Published: 01 February 2008.

By Kirsty Thomas of SMH Lawyers

In Part One of this article, we explored what a managed investment scheme is and why it is relevant to Management Rights. Now we will explore the exemptions that may relieve Management Rights operators from complying with the onerous MIS provisions of the Corporations Act 2001 (‘Act’).

Currently the most common class order exemption that applies to Management Rights schemes is CO 02/305, so we will focus on this exemption. The on-site manager must comply with all of the requirements of this class order to be exempted from the MIS provisions of the Act.

What are the requirements?

• Product Disclosure Statement (‘PDS’): a statement complying with the Act must be provided to a person before they agree to place their unit in the on-site manager’s letting pool. The initial PDS should be prepared by your solicitor to ensure it complies with the Act in all respects. Thereafter you can produce the PDS yourself to provide to individual owners.
  
• Residency permitted: each unit must be able to be lawfully used as a residence. If there are restrictions in place which mean that each unit cannot be used as a permanent residence (e.g. town planning restrictions, physical layout of the units), then you may apply to ASIC for specific relief from this requirement, provided you comply with all other requirements.
  
• Withdrawal: either party may withdraw from the scheme on a maximum of ninety (90) days notice.
  
• No joining fees: no payments are required to be made by the owner to participate in the scheme other than the cost to purchase the unit and a reasonable share of the on-site manager’s fees and expenses.
  
• Voluntary: it must not be compulsory for owners to appoint the on-site manager to let their units.
  
• Forced sale provisions: the agreement between the owner and the on-site manager must contain the ‘forced sale provisions’ which allow a majority of owners in the letting pool to force the on-site manager to sell the Management Rights to another unrelated party for market value.
  
• Operator obligations: the on-site manager must:
  • hold monies in a trust account which is audited annually;
  • observe restrictions in relation to funds established for replacement, repair or refurbishment of furniture, fittings and equipment (‘FFE’) for the unit (e.g. payments to the FFE fund must be deducted from rental income and not be more than 3% of the gross rent for the period, the balance of the FFE fund for each unit must not exceed $5,000 at any time);
  • hold the relevant licence to conduct lettings;
  • not engage in misleading and deceiving conduct;
  • observe restrictions in relation to advertising.

As you can see, this is quite a technical area and you should obtain specialist legal advice before purchasing Management Rights to ensure the scheme you are purchasing complies with the Act.

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