What are Management Rights?

Management Rights

ˈmænɪdʒmənt raɪt

Noun

Management Rights

‘Management rights’ or ‘management letting rights’ is a term used to describe the business behind the operation of strata titled property.

‘Strata titled’ refers to the situation where a building or complex is divided into a number of units or ‘lots’, each owned by a different person.

The ‘lots’ are generally purchased by people intending to live in them permanently (owner occupiers) or people looking to let them to tenants (investors).

Within strata titled properties, there will always be ‘common property’ not contained within the lots. This can include anything from stairwells, driveways, and gardens to pools, gyms and tennis courts.

Essentially, management rights are the business of on-site caretaking (i.e. looking after the common property) and on-site letting (i.e. renting out unit on behalf of investors).

What do management rights include?

Manager's Residence + Caretaking Agreement + Letting Agreement
Manager’s Residence

Manager’s Residence - As management rights is the business of on-site care-taking and letting, the business owner is usually required to own and/or reside in a lot within the complex. This often includes an office, or the right to use an office. The variety of manager's accommodation is enormous. One building might have a small one bedroom unit behind reception, the next might have a huge four bedroom penthouse.

The owner of the management rights of a building enters into contractual agreements with the body corporate of a complex

The 'care-taking agreement' outlines the duties that the manager must perform within the complex in return for a specified remuneration. This is known as the 'body corporate salary' and is paid monthly in arrears.

Letting Agreement
Caretaking Agreement

The 'letting agreement' provides the manager with exclusive authority to provide an on-site letting service for owners wishing to let their property out. Although owners are free to use 'outside agents', they rarely do as an on-site manager can provide a much better service.

Wrist watch
How long do Management Rights last for?
10 years standard module
25 years accommodation module

Care-taking and letting agreements can be extended by application to the body corporate committee. This process is know as 'topping up'. The ability to continually extend agreements maintains the value of management rights businesses. Some agreements go to a maximum of 10 years (standard module), some to a maximum of 25 years (accommodation module).

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Types of management rights

PERMANENT

Permanent complexes are comprised of people who occupy the units as their primary residence; either owner occupiers or tenants renting for a minimum of 6 months. The management rights business involves finding good tenants, maintaining common areas and developing good relations with the unit owners and body corporate committee.

SHORT TERM

Short-term complexes can be located in Australia's tourist hubs with a focus on holiday letting, or located in business hubs with a focus on corporate letting. Running a short-term management rights business is virtually the same as running a hotel. The property must be marketed to attract guests and a high level of service is required.

NB many complexes are mixed use, with both short-term and permanent occupation.

Permanent or Short Term
Worth

What is a managements rights worth?

The business

The value of a management rights business is calculated by applying a 'multiplier' to the annual net profit. For example, if a management rights business has made a net profit of $150,000 in the last 12 months and the multiplier is set at 4.5X, the price of the business will be $675,000.

There are no set rules to what the multiplier will be; it is subject to supply and demand and is therefore set by the market. Factors that can influence the multiplier are positioning, income level, growth potential, duration of the agreements, style/quality/age and location.

The manager's residence

The manager's unit is valued like any other piece of residential real estate. However, any additional space associated with the manager's lot (ie office, storage, linen cupboard) needs to be taken into account as it will add some value.

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