As yet another year draws to a close, I have been thinking back over the many Management Rights questions I have been asked by RAAS members during 2007. From a list of dozens, there is one topic that comes up time after time! The number one question is “How does the 3-2-1 rule work?”

I thought I would make my 2008 easier by giving a brief explanation of 3-2-1 to close 2007!

By law, a Body Corporate may not benefit financially from the sale of the Management Rights to the complex i.e. they are not allowed to sell the rights themselves and pocket the proceeds. However the BCCM Act contains a provision that allows the Body Corporate to charge a fee to the selling manager if that manager sells his business within a legislated time frame of receiving a new agreement or an extension (top-up) to an existing agreement.

The rationale for this provision was that the granting of the new agreement or top-up made the Rights more valuable for the seller. We may not agree with this rationale, but we are stuck with it!

This provision is referred to as the 3-2- 1 rule. If an owner sells the business within one year of receiving the new agreement or top-up, he may have to pay 3% of the contract value of the business (only) to the Body Corporate; sell within the second year

and the fee becomes 2%; and within the third year, 1%.

There are some things that should be specially noted — the fee is not compulsory, and we know of quite a few cases where it has not been charged. It is at the discretion of the Committee of the Body Corporate and the Committee’s decision is final. A Committee may decide that, in light of the Manager’s long and faithful service, it would be unfair to charge the fee. It is more likely to be charged when the Manager’s tenure has been short. The fee is applicable to the BUSINESS only — the manager’s unit cannot be subject to 3-2-1.

The fee is determined by the length of time that has elapsed since the agreements were entered into by the original owner, new agreements drawn, or old agreements topped-up — not by how long YOU have owned the Rights! For example, if you bought a complex that was five years old and sold it again a year later, you would not be subject to a fee unless there had been a new agreement or top-up in the three years prior to your selling. It should also be noted that the exercising of an existing option does not trigger a 3-2-1.

If you are thinking of selling your Rights and you suspect you may be in danger of copping a 3-2-1 fee, it is important you consult your specialist Management Rights

VALE

It is with great sadness that The RAAS Group announces the passing of Lorraine Lush. Lorraine passed away in late October after a long battle with cancer, and the directors and staff of RAAS would like to pay tribute to the enormous contribution Lorraine made to the success of the group. A champion businesswoman, a champion sportswoman, a champion mother — and an all-round champion person! We will all miss her.

solicitor before you proceed! The whole crazy business revolves around dates, and it is not the dates on sales contracts that are important — it is the dates that agreements were entered into and the dates assignments were (or will be) consented to, that can bring you undone! Get EXPERIENCED legal advice before you commit!

If you would like to comment on anything you have read in The RAAS Report please write to us at PO Box 1325 Sunnybank Hills Q 4109 or send an email to mike@raas.com.au.