The good and bad sides to buying more than one management rights business
By Frank Higginson11 Oct 2013
It is not uncommon for there to be management rights businesses on the market that operate through more than one body corporate. These can be principal and subsidiary bodies corporate, side by side schemes or just completely separate businesses that have somehow been put together over time.
Buying more than one business is neither right nor wrong. It is always a personal investment decision for the buyer about what suits their particular needs – no different to any other investment decision.
Some of the benefits that come from having more than one management rights business include:
- There is no one ‘controlling mind’ for your entire business. If you get one committee member offside it does not necessarily impact on the other committee(s).
- You have diversified your business risk. Subject to the content of the management rights agreements themselves (primarily around linkage for termination), if one scheme has issues it will not necessarily impact on the other scheme(s).
- You may be able to sell part of your management rights business if needed - as opposed to having to sell the lot if you only have one management rights business (again subject to the agreements).
- You may be able to purchase just the one piece of real estate. This means you should have a higher investment return as you do not have additional real estate with the other business which would effectively lower your overall investment return.
- You get the benefit of whatever economies of scale you can muster. As a simple example, you only need one licence – which means your licence cost per scheme is halved (or more).
- A few smaller schemes can be combined into one larger, more scaleable (and usually valuable) business.
Some of the downsides include:
- The purchase and sale process is going to be more expensive (particularly legal and valuation costs). Each management rights business needs a due diligence and each body corporate will need to consent to the assignment.
- Some buyers simply won’t want to look at more than one scheme to run – meaning your potential buyer pool is slightly smaller in some respects
- You have to deal with managing more personalities than in just the one scheme. You may have separate body corporate managers and you will almost certainly have separate committees.
- You will more than likely need a full real estate agents licence (unless the businesses are ‘contiguous’ – which means that they are adjoined and are not separated by a public road).
- Bank lending ratios can differ from a stand-alone business because of the potential individual nature of them.
- Depending on how each committee decides to operate from a governance perspective, you will almost certainly have more committee and general meetings to attend.
- If you do not own a unit in the scheme you do not automatically have the right to submit motions for inclusion on the AGM agenda, or even to attend general meetings. You will need to obtain the right to do that from an owner.
One of the legal issues with running more than one scheme from a single lot is ensuring that the real estate you operate from should allow you to use that lot for both internal and external purposes. This is particularly with respect to the by-laws.
There are no doubt plenty more differences – but these are a start. If any of you have any further ones we can add please email us and we will add them to this article published online.
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