Unlike other conveyancing transactions, management rights matters have more parties than people realise and can often cause confusion about:
- Who is who
- Who can talk to who
- Why certain people cannot talk to others
It is a pretty important paradigm to understand and one that is often misunderstood, even by experienced advisers.
Let’s take a look…
1. Who is who?
(a) The Seller
This can either be a developer (if buying off the plan) or the owner of a business.
Where there is a unit associated with the business, depending on how the agreements are structured, there may be:
- One seller (the same entity owns both the unit and the business), or
- Two sellers (one owns the business, the other owns the unit).
(b) Selling Agent/Broker
This is the licensed real estate agent appointed by the seller to sell their business.
There are agents that specialise in selling management rights. It is important for a seller to use a management rights agent, as there are particular matters the agent must be aware of when selling these businesses.
Just like a real estate agent selling a house, the selling agent works to achieve the best outcome for the seller.
Previously, agents prepared sale contracts, but changes in legislation now require that only a seller’s solicitor can write contract conditions.
The agent/broker’s role includes:
- Sometimes holding the deposit
- Following up on the balance deposit payment
- Assisting in selling management rights businesses, especially in difficult transactions
(c) Seller’s Experts
These include:
- Seller’s Accountant – Prepares financial statements (P&Ls), calculates sale price, and communicates with the buyer’s accountant.
- Seller’s Financier – Holds security over the business and unit and releases these interests upon settlement. Also holds original agreements, which must be handed over at settlement.
- Seller’s Solicitor – Handles contract preparation, negotiations, legal obligations, and attends settlement.
(d) Buyer
This is the person or company purchasing the business (and unit, if applicable).
Depending on the structure of the agreement, the buyer’s entity may be the same for both the business and unit, or they may be separate.
(e) Buyer’s Representatives
These include:
- Buyer’s Accountant – Verifies income, reviews P&Ls, and checks letting appointments. They are the only representative that physically inspects business records.
- Buyer’s Financier – Assists with funding. Choosing an experienced financier is critical for management rights acquisitions.
- Buyer’s Solicitor – Handles contract negotiations, legal due diligence, liaises with accountants and financiers, advises on legal obligations, and prepares for body corporate consent and settlement.
(f) The Body Corporate
Several parties are involved on the body corporate side:
- Body Corporate Manager – The strata manager assisting with scheme administration. First point of contact for the seller’s formal request for assignment consent.
- The Committee – Volunteers representing the body corporate. Generally responsible for granting assignment consent.
- Body Corporate’s Solicitor – In most cases, the body corporate hires its own solicitor to guide the committee through the consent process.
- Independent Experts – Committees are becoming more aware of their responsibilities and may hire independent consultants to interview the buyer and provide recommendations.
(g) Franchised and/or Leased Businesses
Additional complexity arises if the business is part of a franchise or operates from a leased property, adding another layer of advisers.
For simplicity, this article focuses on the standard parties in a management rights sale.
2. Who can talk to who?
There is a misconception about who is entitled to information and who can contact different advisers. If a party refuses to speak with you, there is usually a valid reason.
Ask yourself these questions:
- Whose adviser/party are you trying to speak with?
- Did you engage them?
- Are you paying them for their advice?
The answers will clarify whether you have the “right” to talk with them.
3. Why certain parties cannot communicate with others
Simply put: because they do not act for you!
Over the years, when acting for a buyer or seller, we have been contacted by committee members, the seller/buyer directly, and the seller’s agents, but we have had to refuse discussions.
This is not because of any personal issues, but because:
- A client may have specifically instructed us not to speak with a certain party.
- We are ethically bound not to communicate with them.
Solicitors must follow strict ethical rules when representing a client. Failing to comply with these rules can lead to serious consequences.
HOW CAN QUARTZ LEGAL QLD HELP?
If you have any questions, please reach out to us at info@quartzlegal.com.au.