Published: 17 March 2007.

The decision of a body corporate in relation to a request for consent to the transfer of management rights (“assignment�) is a very serious matter for a body corporate, which if handled correctly by a committee may limit or eliminate future disputes with their onsite managers and letting agents.

Many committee’s are mistakenly of the view that they must accept a proposed assignee and do not have the power to refuse consent to the assignment. This view is simply wrong.

The various regulation modules detail the criteria that a body corporate may consider as relevant to a consideration of a request for consent to an assignment. If a proposed assignee does not meet that criteria, the committee should refuse their consent. Committee’s should view the assignment process as a review of a potential job applicant. If a job applicant does not have the requisite skill and qualifications they do not get the job.

THE PROCESS
Application for consent

The process begins with a request from the onsite manager to the Body Corporate to provide its consent to an assignment of the Management Rights. Unfortunately on too many occasions, the request for body corporate consent is made very close to the proposed settlement dates of the sale of the management rights businesses, with an expectation that the committee provide its consent within a few days of the request.

Timeframe for Body Corporate Decision

The committee should not feel obliged to meet the deadline imposed by the manager if it means that the committee would not have sufficient time to ascertain if the proposed assignee is suitable.

There is a common misconception that the decision must be made within 30 days of the application for consent by the manager. The Body Corporate cannot be compelled to make a decision until 30 days have elapsed from the date that the outgoing manager provides all of the information requested by the Body Corporate.

Engage solicitors

The first action of the committee should be to engage solicitors to advise the body corporate and act on its behalf. The costs of the body corporate solicitors are met by the outgoing manager and accordingly there is no reason why the body corporate should not have legal representation in the process.

The Body Corporate solicitor should give comprehensive advice regarding the responsibility and obligations of the committee with respect to the task of consideration of the proposed assignee.

The Body Corporate solicitor should also advise the body corporate about the information that should be requested about the proposed assignee.

Request for Information

The relevant regulation module for the scheme prescribes the matters that a body corporate may have regard to in considering an assignment.

Whilst the words “may have regard to� are used, a committee in properly discharging its obligation should read the words as “must have regard to� otherwise they may be accused of acting in a negligent way and in breach of the general duty contained in section 94 and section 152 of the Body corporate and Community Management Act 1997 (“the BCCM Act�).

Section 84(3) of the Body Corporate and Community Management (Standard Regulation) Module 1997 details that a Body Corporate may have regard to issues such as:

a. the character,

b. financial standing;

c. the proposed terms of the transfer,

d. competence, qualifications and experience of the transferee, and

e. any other relevant matters.

(i) Character References: The Body Corporate should request at least two character references of the Assignees.

The Body Corporate should request references from lot owners or the committee of previous buildings that the assignee has managed as these are highly relevant.

The Body Corporate should also request a federal police check of each person that will be performing the Letting Agent duties to ensure that they have not committed any offences of violence or dishonesty. A conviction for either type of offence will clearly show the person does not have the correct character to be involved in the onsite management of a strata scheme. This can be waived if the Assignee already has a restricted Letting Licence pursuant to the Property and Motor Dealers Act 2000.

(ii) Financial Standing: References for Proposed Assignees

The Body Corporate should request at least two business references for the proposed assignees, including a banks opinion.

The Body Corporate should request sufficient information to ascertain the financial standing of the proposed assignees. The Body Corporate should request records such as:

· bank references;

· balance sheet of statement of assets and liabilities;

· tax returns for the last three years;

· financial statements prepared by an accountant for the last three years.

These records should establish the solvency of the assignee and that they are financially stable.

This is important to establish because the body corporate does not want a caretaker, who has overcommitted themself financially in order to acquire the management rights. A financially overcommitted manager may not be able to properly perform the obligations under the Agreements, if he/she is forced to supplement the income from other sources to meet their financial obligations.

(iii) Evidence of the competence, qualifications and experience of the Proposed Assignees:

The Body Corporate should be satisfied that the Proposed Assignees have the relevant qualifications and experience. Accordingly, the Body Corporate should request a detailed resume including:

a. Industry experience and reasons for selling or leaving previous positions;

b. Advice if they have received any breach notices and/ or termination notices from any previous body corporate;

c. Evidence of relevant licences to conduct a letting business from the Department of Fair Trading.

d. Any relevant information regarding the Assignees knowledge of the BCCM Act, Accommodation Module and most importantly the Codes of Conduct.

e. Relevant experience including the proposed assignee’s ability to maintain pools, gardens, maintenance of the grounds and property.

f. These requirements will also apply to a company seeking the assignment, thus, each director, shareholder or other person performing the duties under the agreement, must provided detailed documentation regarding each of the requirements.

Interview the proposed assignee:

After receipt of the requested information the committee should interview the assignee or appoint a number of their members to conduct the interview and report back to the full committee as to the satisfaction or otherwise of the criteria that the Body Corporate should consider.

Make a decision based on the requested information and interview: The committee should make a decision based on the legal advice, the information supplied by the proposed assignee as well as the results of the interview.

Impose a Transfer Fee: Where the preconditions exist for the imposition of a transfer fee, the committee should impose the transfer fee unless the transfer is required because of “genuine hardship� experienced by the outgoing manager. A committee will leave themselves exposed to a claim by an aggrieved lot owner if they fail to collect the transfer fee. A decision on not imposing the transfer fee, should only be made in a general meeting.

No Consent unless Body Corporate Costs paid: The Body Corporate should not hand over the deed of consent until the legal fees and the transfer fee (if applicable) are paid.

The minutes will reveal the process taken by a committee and if the minutes reveal that the committee have failed to follow the correct process, an aggrieved lot owner or body corporate will have sufficient prima facie evidence that the committee have failed to properly discharge their duty, where a manager proves to be unsuitable.

Onsite managers should realise that a committee in following the above process is merely discharging their duty to all lot owners in the scheme. A Committee in requesting the above information is not acting unreasonably. The regulation module empowers a committee to consider all relevant information before they can be compelled to provide their consent.

If the above process is followed with the utmost diligence by committees, the potential saving to the body corporate may be enormous as it should see that only people that are suitably experienced, qualified and of sound financial standing will end up managing community title schemes.

Robert Herd is the principal of the firm Herdlaw Solicitors, which specialises in protecting the rights of bodies corporate and lot owners.

Disclaimer

The above is for discussion only and is not to be relied upon as legal advice. A lot owner or body corporate should seek specific legal advice in relation to any issues relating to management rights relevant to its own special circumstances.

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