Many things have changed for bodies corporate and resident managers and how they manage their affairs in light of the COVID-19 pandemic.

However, one issue that has not changed (and cannot) is how options and variations of term are dealt with in management rights agreements.

Options

An option is when a pre-existing right in a management rights agreement is exercised that will result in the term of the management rights agreement being extended.

Those rights can only be triggered in certain circumstances (such as during a particular timeframe or if the manager has met specific performance criteria).

If the option is not properly exercised, the term of the agreement can end much sooner than expected. There is no exception to the pre-conditions as a result of COVID-19 so it is important for both resident managers and bodies corporate to:

1. understand the pre-conditions and whether they are met; and
2. properly document and record the triggering of the option.

Variations

Variations creating a further term in a management rights agreements are what gives rise to options.

Variations require general meeting approval and are normally required by resident manager’s financiers to preserve the capital value of the management rights business.

It is important that requests for variations are carefully considered by the body corporate and any pre-conditions reviewed and explained.

If you are a body corporate who has received a request for an option to be exercised or to extend the term of the management rights agreements and would like to understand what the effect of the request is, we can help.

Written by Todd Garsden

Back to articles