Management agreements and exclusive letting

by | Aug 29, 2012 | General property Law, Unit Titles

The first is the Court of Appeal’s decision on 21 February 2012 in Atrium Management Limited v Quayside Trustee Limited (In receivership and liquidation).  This case was concerned with an agreement for the sale and purchase of management rights.  It was not a body corporate challenging a management agreement as ultra vires or trying to use section 140 of the Unit titles Act 2010 to terminate a management agreement. 

The vendor was unable to deliver the management agreement it had promised the purchaser.  It could not deliver the exclusive letting rights granted by the body corporate, largely because of the High Court’s decision in a case decided after the agreement for sale and purchase was entered into.

The Court held that the delivery of the exclusive letting rights was fundamental to the agreement between the vendor and the purchaser, such that the purchaser could cancel the agreement for sale and purchase.  There is commentary about the exclusive letting arrangements being so fundamental to the agreement for sale and purchase, such that these clauses could not be severed and the purchaser obliged to proceed with the purchase.  Some say this finding could be such as to suggest a Court would not sever the exclusive letting clauses in a management agreement, if held to be ultra vires when challenged by a body corporate.  A better view is to say this point was fundamental to the agreement between the vendor and the purchaser, and that is why the purchaser was successful in extracting itself from its obligations to purchase.

The High Court  considered whether exclusive letting arrangements could be upheld in ABCDE Investments and Others v Van Gog and Body Corporate S89906.  This decision was on 24 May 2012.  The exclusive letting rights were contained in:

  • the body corporate’s rules registered under the Unit Titles Act 1972
  • the management agreement between the body corporate and the manager
  • an encumbrance registered against the certificate of title

The Court held the encumbrance was enforceable and successfully created an enforceable right for the manager to maintain it was the only party able to manage lettings from the complex.  This was the wide view of exclusivity i.e. it was not that the manager was the only one able to carry on a letting business at the property, it was the only one able to manage the lettings at all. 

The body corporate rules were ultra vires as they had not been created properly and so could not be relied upon.   The Judge notes that even if they had been created correctly they would still be ultra vires.  The management contract was also invalid as a result of the rules not being validly adopted. So the body corporate did not have the power to enter into the contract.

In addition we have the Sentinel case referred to here.  Whilst discussing exclusive letting rights we should be clear that the Judge in that case was not happy with exclusive letting rights being granted by the body corporate.  This was the narrow view of exclusivity, i.e. the Judge held as ultra vires a rule granting exclusive rights to the manager to manage lettings at the property. 

So where does this all leave the ability of a manager to maintain an exclusive right to manage a letting service?  If they are relying on a management agreement or rules created under the Unit Titles Act 1972 this may be a difficult right to continue to insist on.  Transfers of management rights with body corporate consent might strengthen the manager’s position.  The requirements of the original resource consents and/or planning restrictions might assist in a different way.  If an encumbrance or other interest is registered against titles these should be enforceable.  These decisions could impact wider restrictions on use too e.g. granting other exclusive rights to certain units or owners and protecting those in the body corporate rules.

Ironically to some, these decisions are coming at the same time as The Office of the Body Corporate and Community Management Commissioner in Queensland ruled as invalid an attempt by a body corporate to change its "rules" to preclude the manager from continuing its exclusive letting business.  The body corporate’s changes to the rules were oppressive and unreasonable and therefore unalwful.  The manager had a legitimate interest and right to continue with its business.  The Australian industry has not been without its problems either, but perhaps they are a few years ahead of us in this area having lived with management rights for longer.

This seems unlikely to be the last word in this area.

By <a href="" target="_self">Denise Marsden</a>

By Denise Marsden