Get that top up right!

8 November 2017

Extending the terms of management and letting agreements is something dear to the hearts of most resident managers. The way in which agreements can be extended has been the subject of legislative changes and interpretation by the Body Corporate Commissioner’s Office for many years.

IN recent months I have come across situations where for the sake of saving on legal fees managers have engaged inexperienced lawyers who have made a complete mess of topping up their agreements. I therefore thought it might be opportune to revisit an article on the topic I wrote some time ago.

First some background. Both the Standard and the Accommodation Regulation Modules of the Body Corporate and Community Management Act deal with the entering into and variation of agreements in the same way. The relevant points are as follows:

  • Entering into agreements requires an ordinary resolution at general meeting, without proxies and by secret ballot;
  • The agreement must state when the term begins and ends and the term of any option period/s;
  • The term after allowing for any options must be no longer than the relevant term limit (10 years for Standard Module and 25 years for Accommodation Module);
  • At the end of the term, the agreement ends;
  • An agreement can be amended (by ordinary resolution at general meeting, without proxies and by secret ballot with the statutory explanatory note being circulated with the agenda) to include a further option/s;
  • An option so added can not be more than 5 years; and
  • An option can only be added once each financial year of the body corporate.

The clear effect, and the even more clear intended effect, of the legislation was regarded by most lawyers to be that:

Once an agreement was entered into, it came to an end at the end of its term unless before then it was amended to add a further option/s; and

The only way that the term could be extended was to add a further option/s.

There was a surprising QCAT decision some years ago which found to be valid a variation to an agreement which merely extended the term by varying the end date of the agreement. That questionable decision involved unique circumstances and it is widely accepted by lawyers and financiers that such a variation is ineffective.

It seems that some inexperienced lawyers have gone about attempting to top up agreements in a similar way but where the particular circumstances are quite different to those in that QCAT decision. The consequence has been that the purported top up has been ineffective and has had to be done again or in one case the only solution was to enter into new agreements – an expensive and traumatic exercise for the manager.

Whilst topping up your agreements might seem simple and mundane it is not. There must be strict technical compliance with the legislation. I caution any resident managers against the temptation to take shortcuts or engage lawyers who do not have extensive experience in management rights. You may not find out that the top up was defective until you sell. Spending an extra few hundred dollars may well save you many thousands of dollars and a lot of anxiety in the future.