Blog Articles

1. Are your PAMDA20’s signed by every owner?

Missing PAMDA forms are still the bane of every transaction. Without them you cannot charge commission. Purchasers (and their accountants) will ask for them. Be ready for that question if they are not all there and chase them down if you don’t have them. 

 
2. Are those PAMDA20A’s assignable?

If they are in the current form (effective from 1 July 2009), has the assignment section (section 4.4) been ticked AND initialled by all of the owners? If not, it is not going to be automatically assignable.

If you used earlier PAMDA forms (which is fine for appointments signed prior to 1 July 2009), have the owners agreed to making the appointment automatically assignable by a separate agreement?

Missing appointments, and those that are not automatically assignable, remain the single biggest issues on every sale.

3. Are there any outstanding due diligence issues from when you purchased?

Were there certain things that your lawyers recommended should be corrected in the agreements? Have you done these? If not, be ready to have that same conversation with the purchaser.

4. What is the status of the term of your management rights agreements?

Do you know the term remaining on your agreements? This is very important to any purchaser. Do you need to top your agreements up as part of the sale?

Have you exercised your options and documented that with the body corporate? Failing to exercise an option can have diabolical consequences.

5. Do you have up-to-date sales figures?

Are you having a ding dong battle with the committee? Are there building defects that have not been dealt with? 

These issues will normally be revealed in the purchaser’s due diligence when they look at the body corporate records. Our experience is that if these type of issues are managed up front and disclosed to the purchaser before the contract is signed, then the outcome will be a lot different to the position where the purchaser identifies it during due diligence and then asks the question as to what they were not told in the first place.

7. Are you being realistic on your settlement timing?

Almost all management rights contracts are subject to verification of figures, legal due diligence and finance approval. These usually take about 28 days from the day the contracts are signed to complete. You then need to seek body corporate approval.

A body corporate is allowed up to 30 days from when it gets everything it needs to consider an assignment to make a decision on the assignment itself. This can happen more quickly if the committee agrees.

Signing a contract and expecting settlement in under 2 months (unless you have a great working relationship with your committee), is potentially unrealistic. Making sure you have the right timeframes from the start of the transaction will usually save a lot of panic at the end. 

There are a lot of moving parts in every management rights transaction and the unfortunate reality is that it is rare to have a management rights transaction that is straight forward. That said, if you make sure you have sorted all of the above items we can guarantee it will take some of the immediate issues off the table from the start.

If you have any questions in relation to this article, please contact Frank Higginson.

Always on the look-out for an interesting topic of conversation, I’ve recently been asking managers for their thoughts on a recent discussion paper put forward by Paul Lucas MP (Minister for Local Government and Special Minister for State) entitled ‘Management Rights in Community Titles Schemes’. Much to my surprise, very few managers had heard of it, even less knew much about the content.

Let me provide a quick background to the paper. Many have heard of the Unit Owners Association of Queensland (UOAQ), an industry association who according to their website aim ‘to advance the interest of unit owners’. One of their principal areas of activity at present is the lobbying of Government for a complete review of the management rights industry. In fact, some would argue that the UOAQ has been hijacked by a minority faction who takes issue with our industry and that the lobbying has become more of a vendetta than anything else.
Although no connection to the UOAQ’s lobbying effort is divulged, we are now presented by a paper put forward by a Member of Parliament that seems to point to exactly what they are looking for, namely a total reassessment of the principles that underlie the management rights industry as we know it. More importantly, rather than providing a balanced discussion of the industry, many feel that it leans heavily towards many of the drastic reforms advocated by the UOAQ.

There is insufficient space in this article to outline all of the views put forward in this paper, but for the sake of catching your attention I’ll mention a few of them.

One of the most potentially damaging suggestions is that the length of current regulation modules (whether Standard or Accommodation) are unnecessarily long. It states that ‘some lot owners….feel ‘bound’ by typically long-term contracts’. In a summary of ‘stakeholder views’ at the end of paper, it states that while some believe the regulatory framework to be ‘in balance’, some believe that major change is required such as limiting management rights contracts to 3 years. I’m sure there is no need to discuss the devastating impact this would have on the management rights industry.

