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Understanding Management Rights
Buyers looking to get into the tourism industry need to consider a variety of aspects, including management rights. However, there's a significant difference between motel leases and management rights, and it’s crucial to understand this difference.
In New Zealand, thousands of complexes that utilise a management rights structure have been built in high-tourism areas. Typically, these comprise genuine apartments that are essentially fully fledged homes owned by different people. Each owner is looking for a return on investment, which involves placing the home into a letting pool.
There is a Body Corporate levy – usually between $6,000 and $8,000 per annum, although this amount can vary significantly. This fund finances a wide range of work that must be undertaken on the exterior of the apartment as well as communal areas, such as stairwells or foyers.
The apartment owner, on the other hand, is responsible for holding insurance on the property and must maintain the interior of the apartment.
Different complexes have different zonings, so in some cases, apartments are zoned as permanent, so owners can stay in the complex permanently. Some are zoned as transient, so owners cannot live there full-time. Even when the apartment is zoned as permanent, owners often choose to use a letting pool so they get some return on their apartment when they’re not there. If the apartment is zoned as transient, it’s often used for the maximum number of days during the off-season by the owner and then let out during the peak season.
Income and Outgoings
Whoever holds the management rights of the entire apartment complex has several income streams, which are set out in the letting agreement. Typically, management rights owners receive a percentage of the nightly tariff, which covers accommodation, the marketing allowance, the telephone allowance, cleaning expenses and other costs. Approximately 45% of the tariff often goes to the management rights owner and 55% goes to the apartment owner, although this varies. The management rights owner may also derive income from hiring out equipment or charging for internet access and maintenance.
Management rights usually have a tenure, unlike a motel lease – a lease usually has a landlord. In the case of management rights, the Body Corporate decides whether to grant an extension on the tenure. This involves a renewal process, normally highlighted in the management agreement and it may be rolled over at no cost. However, these specifics are decided on by the Body Corporate.
Often, the reception is part of the Managers Unit Title. If this is not the case, there is usually a clause allowing the manager the right to use the reception area.
When a management rights purchase is made, there are two key components: the business and the freehold manager’s apartment. In some cases, these are sold off separately, depending on the outgoing management rights owner’s discretion.
The three documents that relate to management rights include the management agreement, the Body Corporate rules and the letting agreement.
- Management Agreement: This deals with the manager’s role and duties and includes essential information about the business and how it is to be conducted.
- Body Corporate Rules: These are the rules that apartment owners have to follow.
- Letting Agreement: This explains the way the income is created for the business. It should detail the way that owners opt in and out of the letting pool and the income splits.
Management Rights vs. Motel Lease
In general, management rights include a manager’s salary as well as a freehold apartment, unless the apartment has been sold off separately. In addition, there is no rent or outgoings to pay, nor do you have to pay building rates or insurance costs. The Body Corporate covers external work, whereas apartment owners cover internal work, so you don’t have to worry about that aspect. Even better, you choose how much work you wish to do and you don’t even have to cook breakfast.
For a motel lease, you need to pay annual rents and rates as well as building insurance and you don’t even get a set salary. As a result, you’re also responsible for all maintenance, including external and internal, as well as upkeep. You also have to rise early for breakfast and you only purchase the business, not the real estate.
For further information about this article, contact your nearest LINK Business Broking office at: