Unreasonably withholding consent to a transfer of management rights

Happy new financial year!

We often act for resident managers that are confronted by a body corporate that wants to renegotiate the management rights agreements as a condition of consenting to a transfer of the management rights agreements.

This is simply unlawful, as a body corporate can only say ‘yes’ or ‘no’ – not ‘yes, subject to you agreeing to these changes to the agreement……’

The amendments sought usually relate to including new duties, or increasing the frequency of existing duties. Sometimes, a change of the rate of remuneration under the agreement is sought.

A recent adjudicator’s decision addressed this issue.

In this case a resident manager applied for an order that the body corporate be ordered to consent to the transfer of the management rights agreements, as the body corporate had withheld its consent pending an agreement between it and the purchaser as to a new list of duties to be performed by the purchaser.

The adjudicator stated that:

  • a body corporate cannot ‘dictate’ the terms of an agreement to a caretaker, and vice versa, as both parties need to consent to any changes; and
  • a proposed variation to an agreement is not a relevant consideration for the body corporate in deciding whether to consent to a transfer.

The adjudicator has reminded bodies corporate of their duty to act reasonably when considering any request for a transfer.

It also confirms the position that one party cannot unilaterally change the terms of the agreements. This is something that is quite often misunderstood.