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17/11/2009 -
QLD Management Rights Transfer Fees |
ALL YOU WANTED TO
KNOW ABOUT THE
TRANSFER FEE BUT
WERE AFRAID TO ASK
Article by John Mahoney - Mahoney Lawyers
www.mahoneylawyers.com.au
I have always been surprised at the many enquiries I receive about the transfer fee. There are many misunderstandings and misconceptions in the marketplace about this, particularly since the recent changes to the legislation. Whilst we have published shorter articles about those recent changes, this article updates a previous list of Frequently Asked Questions to assist readers understand how the transfer fee now works.
How did the transfer fee come about?
Before the Body Corporate and Community Management Act 1997 (“BCCM Act”) there was no restriction on Bodies Corporate charging managers for new agreements. The BCCM Act prevents Bodies Corporate from doing that. Independent member Liz Cunningham persuaded the Parliament to amend the Act on the eve of its enactment to allow a Body Corporate to charge the transfer fee in certain cases as a sort of compensation to the Body Corporate.
Until the September 2008 changes, a Body Corporate had a discretion to impose the transfer fee if a manager was selling within 3 years of a new management agreement being entered into or being amended to add a further option. That has now changed dramatically.
What now triggers the transfer fee?
The assignment of a management rights agreement within 2 years of the manager selling becoming manager at the complex ie when the manager first acquired the management rights. That might have been by way of being the very first manager or by having bought from a previous manager. New Agreements or adding options are no longer relevant.
How much is the transfer fee?
3% or 2% of the value of the rights if the Body Corporate consents to the assignment of the agreement/s within 1 or 2 years of the relevant date (the date you became manager).
What is the relevant date from which the transfer fee is calculated/payable?
The date when you became the manager.
If you are the very first manager of the complex, it is the date when the particular agreement/s with you is entered into. That will generally be the date of the agreement/s, so look at the date on your agreement/s to determine that. That may or may not be the date the agreement/s commenced.
If you have purchased an existing business, it is the date that you settled your purchase. That may not necessarily be the date of the deed of assignment under which the agreement/s was transferred to you as sometimes those deeds are signed some days or even weeks before your actual settlement date.
What is the relevant date when you sell for calculating the 1 or 2 years?
This is the date that the Body Corporate approves your assignment of the agreement/s to the new manager. That will be the date of the committee or general meeting at which the decision to approve (consent to) the assignment is made. So again it is not necessarily the date on the deed of assignment that you, the new manager and the Body Corporate sign.
Is the percentage calculated on the unit value also?
No only on the value of the rights under the agreement/s. The value of plant and equipment, fixtures and fittings and other tangible assets should be disregarded.
Does the 2/1 year start when I exercise an existing option or add a new option?
No.
Does the 2/1 year start when an amendment is made to an agreement?
No.
Does the Body Corporate have to charge the transfer fee?
Yes. It is no longer discretionary. Only if you can demonstrate that you are selling due to genuine hardship, not reasonably foreseeable at the time you became manager, will you be able to avoid the transfer fee.
What is genuine hardship?
The decisions from the Commissioner’s office indicate that it is very difficult to show genuine hardship. Serious debilitating illnesses or conditions in the case of a sole trader may suffice. The death or severe illness of a family member who is not an owner of the business or part of the management company would not usually be hardship. Divorce has been found not to be hardship as it was reasonably foreseeable.
Can the committee decide to waive the transfer fee on the grounds of hardship or only a general meeting?
Decisions of the Body Corporate Commissioner’s Office confirm that the committee has the power to make such a decision and it is not necessary for the matter to go to a general meeting of the Body Corporate. Some committees may though insist that a general meeting make the decision.
Can committee members be sued by owners for waiving the transfer fee on the grounds of hardship?
No, not if the committee is of the view that you have demonstrated hardship. In the absence of bad faith or fraud, committee members could not be sued for their decision.
Can I demand that the matter of hardship be referred to a general meeting?
No. You can ask for a general meeting but the committee is not bound to comply with your request. However, if the committee have made the decision you could requisition a general meeting (requires a request for a meeting by at least 25% of owners) to have the decision overturned in which case the committee must convene an EGM within 42 days.
Wasn’t the transfer fee to be abolished as part of the 2003 or recent amendments to the BCCM Act?
In 2003, ARAMA (or QRAMA as it then was) had persuaded Departmental representatives that the transfer fee needed to be overhauled and agreement in principal was reached with the Department and the Unit Owner Association representatives involved in the negotiation process. However extreme external pressure from Unit Owner Association members not involved in the negotiation process persuaded the Minister and politicians to leave the transfer fee provisions unchanged.
Fast forward to 2007/8 when consensus on the position outlined above was reached between the industry groups and became law with the amendments to the BCCM Act.
Is it likely to be changed in the future?
No. For as long as managers have the benefit of a Body Corporate not being able to charge for new agreements, it is unlikely that the government will remove or further alter the rights given to Bodies Corporate to charge something when agreements are transferred.
As I have previously pointed out, I expect that the opportunities to charge the fee based on it being payable only if selling within 2 years of taking over, will be much less than in the past. Whilst it is regrettable that the fee will be compulsory, making it so does remove much of the angst we used to see where a body corporate had discretion.
For all queries, contact John Mahoney, Partner, on 07 3007 3718
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