Biggest Risk In Management Rights Exposed

Ensuring you exercise your management rights agreements options on time is critical, it means the difference of having a sellable business or not having any agreements and no business to sell. In SIRE Management Rights we work closely with management rights owners to constantly improve the value of their business. We get questions everyday on this important topic.

Today we are going to answer 5 of the most frequently asked questions for exercising your management rights agreements options.
1. What is an option?
2. What happens if you don’t exercise your option on time?
3.How do you find your option end date?
4. What is the process to exercise your option?
5. What is the action to take after watching this video?
Plus: Management rights market update during covid 19. Click Here For More Information.

Get The SIRE Team to Call You, Fill in Your Information Below!

Over the last ten years when we are selling management rights, we have come across 3 cases of managers who forgot to exercise their option. As we are not solicitors therefore, it is not until legal due diligence this issue will be discovered.

There are 2 outcomes, 1 a new agreement gets executed, then the sale continues but extensions can be requested with a drawn out time frame and settlement. This good outcome is based on the great relationship that has been in place over the years between the manager and body corporate. 
If the good working relationship is not there, then it is up to the body corporate to grant a new agreement or not. There was one case that the manager lost - they lost the caretaking and letting agreements as part of the business.

However this can be avoided easily by simply exercising your option when it needs to be exercised.
As it is in your caretaking and letting agreement, therefore body corporate must agree.
If you don’t know what option is in management rights, this is a very VERY VERY important video you must watch and implement into your yearly routine to protect your financial investment in your management rights business.

What is an option?
Caretaking and letting agreements contain start dates and end dates, this defines when the agreements start and end. 
Usually agreements have multiple start and end dates, for example a 10 year agreement can have a start date of the 1 of January 2020 and an end date of 31 December 2024. This first block of five years is the first option. Then there is another second option starting on 1 January 2025 and ending 31 December 2029. The length of time for the first option plus the second option is 5 years plus 5 years which equals 10 years.
 
What happens if you don’t exercise your option on time?
If you don’t exercise your option on time then sadly your agreements will expire on the last day of the current option, after that you won’t have a valid caretaking and letting agreement with the body corporate.
We have seen this happen where the caretaker forgot to exercise the next option on time.
One example is that the caretaker had to get new agreements with the body corporate, fortunately there was good a relationship between the caretaker and body corporate and they were able to get new agreements on the same terms as the previous expired agreements and the management rights business retained its value
The second example is where the body corporate decided to negotiate more duties and reduced remuneration for the caretaker, basically the caretaker has no negotiation power and simply had to accept the new agreement significantly in favour of the body corporate. The effect of this was a reduced value of management rights business.
The third example is basically the worst case where the body corporate simply refused to create any new caretaking and letting agreements. The effect of this reduced the value of the management rights business to nothing.
  
How do you find your option end date?
The option end date is found in your caretaking and letting agreements, you need to carefully read through your agreements.
Sometimes the option start and end date can be found in the Definitions Section with wording like “First Further Term: means 5 years commencing on 1 January 2025 and ending on 31 December 2029”
Sometimes there will be a clause in the caretaking agreement like :
“Option To Renew: If the caretaker is not in breach of any covenant, contract or condition that would entitle the body corporate to terminate this contract, and the caretaker will continue to perform the duties, the caretaker shall be entitled to give notice to the body corporate not less than 3 months but not greater than 6 months an option to renew this agreement for another 5 years...”
If you are unsure about how your agreements are worded and structured with the option requirements, please call us now on 0404 331 310.
 
What is the process to exercise your option?
Each caretaking and letting agreement is different. Your agreements will be show the exact way of exercising your agreement’s options. If you don’t have an automatically exercising option agreement, which most agreements are not, you will need to follow the conditions stated in your agreements. It is best to have your option exercised and also minuted in a committee meeting or General Meeting. In any way it is best to use a management rights specialist solicitor to help you.
We have very good management rights solicitors that we have worked with throughout the years, call us on 0404 331 310 and we will connect you with the specialist management rights solicitors. 

Get The SIRE Team to Call You, Fill in Your Information Below!