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Partial assignments of management rights and the transfer fee

By Frank Higginson16 Sep 2015

Allisee is a large complex at Runaway Bay on the Gold Coast.

The management rights were owned in partnership by three separate entities who had all acquired their partnership interests at different times.  These were June 2007, January 2013 and May 2014 respectively.

The entire management rights business was sold to a new buyer in late 2014 and the question of a transfer fee arose in relation to the assignment. Did it apply, and if so, on what basis was it to be calculated?

It is a rather lengthy decision, with some very legalistic discussion around novations and assignments, but if you want to cut to the chase (as most do), the takeaways for us are:

1.       The initial contract date

This is the trigger for the starting of the transfer fee obligations.  If the management rights business is sold within two years of this date a transfer fee is payable.

The question in this case was whether that clock started ticking for just the entity that purchased its 35% share of the management rights business in 2014, or whether the clock restarted for everyone based that last partner’s acquisition of a partnership share, when that partner bought in.

At risk was a 3% transfer fee on the balance of the 65% share of the management rights business that had been owned for more than two years by two of the partners.

While there were arguments both ways, the adjudicator held that the initial contract date was the date each party purchased their respective partnership shares. 

This meant that the transfer fee was only applicable to the last partner to purchase.

2.       The approval day

This is the date that closes out the compulsory imposition of the transfer fee and is the day the body corporate approves the transfer of the management rights.  The transfer fee clock starts ticking on the initial contract date.  If the approval day is within two years of the initial contract date a transfer fee is payable.

The question here related to the conditional nature of the body corporate’s approval.  The body corporate approved the assignment subject to certain things.  The question was then whether the approval day was:

a. the date that the decision to conditionally consent to the assignment was actually made; or

b. when all of the conditions of approval were satisfied.

The answer was the former.  The committee consented to the assignment on 29 January 2015.  That was the ‘approval day’ for the purposes of the legislation even though that consent was subject to certain things occurring after that date.

The last partner in wore the 3% on their share and the others were off the hook.

To be honest, it went the way we thought it would, but you sometimes never know with litigation. 

You can read the decision here.