Who’s who in the Zoo - the 3 W’s of Management Rights

by Vanessa Sciortino | Special Counsel | Nicholsons Solicitors 13th of July, 2021

Who’s who in the Zoo - the 3 W’s of Management Rights
© Blue Planet Studio / Adobe Stock

Management rights transactions are different to typical conveyances – they have more parties than people realise.  This can often cause confusion about:

  • Who is who;
  • Who can talk to who; and
  • Why certain people cannot talk to others. 

I thought I’d take the opportunity to break this down, as it is a pretty important paradigm to understand and one that is often misunderstood.

This can either be a developer (in an off the plan setting) or the owner of the management rights business.  Where there is a unit associated with the business, depending on how the agreements are structured, there may be one seller (the same entity that owns the unit and the business) or there may be two sellers (the seller of the business and a seller of the unit).

1. Who is who?

a. The Seller

This can either be a developer (in an off the plan setting) or the owner of the management rights business.  Where there is a unit associated with the business, depending on how the agreements are structured, there may be one seller (the same entity that owns the unit and the business) or there may be two sellers (the seller of the business and a seller of the unit).

b. Selling agent/broker

The seller appoints this person to sell their business – they’re a licenced real estate agent.  There are various agents who specialise in the management rights industry.  This is important because there are particular matters that the agent must be aware about when selling rights.

This is similar to an agent you appoint to sell your house – the agent works for the seller to achieve the best outcome possible.

Once upon a time agents would prepare the sale contracts however, over time with changes to legislation prohibiting agents being able to write conditions, preparation of contracts is something that a seller’s solicitor will generally do. The sale agent/broker will sometimes, but not always, hold the deposit and is responsible for following up payment of the balance deposit at the appropriate time.

c. Seller’s experts

These include:

  1. the seller’s accountant: this will be the accountant the manager has been using in their business.  They have often prepared the P&L’s to work out the sale price.  Their details will be included in the contract so that the buyer’s accountant can discuss any queries directly;

  2. the seller’s financier: this is the financier who holds security over the business and is responsible for releasing that security at settlement (this can include a mortgage over the unit and/or security interests held over the business).  The financier will also hold the original caretaking and letting agreements as security.  These original agreements are required to be handed over at settlement to the buyer (or its financier);   

  3. the seller’s solicitor: the seller engages a solicitor to act in the sale, which (hopefully) is experienced in management rights transactions. The solicitor is engaged usually when a buyer is secured and is responsible for preparing and negotiating the contract/s, responding to queries in relation to the buyer’s conditions, advising the seller on its rights and obligations and proceeding to and attending settlement. 

d. The Buyer

This is the person/company who is buying the business (and unit, if there is one).  As with the seller, depending on how the agreements are structured, the buying entity may be the same for both the business and unit, or they may differ.

e. Buyer’s representatives

These include:

  1. the buyer’s accountant: the accountant is engaged to verify the income disclosed in the contract.  The accountant will also be engaged to check the letting appointments the seller holds and is the only representative that ordinarily undertakes a physical inspection of the business records;

  2. the buyer’s financier: the financier assists the buyer with funding its purchase.  There are various financiers who offer funding for management rights acquisitions and like anything in this industry, it is important to choose a financier with management rights experience;

  3. the buyer’s solicitor: this is the buyer’s solicitor who is engaged by the buyer to act in the purchase. The solicitor acts for the buyer in negotiating the purchase contract/s, undertaking a legal due diligence review, dealing with the buyer’s accountants and financiers in relation to the buyer’s conditions, advising the buyer on its rights and obligations and preparing a buyer for the steps involved in obtaining body corporate consent through to settlement of the contract/s.

f. The Body Corporate

Again, there are various parties associated with the body corporate, as follows:

  1. the body corporate manager: this is the strata manager appointed by the body corporate to assist in the administration of the scheme. They’re usually the first point of contact when a seller (via its solicitor) formally requests the consent of the body corporate to the assignment;

  2. the committee: these are the representatives of the body corporate who are volunteers and are (generally) able to consent to the assignment at committee level;

  3. the body corporate’s solicitor: in 9 out of 10 matters, the body corporate will appoint its own solicitor to assist the committee navigate the consent process; and

  4. independent experts: committees are becoming more attune to the responsibility that rests upon them when considering an assignment and are asking independent consultants for assistance in the process.  The consultant’s role is usually to assist in interviewing the proposed buyer with a view to report back to the committee with their findings and/or recommendations for further training (if that is required).

g. Franchised and/or leased businesses

Things can get further complicated where a business is part of a franchise system, which adds yet another layer of advisers.   The same goes for a business which is operated from part or wholly leased premises as is the case with some hotels and motels.

For the purpose of this article, we won’t complicate things by including in this further dynamic, we will stick with the “usual” parties in a management rights sale.

2. Who can talk to who

This is a difficult one to put pen to paper about as I am aware it is bound to ruffle some feathers.  Unfortunately, there is a misconception in the industry about who is entitled to information and who can contact various parties’ advisers. 

Our hope in writing this article is really about education, so that instead of thinking people are being “difficult”, you can understand why they’re unable to communicate.

The easiest way to think about it is to ask yourself: “Who has engaged the person I want to talk to?”  The answer will usually reveal whether you have the “right” to talk with them or not.

3. Why x and y can’t talk to various parties?

Simply put, because they do not act for you!

From a legal perspective, because of the trust placed in solicitors, we have strict ethical standards and duties to the Court which must be upheld.  The Court (and our regulator) insist we follow the rules, strictly.  

Unfortunately, that often means we get tarnished as being “difficult” by those we refuse to discuss a client’s matter with - this simply not the case, our ethical obligations prevent us from speaking with that party.

When choosing a solicitor, think carefully before engaging someone.  The most important factor is that your interests are being protected!


Comments Section

comments powered by Disqus
CARETAKING BUSINESS IN PRIME LOCATION | Resort Brokers ID : MR007017
Best buy Boutique freehold going concern motel | Resort Brokers ID : FH007028
Central Qld Motel Lease
Business For Sale - Off the Plan Now Completed - ID 8792 BL
Launceston CBD, Award Winning AAA 4 Star 37 Room Motel, Parking, Views Coming Soon
1260MF - BIG REGIONAL CITY FREEHOLD MOTEL WITH PLENTY TO OFFER
this business has the perfect lifestyle balance - work a little, leisure a lot | Resort Brokers ID : MR007021
Coastal Luxury Accommodation | Resort Brokers ID : FH007022
MODERN HIGH-RISE BUSINESS ONLY MANAGEMENT RIGHTS IN TOOWONG | Resort Brokers ID : MRB007009
2683ML - GREAT FIRST TIME MOTEL
Cooma Hotel, VIC - 1P0095
Barham Hotel NSW - 1P0096
PRIME HIGH NET BEACHSIDE RESORT ON QUEENSLAND SUNSHINE COAST | Resort Brokers ID : MR007026
Magnificent Armidale Leasehold Motel | Resort Brokers ID : LH007023
800MI - A SUPER MOTEL PASSIVE INVESTMENT!
Business For Sale - Exquisite Location - Close to Famous Beaches - ID 9036 H
Mudgeeraba/Robina Permanent-live off site
2610ML - A MOTEL LEASEHOLD WITH THE LOT