Did you know the management rights industry is facing its greatest challenge in years, leaving thousands of “mum and dad” businesses in Queensland under threat?
If successful, the attack on management rights will impact the whole industry. If you are in the sector you need to read on…
Management rights shapes up for long-term fight By Grantlee Kieza
ARAMA CEO Trevor Rawnsley is leading the industry’s defence against an attack on long-term agreements that threaten the core of the industry. Queensland’s Unit Owners Association is calling on the term for management rights agreements to be reduced from 25 to three years.
Leading management rights lawyer John Mahoney predicts that if the government legislates shorter terms for agreements it will have an “immediate adverse impact” on their value.
And Alex Cook from ResortBrokers urged everyone involved in the business of management rights to get with the strength and become ARAMA members.
“If ever there was a time to become an ARAMA member it’s now,” Mr Cook said.
“This is a very serious issue and ARAMA is a vital advocacy group. It’s probably the only thing standing between the industry and those who would seek to benefit from its demise. If you’ve got money invested in management rights, ARAMA are the ones standing up to defend long-term agreements.”
Mr Cook said the issue had reached a head because “unfortunately a small percentage of managers are letting down the 95 per cent who do a great job.”
“There are a couple of bodies whose solution to the problem is to basically destroy the industry,” Mr Cook said. “That would be ludicrous. Because you’re basically punishing the vast majority of managers who do a great job and all the lot owners who benefit from their exceptional service.”
Mr Mahoney said any decrease in the earnings multiples that are the basis of management rights values would dramatically reduce personal equity in each business. He said a reduction from a multiple of six to five because of changes in legislation would mean most management rights businesses in Queensland would lose 50 per cent of their equity in the business.
“If you buy management rights for $1.8 million, based on a multiple of six ,and you have put in $600,000, that means you have borrowed $1.2 million,” Mr Mahoney explained.
“If that multiple reduces to five, the value of the management rights now becomes $1.5 million. You still owe the bank $1.2 but your $600,000 is now worth only $300,000. If the multiple reduces to four you’re $300,000 is now worth zero. You’ve lost all your equity. And you still owe the bank $1.2m.”
Mr Mahoney urged everyone involved in management rights to protest “loud and hard” and to contact their local members.
Read the full report in the September edition of Resort News. Subscribe Here
