Management Rights – An Industry Update

Tony RossiterManagement Rights

Change in Legislation

One of the biggest changes in the property management industry in Queensland was the commencement of the Property Occupations Act 2014 (POA) on 1 December 2014. The reduction in the red tape brought into effect with this new Act was anxiously anticipated by a wide range of stakeholders in the Property Industry including resident letting agents. The POA replaces the Property Agents and Motor Dealers Act 2000 (Qld) (PAMDA).

One of the most significant (and often overlooked) changes which relates to those in the management rights industry is the removal of capped commissions and the requirement for agents’ to disclose the commission they are charging the Unit Owner.

PAMDA previously capped the amount which may be recovered as commission by a property manager to 5% for permanent letting and 12% for short term letting. The commencement of the POA deregulated the charging of commission, removing the maximum commission cap. The intention behind this change was to encourage more negotiation with agents and to allow unit owners to choose their agent based primarily on the services being provided and with less emphasis on the rate of Commission being charged. Essentially deregulating the charging of Commissions.

Other changes introduced by the POA relating to the Resident Letting Agent Licence holder included:

  • The removal of the requirement to display the licence in their place of business;
  • Ability to manage units is multiple complexes;
  • Ability to reside off-site (subject to Body Corporate agreement); and
  • Ability to complete a licence application without evidence of Body Corporate approval.

Risks to the Industry

There are a number of risk facing the industry some of which have been in play for some time and others looming on the horizon.

  • The industry is continually faced with competition from outside Agents who are winning new property management business by charging a discounted commission rate
  • Unit Owners can develop a view that management are overcharging for the services provided particularly when their monthly statement is littered with numerous individual charges for the various services provided
  • The revenue and expenses associated with Advertising has long been considered a non-profit activity for the operator by industry Accountants.
  • Managers are reluctant to increase fixed rate charges such as postage and petties, PABX and their hourly labour rate.
  • The Federal Government has recently set their sights on the perceived over charging of merchant fees to customers

In respect of charging for Merchant fees new legislation banning merchants from imposing credit card surcharges is set to be released by the middle of this year and will be enforced by the ACCC. The changes will likely introduce a restriction on merchant’s to charge no more than the cost of processing the transaction potentially removing the profit from this area of business of a short term management rights business.

There is always reluctance to engage unit owners about increasing fixed charges management should be charging and as a result currently these charges are not keeping pace with inflation rates. Some older complexes have an hourly rate as low as $25.00 per hour which has not changed for decades other newer Complexes may be charging $50.00 per hour or more for providing the same services.

Advertising revenue is always difficult to manage especially in determining whether any surplus belongs to you or the Unit Owners. Some operators are legitimately making a profit from Advertising however this profit is removed from their figures (and the value of their business) when it comes time to sell.

The opportunity

So does the changing legislative framework provide an opportunity to meet some of the current industry challenges head on?

In our view the removal of the commission caps opens the doors to changing the basis upon which you charge for the services you provide. By bundling various charges together into a single fee you can remove the concept of charging a Commission altogether. Some operators have been doing this for many years and in it’s simplest form the manager charges a single percentage that incorporates all the services they provide. In a short term letting environment the percentage might be, for example 45% (plus GST) a total of 49.5% to the manager and the balance to the Unit Owner.

Others may choose to bundle some charges and leave others outside the bundle where they see they may be disadvantaged by bundling certain charges. Each operator will need to consider their unique circumstances when determining whether bundling will provide a net benefit to them and improve their relationship with their Unit Owners.

Currently Holmans is presenting on this topic at an ARAMA roadshow being held in six locations around Queensland and has been encouraged to hear the feedback from members from around Queensland.

In our next article we will explore in more detail some of the benefits and the risks associated with bundling a number of charges together and give some insight into how to start the process.