Another ‘view’ is that the extension or topping up of contracts should be prohibited. It suggests that ‘bodies corporate grant such requests (for extensions) almost by default’ and ‘that it is extremely rare for a body corporate to vote against such requests’. We all know that the reality of the situation is quite different. An extension is granted in a democratic way by unit owners who wish to secure and encourage the ongoing efforts of a good manager. Plenty of scope exists for owners to deny an extension should they not be satisfied with the services provided by the manager.

It also expresses concerns that ‘the extension of rights is often a prelude to the sale of the rights, resulting in a windfall gain for the resident manager’. The author of this paper clearly has little knowledge of the current state of the management rights market. In recent times there have been very few sales that result in a large capital gain for the resident manager. When this is the case, it can usually be attributed to an extremely hard working manager turning a poorly run complex into a thriving one. More to the point, extensions are a critical way of securing a substantial monetary investment and creating an environment where managers, owners and committees can work proactively together without fear of their relationship coming to an end.

Don’t worry; there is no need to start losing sleep just yet. At the moment this discussion paper is just that, a discussion paper. Those that have instigated it are a small minority and will undoubtedly remain so. There are many times more stakeholders who will oppose the reforms suggested in this paper - RUM’s, solicitors, accountants, agents, politicians, financiers and unit owners themselves to name a few.

Nonetheless, it is important for everyone who has a vested interest in the management rights industry to read the paper, be aware of its content and respond to it. The nature of a discussion paper is to invite all ‘interested individuals and organisations to make a written submissions’. The paper and the submissions it receives will be discussed by people who may influence government policy. You can count on the fact that members of the UOAQ will be making submissions, please make sure you do too.

As a parting word, I’d like to push home the fact that the management rights industry in Queensland is something we should be proud of. Rather than having to endure misguided people pulling it to pieces, we should be showing it off to the world as the optimum model for how things should be done.

The discussion paper and contact details for submissions can be accessed at

It seems a simple enough strategy.  Consumers are always looking for a bargain.  So a discount might help sell more rooms or, at the very least, maintain occupancy levels.

After all, it’s only $10 a night.  Not much, right?  WRONG!

A seemingly small discount of $10 per night will have far reaching negative consequences.  To illustrate the impact, consider the following example, based on a 25-unit motel operating at 63% occupancy.

A discount of $10 per room night ($9 nett of GST), if occupancy remains the same, would make a difference of $51,740 per annum to the bottom line.  That’s a fall in nett profit of $51,740 – more than 25% – in just 12 months.

The discounting strategy would need to boost occupancy dramatically to 69% in order to just maintain the nett profit the motel was already generating before it started discounting.

The motelier’s income would be no better.  In fact, it may still be lower, as their workload and variable costs would rise along with occupancy.

And that’s not the end of the bad news.  Should this motel owner then consider selling the business, they would be in for another rude shock.

Most motel leases sell at a yield of approximately 30%.  So, in this case, if occupancy remained at 63%, the selling price of the business would be reduced by a very significant $165,000.  And all because of a lousy $10 per night discount.

Discounting is a simplistic approach to revenue management that just doesn’t work.  It damages your bottom line.  It devalues your business.  And it cheapens the wider tourism sector in your region by sending out a negative message.

The primary goal of revenue management is to lift your bottom line –  not necessarily to lift occupancy.  Remember, increased occupancy has its own associated increases in costs – linen, disposables, housekeeping payroll, etc.

The key to increasing net profit is to find ways to increase the average room rate.  Just as discounted rates come off your bottom line, most of every dollar added to your tariff goes on to your bottom line.
So, don’t sell down … sell up!

Many motels are quick to discount if reservations are down.  Yet they do nothing when reservations are stronger than anticipated.  Instead of discounting in times of low demand, why not lift rates in times of high demand?

Think about the last time you flew somewhere.  If you purchased your airline tickets in advance, before the seats began to fill, you probably got a good deal.  But if you left it until the last minute, when the flight was nearing capacity, you would have paid the highest rate.

The airline concept is simple: as occupancy increases, the rates available for sale also increase.  Motels should operate on the same principal.  Yet, strangely, many tend to do the opposite, discounting rates to fill those last few rooms.

