If you are in the management rights industry you will probably be aware that there are commonly 2 modules that could apply to your scheme – the standard module and the accommodation module. To backtrack just a little, a module is a more detailed set of laws that a body corporate must follow in addition to the Act. There are 5 different modules (Standard, Accommodation, Commercial, Small Scheme and Two Lot), however only 2 commonly apply to schemes with management rights.
The most known distinction between the two modules is the term of the management rights agreements. The accommodation module allows the agreements to be for a term of more than 10 years (up to 25 years), whereas in the standard module the agreements can be for a maximum term of 10 years.
The default position (where a scheme has not chosen any other module) is that the standard module applies. For a complex to adopt the accommodation module it must qualify, and to qualify, lots within the scheme need to be “predominantly” accommodation lots (i.e. lots available for rent). It is well established that predominantly means a majority (so more than 50%). To qualify at the time the scheme is established, it must be intended (by the developer) that at such time the lots be predominantly accommodation lots. That in effect means that the developer must have sold or intends to sell lots predominantly to buyers who propose to rent out their lots.
Once in the accommodation module a complex still qualifies for that module even if lots cease to be predominantly accommodation lots. However it is open to a body corporate at any time to transfer to the standard module by way of special resolution at general meeting.
We have recently seen the impact of an adjudicator’s decision, where a lot owner was able to challenge the module and successfully obtained a ruling by an adjudicator from the Office of the Commissioner for Body Corporate and Community Management that the scheme was, when established, incorrectly placed in the accommodation module and must transfer to the standard module. The consequence of this (i.e. changing to the standard module) was that while the original agreements remained valid (and the term remained at 25 years), when the management rights agreement are assigned in the future, the term will reduce to 10 years from the assignment.
The potential transfer to the standard module is itself (and always has been) a risk in management rights. What is new is that we have now seen an order that the complex never qualified for the accommodation module (as the lots were not at that time predominantly accommodation lots). This opens up any adoption or change to more scrutiny.
This will usually be most relevant for buyers of management rights off the plan or where the management rights is only a couple of years old. As time passes, the risk decreases (as it becomes more difficult to ascertain the number of accommodation lots at the relevant time).
As always, management rights is a people business and a manager’s poor performance (or perceived poor performance), a hostile committee or disgruntled owners heighten the risk. Where you have a good relationship with the committee, a large letting pool and satisfied lot owners, the risk will be decreased.
If you have any questions about your module, changing modules or your management rights, please reach out to us for specific advice relevant to your circumstances.