Published: 22 December 2008.

Contributed by Peter Crawford of Madgwicks

The use of on-site managers is commonplace in the serviced and holiday apartment industry throughout Australia. However, many operators and owners are unaware of the overarching regulatory regime imposed on Management Rights Schemes under the Corporations Act 2001 (Cth) . Until recently it has been difficult to establish and operate Management Rights Schemes in Victoria as, unlike other states, a full real estate agents licence was required. Following a relaxation of the requirements of the Estate Agents Act 1980 (Vic), we are seeing an emergence of these Schemes in Victoria.

Management Rights Schemes, or schemes under which apartment or unit owners pool their apartments together to be let and maintained by an on-site manager are regarded as managed investment schemes by the Australian Securities and Investments Commission (ASIC). Managed investments schemes are strictly regulated under the Corporations Act, which places substantial obligations and disclosure requirements onto a Management Rights Scheme operator. For many, compliance with these obligations and requirements would outweigh the benefit of operating this type of business or using this type of arrangement on a small scale.

However, the requirements of the Corporations Act need not be complied with where the Management Rights Scheme complies with ASIC Class Order 02/305. This Class Order prescribes how owners may enter and exit the scheme, what types of payments are allowed and how management rights can be transferred. If owners and operators comply with these requirements, their scheme will be exempt from registration under the Corporations Act and the operator will be exempt from holding an Australian Financial Services License.

Where the onsite manager also performs letting duties on behalf of the owner, provisions in the Estate Agents Act will restrict the performance of their duties. Where the onsite manager provides services to an Owner's Corporation, both parties need to also be aware of the relevant provisions in the Owner's Corporation Act.

On the one hand it is important that onsite managers, owners and brokers understand how Management Rights Schemes are regulated in general, and are aware of, and comply with, the additional requirements placed on Management Rights Schemes in Victoria. On the other hand however, it is equally important to realize that this task is not impossible if the commercial arrangements between the manager, the owners and the owners corporation are properly documented and comply with the ASIC requirements.

If you have any queries about management rights schemes please contact Vanessa Ritzinger, Lawyer, on (03) 9242 4732 or via email vanessa.ritzinger@madgwicks.com.au or Peter Crawford, Partner, on (03) 9242 4707 or via email peter.crawford@madgwicks.com.au

For more information on Madgwicks' Hospitality & Tourism experience, please follow this link here:  http://www.madgwicks.com.au/index.php?sectionID=4708&pageID=4720

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