Adopting an ‘advance purchase rate’ tariff structure has several benefits.  It will encourage advance bookings, helping to fill rooms earlier.  This assists with many management issues, including ordering, catering, staff rostering, etc.

In times of higher demand, you are then able to charge a premium for sought-after accommodation.  The higher tariffs paid for last minute reservations and walk-ins help to balance any periods of lower occupancy, with most of the increased revenue adding directly to your bottom line.

By Alex Cook, Resort Brokers Australia
 

The news of The Gold Coast’s successful bid to host The 2018 Commonwealth Games was met, as you would expect, by almost universal acclaim except, perhaps, in the tiny Sri Lankan sea-side town of Hambantota that came second.

There were scenes of jubilation at Broadwater Parklands where 7,000 supporters gathered to hear the announcement and where revellers danced and cheered into the night. On hearing the news in St Kitts, Anna Bligh leapt to her feet and screamed with joy.  She has been a fervent supporter of the bid from the outset, touting the games as a ‘once-in-a-lifetime opportunity to transform the Gold Coast’ and ‘vitally important to its future.’

Indeed, promises made by the Government in regards to the benefits that the games will bring to the Gold Coast are impressive. We are told that a $2billion economic injection will be pumped into the city and that 30,000 jobs will be created. This would certainly bring a much needed adrenaline boost to the Gold Coast’s ailing business sector. Some Gold Coast business operators have gone so far as to claim the dawn of a new era of prosperity, saying that the news has come just in time to save many tourist operations.

There is, however, a danger inherent in such assumptions. They assume that the Games will be the ``silver bullet’’ for which so many have been waiting.

Perhaps a more sanguine approach is required? Some observers have questioned whether there will be any economic benefit at all. In particular, what effect will the games have on our tourism and accommodation sector?

The construction required to create the facilities and infrastructure necessary to host the Games will undoubtedly create jobs. The word is that work on the $650 million Games village at Parklands will begin as early as February, so the effect could be sooner rather than later. Next to tourism, building has been the sector worst hit by the economic downturn, so these jobs will be well received.

As jobs are created and workers return to the coast, demand for residential accommodation will increase. This will hopefully begin to fill the current excess of rental accommodation and possibly help stimulate some entry level sales.

The extent of the planned development work is significant. There is a 15,000 seat extension to the Metricon Stadium, a $40 million re-development of the aquatic centre, upgrades to sports centres in Coomera and Broadbeach, new world-class squash, badminton and mountain bike facilities and substantial investment in transport infrastructure. Local businesses operating in supporting sectors such as IT should also benefit.

Whether this cash injection and job creation will be sufficient to reinflate the Gold Coast’s burst real estate bubble is questionable. The amount of stock currently available indicates that it might only be a small help. However, a small help is better than none!

Much of the focus of the bid has focussed on how the Games will provide a much-needed boost to the Gold Coast’s critically important tourism sector. Ms Bligh stated that ‘The Games will bring superb tourism opportunities for the Gold Coast and Queensland’. Few would question that it is a prime opportunity to display our wonderful attractions and world-class beaches to the world; the Gold Coast will undoubtedly provide a spectacular backdrop to the Games and remind people about the attraction of visiting South East Queensland.

The point which must be borne in mind, however, is that our scenery has never been our problem. Our beaches have remained beautiful and the sea is still warm. Our problems have been the strength of the dollar and an Australian tourist who has started choosing more exotic destinations. It’s fantastic that the Gold Coast has been granted this opportunity and I wait with anticipation to see how it will adapt and change over the next seven years.

The future and indeed the salvation of the Gold Coast lies with the emerging middle classes of China and India. These are the people whom we must encourage to visit our shores and enjoy a tourism experience which they will carry home to their peers.

We have to ensure that when these people come, their cultural needs are catered to and the infrastructure is in place to accommodate them and that they are treated honourably and with respect.

The Games will be a positive factor but we must make sure the infrastructure created benefits the area for decades to come, not just the games.  Let’s also take the opportunity to up-grade our existing tourist accommodation in the lead-up to the games. Although few doubt there are sufficient rooms, many would question the quality of some.  We need to ensure that the 130,000 attendees to the Games return for further holidays, and that when the tourists from India and China begin to come in increasing numbers, as I am certain they will, that we are ready for them.

We may not get a second chance.