A management rights is a business where the owner enters into a contractual agreement with the body corporate of a multi-unit complex to supply certain services, in exchange for a salary and the right to earn further commission and services income from individual owners in the complex.
The management rights owner commonly also purchases the manager's unit within the complex giving them an “onsite” vested and financial interest in the successful performance of the complex.
A management rights business is made up of two components. First the onsite or resident manager undertakes the building management for the strata scheme in line with a caretaking service agreement. Second the onsite or resident manager undertakes residential management on behalf of individual unit owners.
The management rights are usually supported by the owner’s corporation or community association providing the onsite (resident) manager with the right to be the exclusive letting agent on site, supporting such rights with special purpose by-laws.
Management rights businesses provide an effective way for a strata title property to operate when a number of units are owned by investors who want to maintain an active role in the operation of their investment.
Historically management rights businesses have been bought and operated by what has been commonly known as “mum and dad” owner/operators, this is because the business model has proven to ideally suit a couple who possess a combination of handyperson skills and administrative talent.
Commonly the “mum and dad” operators have transitioned from a variety of full-time careers to semi-retirement, they bring a wealth of experience, knowledge, and life skills to establish their small family business.
However, times have changed and today management rights business owners are a much more diverse group. Although the business is still very attractive to “mum and dad” semi-retired operators we are also seeing a younger generation of operators entering the business intent on making management rights their career.
We have seen an increase in single operators sometimes with partners who maintain a career outside of the management rights business. The sector is also attracting many more professional operators and groups of investors and it is also a very attractive business venture to those wishing to meet Australian business visa requirements.
Due to the changing face of tourism, technology, and hospitality alongside an increased level of expectations from travellers more is demanded from short term accommodation providers, and we have seen a trend towards professional and career management rights operators and investors buying holiday management rights businesses.
In permanent management rights the industry also provides a very important role in community living and in the diversity of managing the day-to-day growth and issues of density. Most importantly it ensures that community living is responsibly managed by experienced people with a vested interest who are focussed on delivering outcomes for the benefit of all stakeholders.
The management rights industry generates $55.5 billion to the Australian economy annually and that figure is rising as more Australians embrace density living. In general, the management rights for permanent, mixed and short stay complexes have been considered a sound investment and the value of these businesses have maintained steady growth.
The value of a management and letting rights business is determined by the revenue received in line with the caretaking service agreement, the net profit derived from onsite letting, and the net profit derived from all additional ancillary services.
The sum total of these items is then multiplied by a “goodwill factor” to establish a business value or “multiplier”. Vendors will also add the real estate component to the business value to determine a sale price. The multiplier payable on the nett operating profit is always dependant on the accommodation type (permanent or holiday), size, location and prospects of the business.
Properties can range from resorts with only a handful of units up to multi-million-dollar high rise buildings. The rights can be acquired off-the-plan, as new builds or already functioning businesses. Banks and lenders are generally keen to finance management rights ventures.
The management rights of a permanent building can be a very attractive business venture because generally the salary value and workload for the onsite (resident) manager remains consistent. Value can also be added with unit sales and rentals on behalf of unit owners in the building plus additional ancillary services.
Strata title renting or ownership in a permanent building is a growth area because it provides an economic means for many to live in accommodation with resort-style facilities that may not be ordinarily affordable.
In many locations there is currently exponential growth of apartment renters, both younger people unable to afford to enter the housing market alongside empty nesters seeking to downsize in later life. There is also major growth for apartments in over 50s communities, age care and gated retirement villages, these are all areas for strata and community title.
Short stay (holiday) management rights businesses have the potential to boom, because managers have more opportunities to add value, income and therefore profit. A very well-managed short stay management rights business that attracts visitors can increase profits for the unit owners and in turn increase their holiday letting pool which adds value to their management rights business. Alongside this is the potential to charge for providing services to guests.
Tourism is a major economy and before the pandemic inbound international tourism to Australia was growing. Queensland alone hosted 2.6 million international visitors in the year ended March 2017, spending $5183 million during an average 21-night stay.
The Gold Coast received more than 1 million of those. The number of international visitors to Tropical North Queensland also grew 15.3 percent to a record 901,000, while 837,000 people (up 16.2 percent) travelled to the region specifically for holidays.
Many of these visitors stay in strata title hotels, resorts and apartment complexes leading to above average occupancy rates in many popular holiday locations especially in Queensland.
Queensland did not originate strata title legislation worldwide, or even in Australia, but it did perfect it.
The initial Australian strata titles legislation was enacted in 1961 when the New South Wales parliament passed the Conveyancing (Strata Titles) Act 1961.
The first Queensland legislation was the Building Units and Group Titles Act in 1965, and this has been refined over decades with the Body Corporate and Community Management Act that initiated major industry reforms in 1994 and 1997 that saw the creation of a range of accommodation modules. The process of legislative refinement continues and the BCCM Act is regularly under review.
