offer accredited courses
- If you can’t attend classes, you can take an accredited course by distance learning
Acquiring a letting licence for management rights
You’ll need a licence to manage and let residential lots within the scheme (building or complex) that you manage. The Queensland licence is called a Resident Letting Agent licence. When you acquire management rights, you must apply for a licence that allows you to manage lots within your scheme and collect the rent. In Queensland, the REIQ and TAFE colleges offer accredited courses for this qualification. If you can’t attend classes, you can take an accredited course by distance learning (correspondence).
Please note: You must also have an agreement with your body corporate to operate a letting business, before you can get the relevant licence.
How important is your business structure
The right business structure is the foundation on which you build your success. It should protect your assets, maximise your returns and minimmise your tax liabilities. It's a good idea to have it in place before you start looking for opportunities to purchase rights, so you can consider your options withour any time pressure.
Your Management Rights Business Structure
Your management rights business structure is very important. Talk through the options with your lawyer and accountant. The structure of the business entity or entities that you use to purchase management rights will depend on your circumstances (single, couple, family, business partnership, etc).
Your structure might include a company, discretionary trust or unit trust. The right business structure should protect your assets, maximise your returns and minimise your tax liabilities.
It’s a good idea to decide on your business structure and have it in place, before you start looking for opportunities to purchase rights. That way, you can consider a range of options without the time pressures that arise, once the purchase process starts. And if you decide later not to purchase management rights, you can probably use your new business entities to buy or set up a business in another sector.
Approved applicants only. Terms and conditions apply and are available on request. Fees and charges are payable. Current rates, fees and charges are subject to change without notice.
Various products and services are provided by different entities of the Suncorp Group. Suncorp-Metway Limited ABN 66 010 931 722 (SML) and other entities in the Group are not responsible or liable for and do not guarantee the products and services provided by other entities of the Suncorp Group. General Insurance products are issued by Suncorp Metway Insurance Limited ABN 83 075 695 966. Banking products are issued by SML. Financial Planning product advice is provided by authorised representatives of Suncorp Bank Financial Services Pty Ltd ABN 50 010 844 621, Australian Financial Services Licensee. Equipment Finance is issued by Suncorp Metway Advances Corporation Pty Ltd ABN 89 100 845 127. Term Life and Trauma and Income Protection Insurance products are issued by Suncorp Life & Superannuation Limited ABN 87 073 979 530, Australian Financial Services Licensee.
The information contained in the Suncorp Bank Management Rights web pages is of a general nature only and does not constitute financial advice. We have not taken into consideration the personal objectives, circumstances or financial needs of any person.
Whilst every effort has been made to ensure the information contained in this guide (which is provided for general information purposes only) is correct as at 1st September 2010, Suncorp Bank does not guarantee or give any warranty in this regard and does not accept any responsibility or liability for any discrepancies or inaccuracies.