Perhaps unsurprisingly many new entrants to the management rights industry look to save money on legal and other fees when buying management rights. Despite often risking all of their life savings in buying the business (the price for which they are paying includes tens of thousands of dollars in agent’s commission) and paying more tens of thousands of dollars in stamp duty, they elect to save a comparably small amount by using a lawyer who quotes the lowest.

As many are finding out that quote often increases by the time they get to settlement but a more worrying trend we are seeing is things being missed by the lawyer who does not have the time or the expertise to identify and deal with problems.

In one example in which we have had to get involved the managers found that the agreements assigned to them when they purchased some time ago were not in fact the current management rights agreements. Instead they had taken an assignment of previously terminated agreements which had been replaced with new agreements with the old manager. Whilst it is odd that the body corporate and its lawyers had not picked up the rather blatant error it was something that just should not have happened.

Had the body corporate taken a confrontational approach to the problem the managers could well have found themselves with no management rights at all. Fortunately the body corporate has been prepared to negotiate new agreements but the managers are now being put through the expense and trauma of having to negotiate those new agreements with a body corporate presented with an opportunity to move the goalposts and insist on changes to various aspects of the agreements.

In another example a manager has taken an assignment of agreements where the extension of the term was not done in accordance with the strict requirements of the legislation meaning that the actual term is far less than the manager (or the manager’s financier) understood it to be. Because of the 5 year limit on the term of any additional option, the only way to now procure the term understood to have been purchased is to enter into new agreements.

Again the manager is confronted with having to go to the body corporate to negotiate new agreements and face the expense of the body corporate, the body corporate’s lawyers and ourselves to overcome the problem.

These are not isolated cases but are just two examples of what we have seen recently. The end result is that our clients, for the sake of saving a few hundred or maybe even a couple of thousand dollars on their purchase, find themselves having to spend many thousands of dollars to clean up someone else’s mess and finish up with something not as good as they thought they were buying.

Despite comments you will hear from various self-interested people, the buying or selling of a management rights business, to be done correctly, requires expertise properly applied. You rarely if ever get that from a lawyer quoting low just to get the job. Failing to recognise that when your life savings are usually at stake can have disastrous consequences.

Written by John Mahoney

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