Management rights was originally established as a business model in Queensland in the early 70`s to help investor owners manage both the common property of the strata scheme and the rental property. Management rights is in the best interests of the scheme and provides beneficial outcomes for all lot owners as it produces a more efficient model of non-specialised common area repairs and maintenance and a greater rental return for lot owners who are investors
The Gold Coast was the first region to embrace management rights and is, today, the epicentre of the industry but the industry also flourishes in Brisbane, Sunshine Coast, Airlie Beach, Tropical North Queensland, and many other areas of the state.
There are approximately 3300 management rights across Australia, but management rights are an integral part of Queensland’s accommodation infrastructure and economy. It is doubtful that the state’s tourism economy would have grown to the extent it has without management rights over the past five decades.
As well as providing the infrastructure, Queensland’s multi-billion-dollar management rights has delivered a lasting, profitable income for mum-and-dad investors, partnerships, small businesses alongside substantial corporates.
The Australian Residential Accommodation Managers Association (ARAMA) is a not-for-profit association made up of residential accommodation managers. ARAMA was established to represent the interests of residential accommodation managers. It provides the industry voice to government and assists by providing advice to its members in relation to their businesses.
The management rights industry began to emerge in New South Wales in the 1990’s.
It is the legislation and regulation differences between the states that affects the value of the NSW management rights business, resulting in a lower multiplier.
The NSW restriction on management rights agreements is probably the most drastic difference between the two states with Queensland offering a far greater maximum term. The longer term is said to offer more security and stability for the manager which is likely one of the main drivers for (multiplier) price difference between the two states. It is generally thought that the multiplier in NSW is less than an equivalent Qld business.
The management rights model gained some currency in Victoria after the relaxation of the estate agents' licensing requirements a few years ago. While the management rights industry is successfully regulated by many years’ worth of legislation in Queensland and New South Wales, Victoria is still negotiating and introducing regulations.
Properly structured, the management rights model of building management can be beneficial to all involved in the development and operation of a complex whether it be solely residential or mixed use.
Managers are required to have a broad and robust knowledge of everything from legislation and compliance requirements to administration and property management, to marketing, customer service and stakeholder communication.
With such a wide range of responsibilities and legal obligations to meet, the role can be very overwhelming for a new entrant to the industry. Therefore, it is critical that managers have access to excellent industry training, education and personal development.
Peak body ARAMA, has long fostered a positive ‘members helping members’ culture over many years and strives to meet the evolving educational needs of the sector.
In 2018 ARAMA developed the Management Rights Industry Training Program (MRITP) a first of its kind program designed specifically for people entering the industry as operators for the first time.
This program offers newcomers an insightful introduction to management rights with a wealth of information covering everything from the legal landscape and managing stakeholder relationships to financial management and compliance.
More specifically, the MRITP covers the core areas that underpin the running of a successful management rights business and body corporate committees, their structure, and how to work with them effectively.
The MRITP is an all-inclusive and interactive one-day workshop that is also ideal as a refresher course for experienced resident managers and any industry professional who wants to update their knowledge.
As a regulated industry, management rights businesses operate in a diversity of retail, commercial, permanent residential, student and holiday complexes in strata and community title properties.
The management rights model is regulated by specific legislation in Queensland and New South Wales (Body Corporate and Community Management Act 1997 Qld; Community Land Management Act 1989 NSW).
ARAMA has remained at the forefront of licensing requirements, advocating on behalf of the industry to ensure minimal disruption to management rights operators.
In March 2020, New South Wales introduced significant reforms to real estate licensing and residential tenancies, but COVID-19 pandemic delayed enforcement.
In 2021 Queensland will join the rest of Australia in being required to undertake compulsory professional development in order to maintain their licence.
On October 1, 2021, the radical changes to licensing requirements for resident managers will come into force in Queensland. This will mean that the training required to obtain a restricted lettings agent license and a sales licence will significantly increase, and these changes will have ramifications for anyone who manages a property within the management rights industry.
There will be changes to the number of training units you will have to complete, to the cost and to your time.
If you want to obtain the real estate salesperson license you will have to complete 12 updated units instead of seven, and to obtain the residential letting agent licence you will need to complete 15 updated units instead of six.
The new training requirements for people wanting to enter Queensland’s real estate industry were approved by The Office of Fair Trading (OFT) following an independent review of the national property services training package. The aim of the changes is to raise Queensland’s real estate training standards to match the scholastic level of other states.
With approx. 14,647 licensed real estate agents and 19,659 registered salespersons in Queensland the changes are considered beneficial to the industry.
Anyone wishing to obtain a real estate licence from October 1, 2021 will be “required to complete the new training modules ahead of applying for the following registration and licence classes: auctioneer (property), chattel auctioneer, limited real estate agent - affordable housing, limited real estate agent - business letting, real estate agent, real estate salesperson and resident letting agent”.
The new training requirements will not impact people who hold current registrations and licenses, and a transition period means Office of Fair Trading (OFT) will continue to accept qualifications from the previous training package (the ‘CPP’ training package) until September 30, 2021.
From October 1, 2021, only the new training package will be accepted as the eligibility requirement for a licence or registration.