Assignment of Management Rights in NSW

07 April 09

The assignment of Management Rights is not highly regulated in New South Wales. Accordingly, you have to revert to the Caretaking and Letting Agreements to look for specific terms to ensure that the assignment process is not frustrated.

Caretaking Agreement requirements
Caretaking Agreements contain assignment clauses that provide that the caretaker can only assign the Caretaking Agreement with the prior written consent of the owners corporation. Whilst the wording of these clauses vary from agreement to agreement, generally they are along the lines of the following:

“Owners corporation to act Reasonably
(a) The owners corporation shall not unreasonably, arbitrarily or capriciously refuse or delay giving its consent.
(b) The owners corporation shall give its consent or refusal within thirty (30) days of the Caretaker giving to the owners corporation all information reasonably necessary for the owners corporation to give its consent.

Consent Factors for Assignment
(a) If the Caretaker requests the owners corporation to consent to an assignment of its interest in this agreement, the owners corporation shall, prior to giving its consent, be entitled to require:
(i) satisfactory evidence that the proposed assignee and any associates, are financially sound and reputable, responsible, respectable, and capable of satisfactorily performing the caretaking duties;
(ii) two business references of the proposed assignee;
(iii) the proposed assignee to execute in favour of the owners corporation, a Deed of Covenant to comply with the terms of this agreement;
(iv) the Caretaker to pay all reasonable legal costs of the owners corporation incurred to obtain advice in relation to the assignment and the costs of calling and holding the owners corporation meeting to consider and approve the assignment.”

Statutory Requirements
The Strata Schemes Management Act 1996 (SSMA) only contains two sections relevant to the assignment of management rights:
Section 40B(3)
‘The functions of a caretaker under a caretaker agreement may be transferred to another person only with the approval of the owners corporation...’
Section 40B(4)
‘An owners corporation may …approve a transfer of the functions of a caretaker if authorised by a resolution at a general meeting of the owners corporation.’

Clearly the statutory obligations in relation to the assignment of management rights are not as comprehensive as contractual obligations. In particular, under the SSMA, there is no obligation on the owner’s corporation to act reasonably in approving a transfer of the functions of a caretaker.

Accordingly, if 51% of owners voting at the general meeting act unreasonably in voting against consenting to the assignment of the management rights, the owners corporation (whilst complying with the SSMA) has acted unreasonably and breached the caretaking agreement. Most likely this will result in the Caretaker’s sale falling over and leave the Caretaker with an action against the owners corporation for loss suffered due to the owners corporation breach. The costs of such a default will be passed down to individual owners by way of special levies.

Qld position

The regulations under the Body corporate and Community Management Act 1997 comprehensively deal with assignment of management rights, including:
• What the Body corporate may have regard to in deciding whether to approve a proposed assignment
• 30 day timeframe for the body corporate to make its decision
• The requirement that the body corporate cannot unreasonably withhold approval of the assignment
• Allowing approval to be given on the condition that the assignee enters into a deed of covenant with the body corporate to comply with the terms of the agreements

Our view
Owners must act reasonably in considering an assignment of management rights and comply with the contractual obligations set out in the agreements or they may leave the owners corporation liable to legal action for breach of the Caretaking Agreement.

Also, it is important to remember that unlike Queensland, there is no transfer fee payable in NSW.


Contact Us Now

Phone:+ 61 7 5552 6666
Fax:+ 61 7 5528 0955
Address:Level 2, 17 Welch St Southport, Qld, 4215
Postal:PO Box 1876
Southport 4215



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