What is Management Rights?

A traditional management rights business is made up of three parts:-

1. A contract for caretaking of common property which form the agreement with a body corporate (i.e. garden, footpaths and pools etc).
2. The authorisation to let lots for owners in the complex as their letting agent. Each owner who choses to engage you to let their property will form a separate contract with you in form of a letting appointment.
3. The ownership of real estate in a body corporate/ community titles scheme which will usually include an office from which you will run the business.

There can be variations, ie not all management rights will include real estate and some are caretaking or letting only. The operation of a management rights business can apply to all styles of property developments, from the traditional unit, townhouse, villa or resort style developments to corporate letting and student accommodation.

 

What is meant by caretaking?

A major element of any management rights business is an agreement with the body corporate to look after the common property. The body corporate will pay a fixed remuneration (usually monthly) in exchange for your caretaking services.

The expectations of this role should be outlined in the caretaking agreement and it is  important to know what is expected of you in relation to the nature and extent of your duties. Many disputes that arise between bodies corporate and resident managers are related to issues around different expectations about the performance of the caretaking duties.

 

What is meant by letting?

Management rights arrangements typically include an agreement with the body corporate that authorises you to conduct a letting business within the complex.

You need to be licenced under the relevant state law to be able to let lots for owners as you are acting as a real estate agent. The type of licence you need depends on what real estate functions you want to undertake.

A resident letting agent licence permits the collection of rent and the management of properties within the complex. If you wish to also sell property you would require a full real estate licence.

Owners are free to use their property as they like which means they may choose to live in the unit, leave it untenanted or use the letting services of an outside letting agent. Many prefer to deal with a resident manager because there is a common interest in the betterment of the complex as a whole.

Payment for the letting services comes from each owner with the manager entering into a separate contract known as a letting appointment with each owner who choses to, which details the basis on which you will act for that owner. There is a standard statutory form along with some additional conditions added to cover all necessary parts of the agreement.

Holiday letting or short term buildings will have greater opportunity for additional income streams such as cleaning, linen, R &M, equipment hire, Pay TV, internet and tours ticket sales.

 

What is a management rights worth?

The real estate component is usually valued by reference to similar sales.  In a unit complex there is almost always other comparable sales which you can compare your unit purchase price to. There may be a premium added to the price to account for the inclusion of the office from which you will operate.

The management rights business is more complicated. The value of goodwill with a management rights business is based on the right to earn the income derived from it for the remaining term of the agreements. The simplified version is that the net profit of the business is multiplied by an industry multiplier to come to the sales price for the business.

As a simple example, a business with net profit of $200,000 on a 4 times multiplier is worth $800,000.

The real estate and the management rights business will form two separate contracts of purchase.

 

Are they right for me?

Management rights has traditionally been considered a relatively safe investment proposition with financial returns from management rights businesses being very identifiable and consistent which is something that cannot be found in many business environments.

Management rights are not for everyone, they are a very people focused business as you need to maintain solid relationships with unit owners as well as tenants and the body corporate committee.

At the end of the day, you need to shop around to compare what is in the market at the time you are looking in terms of your requirements for the business and the real estate component.

 

How Can Alto Help?

If purchasing managements rights it is recommended that work with an accountant, lawyer and finance broker who specialise in the industries as there are some intricacies that come into play and it is important to get it right.

If you interested in purchasing a management rights business, need advise on the correct structure or accounting for management rights,  reach out to our team for a chat.

Author: Donna Bruce