Queensland: Why are developers allowed to sell 25 year caretaking contracts?
LookUpStrata
By Frank Higginson, Hynes Legal
27 October 2015

Question:
Why are Queensland developers the only developers in any state in the world allowed to sell 25 year caretaking/letting (property management) contracts that must be paid for by new unit owners for the duration of the contract? The Queensland Government refuse to provide a rational explanation for this fraud on new unit owners.

Answer:
Management Rights are big business

This is an issue that has been going around in Queensland strata circles for decades. Interestingly, before we had the BCCM (Condo) Act there was no term limitation. The BCCM Act actually introduced a cap on term retrospectively from October 1994.

Queensland has the most sophisticated disclosure regime for off-the-plan sales in Australia. Every single thing is disclosed up front, including the term of management rights agreements. Most would be lot (unit) buyers are sold on things other than that minor level of detail and the closest most go to reading the disclosure statement is to understand what the levies are forecast to be. Some don’t even go that far.

No one can ever say they were not told what the body corporate (condo corporation) arrangements were going to be on completion. There remains a constant source of tension between balancing the obligation to disclose arrangements (which can become voluminous) against the need for consumer protection.

In addition, management rights are big business. Changing the fundamental nature of any industry (with tenure being a key part) may well have an adverse impact on values and while that would clearly impact on resident managers enormously, it would also impact on the major banks who also have a large stake in the industry through lending to resident managers.

All in all? It is getting harder every day to unscramble the egg. Every so often the government of the day issues a discussion paper on management rights and tinkers with the fringes of the industry. Whether any government could further limit tenure without significantly affecting all of the industry stakeholders remains an interesting question.

In reply
After e-mailing the above answer to our LookUpStrata member, we received a reply to Frank’s views as follows:

The single biggest problem with 25 year caretaking contracts is that they deprive the body corporate (condo corporation) of their authority over the caretaker. The body corporate is responsible, under the BCCM Act, for control and maintenance of the common property; however, if a caretaker has a 25 year contract he can (and does) thumb his nose at the Committee (board of directors) and the body corporate. The Act provides termination provisions for non-performing caretakers but the Commissioners Office and QCAT continue to cling to the belief that the contract is too valuable to terminate.

The Rocks resort was a recent case where the QCAT member found the most implausible excuse to reject the Committee default notice because the Committee had not allowed the full 14 days for default rectification–by 00.01 of a minute. Albeit that the exact same wording was allowed by District Court Judge McGill in Patterson v Body Corporate for Palm Springs Residences.

If the Government was even half serious about 25 year contracts, it could start introducing three year contracts (not retrospectively) and then potential caretakers would not have to borrow from the banks to fund the ridiculous good will that attaches to Management Rights (MR) that cost unit owners millions of dollars over the 25 years. This would allow many young professionally qualified couples to get into Management Rights, thus saving unit owners millions of dollars and raising the tone and level of the industry.

But you will never see this while developers are allowed to contribute to political parties.


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