Published: 17 April 2007.

By AlexanderDorrington Lawyers

The creation and sale of management rights in a multi-site development is an increasingly common practice in New Zealand. It has been popular in Australia and elsewhere in the world for quite some time. The sale of management rights recognises value in an asset that is otherwise ignored by developers and allows developers to realise additional, often substantial, returns. In addition to the financial benefits of selling management rights, the creation of the management rights has ancillary benefits for both developers and the owners of the sites.

What are management rights?

The term management rights is used to describe the business of on-site management of a multi-site development. This is distinct from the role of a body corporate secretary whose role is more administrative and limited to unit title developments. The Unit Titles Act 1972 does not clearly set out the roles and responsibilities of those involved in the management of unit titles. As unit title developments have become more sophisticated
a range of roles have been established for committee members, secretaries, building managers and professional body corporate managers. Changes to the Unit Titles Act are expected to clarify this uncertainty whilst maintaining flexibility. The proposed management structure can be viewed at ww.dbh.govt.nz/unit-titles-review/may-2006/index.asp. In a unit title or similar residential development the managers role generally involves caretaking and, usually, letting duties within the complex.

In the rural setting, the managers role may extend to satisfying ongoing resource consent requirements such as planting and maintenance of trees on the common area or the management of a sewer or storm water system.

Clearly a unit-title development represents greater opportunity for an income stream. A letting role will be unlikely to exist in a rural development and any manager will only be able to rely on the income stream arising from fees paid for the management of common areas. Nevertheless management rights are becoming increasingly common as councils impose ever stricter and more detailed ongoing management requirements.

Advantages of an on-site manager

Whether onsite managers attract purchasers is a moot point. Their existence is touted as advantageous in marketing materials. Purchasers are told on-site management makes sense as it provides for the long term caretaking of the common property of the development and an on-site letting service for owners. They are told increased security, more successful letting of units and well maintained common property will lead to higher
selling prices.However, some purchasers are turned off by what they see as service fees payable to the developer if the management and development companies are associated. Pre-sale agreements generally favour the vendor/developer giving them a lot of flexibility to modify the development, including any management arrangements put in place. However, astute purchasers are now focusing on the management issues Purchasers are also starting to resist lengthy management terms. The longer the term of the management rights, the more valuable the management rights are to the developer, however, purchasers may baulk at being locked into a management contract with an unproven manager.

What are they worth

In the unit title setting determining the value of the management rights will take into account the number of units that are expected to be in the letting pool the term of the management rights and any associated management fees that contractually payable by the owners. These may be collected as part of the body corporate levy. The key factor will be the number of units in the letting pool.

In the rural setting the value of the management rights is less easily assessed, especially as the market is fairly new in New Zealand. Because of the absence of letting fees, their value will be more directly linked with the fees chargeable for common property.

Get used to it. It’s here to stay

For years now LINZ has been nurturing the development of an e-dealing system; registering the Land Titles Office documents on-line rather than using paper copies of documents. At first they used the South Island as a trial. Then they spread the availability of e-dealing to the whole of New Zealand but limited it to simple transactions like transfers and mortgages.

LINZ has had limited success in persuading people to use the process. A general adversity to change has
contributed to the apathy but the new system has also had its teething problems. The prospect of allowing title documentation to be altered by computer access has generated debate in the legal community. A perception that the new system increases the opportunity for fraud has been the major area of concern.

However, the debate as to the merits of e-dealing is now of little relevance. Soon there will be no way to avoid the modernisation of the registration process. From July 2008 all title transactions will have to be registered by electronic lodgment.

The regime is being implemented in stages. All discharges will have to be registered on-line by March 2007. All simple transfer documents will have to be registered in this fashion by 1 August 2007. Then all documents (including one off more complex documents) will need to be registered on-line by 1 July 2008.

This will have an impact on the typical business of property developers. Instead of signing transfers and mortgage documents you will need to sign instructions to lawyers to register documents on your behalf. How those documents are signed will be different to what is currently done.

At the moment land transfer documents can be signed in front of almost any witness. The authority to register will need to be signed in front of a lawyer and will require the presentation of formal identification. However, registration this way will be cheaper and more efficient. Whilst the cost savings are not significant on small transactions, they can run to thousands of dollars on the sell down of a development of multiple units.

Registration will be completed immediately following settlement or even as part of settlement. At present there is always an underlying risk that, between settlement and registration, an intervening document will be lodged with the LTO preventing registration. It is a risk that to date we have lived with and there are plenty of stories of unexpected caveats making it on to titles. This is a risk that will be removed with e-dealing.

Check it out

The New Zealand Building Code is up for review and input from consumers, the building industry, and government is being considered.

The purpose of the review is to ensure the Building Code meets the requirements of the new Building Act. It will be completed by 30 November 2007.

A discussion document “Building for the 21st Century, Review of the Building Code” is open for submissions until 31 August 2006.

Hard copies of the discussion document can be obtained by ringing the department on 0800 242 243, or it can be downloaded in PDF from www.dbh.govt.nz. Submission forms are available in the document and on the department website.

Leave a comment

248,978 pages have been viewed from this website for February 2012. Please click here if you'd like to reach our audience..