Body Corporate Law

DECOUPLING – THE GOOD, THE BAD AND THE UGLY

With the prices of real estate increasing particularly in desirable locations such as the Sunshine Coast and Gold Coast, decoupling has become quite fashionable in recent years despite residency being removed as a condition of letting licences back in 2014 on the commencement of the Property Occupations Act (Qld). Whilst new modern style agreements, particularly in smaller complexes, have seen stand alone management rights on the creation of a scheme, there are still many complexes across Queensland with a real estate and business component to the management rights operation.

For those that have not come across this term, decoupling is where the unit and/or office is severed from the management rights business so that the manager does not have to reside onsite and/or own a lot in the community titles scheme allowing for a more saleable business asset that is not tied down by a property that has a far greater value than the business being sold and may complicate an incoming buyer’s ability to acquire funding for the purchase.

Decoupling can become complicated depending upon where the office is located and what the manager is looking to achieve. Ultimately every decoupling process will involve the management rights agreements being varied to remove reference to the unit and/or office and this may extend to lot ownership, residency or even office hours. Additionally, an operator may need to consider:

• Varying the by-laws to remove any exclusivity rights to undertake the caretaking and letting business from a specific lot so that it can be run from any lot in the scheme or offsite;
• The owner turning the office inside their unit back into a residential space such as a living area or bedroom, and which may require body corporate or council approval for any proposed works; or
• Council approval if the lot and office are on the same title but located in stand alone areas meaning the office can remain tied to the management rights but the unit can then be sold separately by creating a new survey plan with two separate titles.

Whilst varying the management rights agreements necessitates a majority of those lot owners who choose to vote at general meeting voting in favour (no proxy voting), the change to the by-laws prescribes a more onerous special resolution to be passed. Similarly, council approval and subdivision of a lot is a difficult process which can take many months to receive council consent and is dependent on the make-up of the on-title lot, exclusive use grants and the lot entitlements currently allocated to the lot. The nature of these specific items will be contingent upon the type of vote required, with some changes (such as varying exclusive use areas) requiring a resolution without dissent, which can be notoriously difficult to get passed.

Although all these items can be achieved, managers must consider how they go about seeking support for the decoupling process. Those with strong relationships with their committees and lot owners are more likely to garner favour for the change. Managers must also look at how they will continue to conduct their management rights business. Committees and lot owners will be concerned when a manager has not put a plan in place for the post decoupling operation of their business and management of the scheme. For a business and manager who already has strong management skills, an effective electronic letting business, well-oiled caretaking schedules, together with various practices and protocols so the complex remains looked after and maintained, then a body corporate is more likely to vote for the decoupling of the unit/office and management rights.

Lastly, for incoming management rights purchasers, any potential business can be decoupled, but a buyer should contemplate that it is not guaranteed and there is a lot of time and work to set up a business to function without the need for a lot and to obtain owners’ backing for such a change.

If you are looking to decouple your management rights business we are here to assist, and can be reached on:

(07) 5539 9688 / 0400 045 498

kelsey.huebner@mba-lawyers.com.au

https://mba-lawyers.com.au/