Do Not Forget to Exercise Your Option in Management Letting Rights

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Managers call The SIRE Team daily to apprise their management rights business, every now and then we come across managers who forgot to exercise the option of their management rights agreement. Then the manager has to engage a solicitor and go though a process to get a new agreement drafted up. The body corporate and the manager then have to execute the new agreement.  It can cost thousands of dollars of legal fees and also lots of time to get this done successfully. 

So every year we remind our clients to check their agreement and ensure they know the exact process and timeline to exercise their option. 

Variations, top ups, extensions and options are all words that we use interchangeably in our day-to-day management rights dealings but they mean different things to different people.

Top up their agreements (add a new term) or to exercise options in their agreements (bring into existence an already granted term). These are two very different things.

OPTIONS

Let’s talk about options first. These are also sometimes called extensions. 

The term of any management rights agreement that has been granted can be broken down into an initial term and any number of options.

The actual length of the term of a management rights agreement can be expressed in two very different ways.

Most of the management rights agreements are drafted as a term with an option (ie five years from 1 June 2010 to 31 May 2015, with an option for a further five years from 1 June 2015 to 31 May 2020). There are obvious variations to this – it could be a ten year term with three additional five year options, or a three year term with a three year option – the combinations are endless.

What is most important is that if you have an agreement with an option clause, you must know what is needed to exercise it. If you fail to exercise an option, your agreement will come to an end. It is as simple as that.

It is very rare to see an agreement where an option clause is exercisable subject to the approval of the body corporate. It is normally exercisable solely at the discretion of the resident manager. Normally an option clause will simply provide that if you give notice to your body corporate by a certain date then the option will come into existence. In this case, there is no further approval needed from the body corporate or the committee.

Making sure you physically exercise the option by the date required is critical. Normally no one will remind you. If you forget to exercise an option it can leave you in a very difficult position with your body corporate, as it is more than likely that the only way to then deal with the issue is at general meeting with the approval of owners.

Moral of the story? If you are not sure, get your agreements out and have a look at them. If you are still not sure, ask us!

VARIATIONS

Then we move onto variations. These are also known as top ups and (confusingly) extensions.

Options are when you bring existing rights into existence.

A variation is when you create a new option term. This has to take place at a general meeting and be approved by ordinary resolution – which is simply more votes for than against the motion of those who choose to vote. 

Over the years, we have fine turned the top up process and our clients have always be able to top up their agreement. So if this is your first time topping up your agreement, and need to know the process, just give us a call 0404 331 310 or fill in the form below to get The SIRE Team to call you :)

By Frank Higginson and The SIRE Team