Letting Agreement declared void under section 116

Contributed By: Michael Kleinschmidt Stratum Legal on

On 26 September 2018 Adjudicator Roseman declared the letting authorisation for Allure Apartments in Townsville void. 

The management rights operator, Allure Townsville Accommodation Pty Ltd (ATA), had taken a transfer of the letting authorisation in June of 2015.  The management rights were transferred from Allure Hotel and Apartments Pty Ltd (AHA) who had acquired them from the developer, South Townsville Developments Pty Ltd, on 3 September 2014.

From the beginning, the management rights business had been operated from a manager’s unit (lot 201) and a reception area, initially located on the common property.

While AHA was the operator, that area of common property was converted into part of a new lot, being lot 100.  At no stage did AHA own lot 100 or lot 201.

Section 116 of the Body Corporate Community Management Act 1997 requires that where a letting agent business is conducted from a lot then at all times the letting agent must be the registered owner or lessee of that lot, or there must be a deed in place between the Body Corporate and the owner of the lot.  Under that deed the lot holder must agree to transfer the lot if the letting agent is required to transfer the letting agent’s management rights under Division 8.

Adjudicator Roseman found that on the facts before her:

  • AHA had never been the owner or lessee of lot 201 or lot 100 (from when it was created);
  • There had been no deed in place between the Body Corporate, AHA and the owner of lot 201 or lot 100; and
  • The letting agent business had been conducted from lot 100 (the reception) and lot 201 (the manager’s lot).

As a result, there was a breach of section 116 and in consequence “the letting agent’s authorisation as letting agent has no effect”.  In short, Adjudicator Roseman declared that at the time the Body Corporate committee authorised the transfer of the management rights (caretaking agreement and letting agreement) from AHA to ATA, the letting agreement was void.  Accordingly, no transfer had taken place as a void agreement cannot be transferred.

In September of 2015 ATA had entered into a lease with the owner of lot 100 which was back dated to commence on 5 May 2015.  Adjudicator Roseman found that this did not cure the problem and the letting agreement was still void.  That was because the lease was between the owner of lot 100 and ATA, and not the owner of lot 100 and AHA.  In short, the lease had to be in place before the management rights were transferred.

Because the lease was required to be in place “at all times” and it was not in place before the transfer took place, the void letting agreement was not transferred.

The decision is a critical one for management rights operators.  It shows that Adjudicators will be prepared to declare a letting agreement void if section 116 has not be complied with.  Accordingly, it’s critical to ensure that section 116 is complied with at all times, especially before a transfer takes place.  If not, there will be no effective transfer and the (void) letting agreement, will remain with the seller.

If you are concerned about what the decision means for you then contact
Stratum Legal

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