New transfer provisions finally arrive

Published: 22 August 2008.

Contributed by Frank Higginson of Hynes Lawyers

After months of speculation, the State Government’s amendments to the Regulation Modules that will govern bodies corporate and the management rights industry from 1 September 2008 have been released today.

From a management rights perspective, without doubt the most anticipated changes are those relating to the payment of the transfer fee.

The current regulations relating to the transfer fee prejudice sellers who ‘top up’ their agreements prior to selling. Financing management agreements of less than eight years is difficult, which means owners of management rights governed by the Standard Module more often than not have to factor in a potential transfer fee liability on assignment.

The new provisions released today shift the focus away from penalising resident managers who top up their agreements or obtain the grant of new agreements and then sell. The new provisions mean that no resident manager should face the imposition of a transfer fee if they have owned the management rights for more than two years. There is no doubt that the new provisions reward longevity of service to the body corporate.

There are four main changes to the transfer fee:

The trigger date for calculation of the transfer fee will now commence on the date of settlement of the purchase of the management rights. When a management rights agreement was varied or granted is no longer relevant.
The body corporate must impose a transfer fee if it consents to an assignment of management rights within two years of the date of settlement of that vendor’s purchase. Importantly, if the agreement being assigned has been ‘topped up’ or is a new agreement, provided that the resident manager is replacing or renewing a prior agreement, the commencement date for calculation of the transfer fee still starts as at the date of settlement of their purchase.
The transfer fee is 3% of the value of the management rights business if selling within 12 months of the date of settlement of the purchase, and 2% of selling within two years the date of settlement of the purchase. The 1% fee has been abolished.
Imposition of the transfer fee by bodies corporate is now compulsory. Committees have been stripped of their discretion to waive the transfer fee for good service and the like. The ‘genuine hardship’ exemption remains in place to prevent bodies corporate from charging the transfer fee, but documents to substantiate this claim must be lodged with the application for the transfer.

If you have sought consent to an assignment, or will seek consent to assignment before 1 September, your transfer will be governed by the old transfer fee rules regardless of whether the consent has been granted or when settlement will occur. All applications for consent to assignments made on or after 1 September 2008 will be governed by the new provisions.

Of course, the new legislation represents an overhaul of many aspects of the existing regulation of the industry. Whilst the transfer fee provisions are the most important change, there are other provisions of which you should be aware, and they will be the subject of our future newsletters.

Reply from: Marie Jamieson

2:50am Thursday, 16 October 2008

What are the new laws relating to the length of management rights in NSW. The latest info I can find says you can sell management residences with a body corporate income for 20 to 25 years. Is this correct.?