This issue isn’t new – the concept of a transfer fee was introduced in 1997 when the Body Corporate and Community Management Act (BCCM Act) first arrived and then tweaked in 2008 when the BCCM Act was reviewed.
The concept of a transfer fee itself is bizarre. A transfer fee is the fee payable to the body corporate if it is required to consent to an assignment inside a certain time frame. Nowhere else in the Queensland legal system is such a fee enshrined in legislation. If you want an analogy, think of it like a landlord consenting to the assignment of a tenant’s interest in a lease. The landlord cannot charge a fee relative to the value of the business being transferred as a condition of consent, but under the BCCM Act a body corporate must do something like that.
Leaving aside that rant, it is here and we are stuck with it.
So what are the rules, and what triggers the need for an article on something that isn’t new….
A transfer fee must be charged by a body corporate if it consents to an assignment of management rights within two years of the purchase of the management rights by the vendor. Unlike the regime before 2008, the creation of a right to charge a transfer fee does not refresh on the grant of a new management rights agreement or the variation of an existing one to create a further option term. So, if you are thinking about selling and you have been at your business for more than two years, you are off the transfer fee hook – permanently.
If you have been there less than two years then you are in the frame. The fee is 3% of the value of your business if you are selling in the first year since you purchased, and 2% if you sell within the second year. The fee is a percentage of the sale price of the business only. The real estate value is neither here nor there for the purposes of the fee.
A body corporate cannot charge a transfer fee if your sale if caused by genuine hardship that wasn’t reasonably foreseeable by you at the time you purchased. While there hasn’t been much litigation on that issue since 2008, there certainly was up to then. As always, it is a question of fact and degree in each instance.
We have had more questions about the transfer fee in the last few months than we have had in years. We have also been seeing more cheques drawn to bodies corporate for transfer fees since 2008.
Clearly the market is moving along at a fair clip. Vendors are being headhunted by both agents and purchasers direct, meaning they are selling inside what would be considered a ‘normal’ management rights tenure. We are seeing quite a few direct deals at the moment (which is a sign of a buoyant market), and some of these are inside that two year window.
The imposition of a transfer fee by a body corporate is compulsory if you are not selling because of that genuine hardship exception inside that two year window. If it is payable you simply need to factor it in an additional selling expense (like you would agents commission and legal fees), to know what your bottom line is. The alternative is to delay the body corporate until the window closes.
The transfer fee includes GST, so if your body corporate is registered for GST, you do get 1/11th of it back.
As always, we can help give you clarity on whether you are in the transfer fee zone if you need it.