Managements rights for a body corporate may be worth a lot of money. If remuneration for a large complex is $100,000 a year, and if the agreement runs for 25 years where remuneration is increased each year, such an agreement may well be worth over a million dollars. These rights are valuable, and caretakers want to hold onto these rights as long as possible.
However, caretakers must act in the best interests of the body corporate. The body corporate has no obligation to preserve the caretaker’s ‘asset’ in management rights. If the caretaker fails to perform properly, and if the body corporate takes the appropriate steps under the contract, it is entirely reasonable for the body corporate to terminate the agreement. It does not matter if millions of dollars go up in smoke for the caretaker – that is entirely the fault of the caretaker.
As stated by the District Court in Body Corporate for Palm Springs Residences v J Patterson Holdings Pty Ltd [2008] QDC 300:
“there is more to a caretaking agreement than simply a valuable asset for the caretaker; the fundamental purpose of such an agreement is to ensure that appropriate caretaking services are made available to the body corporate, for the benefit of all the lot owners.”
“I would have thought the best way for a caretaker to preserve its valuable asset was to ensure that its obligations under the agreement were properly complied with. If a caretaker has allowed circumstances to arise where the body corporate is entitled to terminate the agreement, that option is available to the body corporate.”
If a body corporate can validly terminate an agreement under a contract, then it can. There is only one possible exception – that is where a management rights contract is financed by a third party.
If the body corporate wants to terminate such an agreement, it must first give the financier 21 days notice that it intends to terminate, and why it intends to terminate. If there is no word from the financier, the body corporate can terminate.
Otherwise, the financier may choose to act in place of the caretaker, or appoint a receiver and manager for the contract. This can only be approved with the consent of the body corporate, acting reasonably and having regard to the character of the new person and their competence, qualifications and experience. If the body corporate is not reasonably satisfied, it can withhold its approval and terminate the contract.
Further, if the person is approved to take over, then if the new person also continues to act in such a way that gives the body corporate a right to terminate after the new person takes over, the body corporate can still exercise that right to terminate for those acts done after the new person takes over.
It must be remembered that management rights agreements are for the benefit of the body corporate. It is incumbent upon the caretaker to uphold its duties, otherwise the body corporate may be able to terminate the agreement under the contract.
This article is intended as general information only and should not be relied upon as legal advice. For specific legal advice please contact us here.