Managed Investments Schemes Part One

Published: 01 February 2008.

By Kirsty Thomas of SMH Lawyers

You may have heard the terms ‘MIA’ or ‘Managed Investments Scheme’ and wondered what it’s all about. If you operate a holiday letting or serviced apartment complex in any state read on. If your complex is solely permanent rentals, the MIA will not apply to you.

‘MIA’ is short for Managed Investments Act 1998 that inserted the Managed Investments Schemes provisions (Chapter 5C) into the Corporations Act 2001 (‘Act’), which is Commonwealth legislation that affects the whole of Australia.

So what is a managed investment scheme?

A managed investments scheme (‘MIS’) has three features:

Managed: a manager has the day-to-day control over the scheme rather than the actual members of the scheme.

Investment: members contribute money or money’s worth as consideration to acquire rights to the benefits produced by the scheme.

Scheme: contributions are pooled or used in a common enterprise to produce financial benefits for the members.

How does this relate to Management Rights?

Managed: an on-site manager handles the lettings for all owners who elect to place their units in the letting pool (‘Letting Owners’).

Investment: Letting Owners contribute their unit for letting out by the on-site manager.

Scheme: the units of the Letting Owners are promoted and handled as a group by the on-site manager to generate returns for Letting Owners.

The Australian Securities and Investments Commission (‘ASIC’) is responsible for administering the Act. ASIC believes that short term letting operations will be a MIS where it is a serviced strata scheme, i.e. where there is reliance on:

use of other owners units in the letting pool; and
the operation of the serviced strata arrangement
to generate a return for owners.

Consequently, holiday letting and serviced apartments are, on face value caught by the MIS provisions of the Act.

Excluded from MIS provisions

Permanent rentals are not considered to be a MIS and accordingly are not required to comply with the MIS provisions of the Act.

Also where there are 20 units or less in a short term (holiday/serviced apartment) letting pool, the on-site manager is not required to comply with the MIS provisions of the Act.

There are also certain Class Order exemptions that apply to Management Rights schemes.

What does this mean?

Where there are 21 units or more in a short term letting pool (or the on-site manager is a promoter of such schemes), the on-site manager must comply with the following requirements unless exempted from doing so:

register the scheme: this involves appointing a responsible entity (a public company with a licence to operate a MIS), preparing a constitution and compliance plan, appointing an auditor of the compliance plan and lodging copies of such documentation with ASIC;
obtain an Australian financial services licence; and
provide owners with a prospectus.

The agreement between the owner on the on-site manager (Appointment to Let Agreement or similar) is voidable at the option of the owner if the MIS is unregistered, but under the Act is required to be registered.

ASIC has recognised that this is quite onerous for on-site managers so have created further exemptions specifically for Management Rights schemes.

We will explore the requirements of the exemptions in the Next Article.