DANGER WILL ROBINSON…
Where your bodies corporate have caretaking and letting agreements in place and where those agreements are part of a financier’s security, then I expect you may have been approached by the manager for the owners to vote on what has become known as a “Gallery Vie” variation.
What is “Gallery Vie”?
Perhaps, this issue was brought to your attention shortly after the QCAT decision that created the concern for the financiers.
By way of refresher, under the body corporate legislation, a body corporate cannot terminate management rights agreements if a manager’s financier is acting in place of the manager, or has appointed a receiver to the manager. The exception to this is for something done or not done after the financier started acting/appointed a receiver. The management rights industry understood that this only applied to things done or not done by the financier or receiver – and not third parties.
However, the decision of QCAT in Vie Management ( QCAT 164) determined that the exception also extended to things done or not done by third parties, in that case, the Court placing the manager in liquidation after the financier had appointed a receiver.
This has caused concerns for financiers as there is the potential for their security over the agreements/management rights business to be thwarted.
The majority of financiers in the industry are requiring agreements to be amended to limit the Body Corporate’s ability to terminate them for insolvency‑related events of default that occur while the Manager is in receivership. This protects the financier’s security by preventing the Body Corporate from terminating the Agreements if an insolvency related event of default occurs while the Manager is in receivership.
You will often see the issue arise during the course of an assignment of the management rights.
Essentially, the incoming manager’s financier will only agree to fund the acquisition if the owners agree to vary the agreements to deal with “Gallery Vie”.
The above situation is not so much a cause for concern as committee’s usually obtain legal advice on the issue as part of the assignment process. (assuming of course a committee has appointed a lawyer to represent the body corporate in the assignment process).
What is a cause for concern is where managers are seeking to “Galley Vie” proof their agreements where there is no sale in the immediate future.
In these circumstances a manager who owns a lot in the scheme may simply include a motion in the next AGM agenda. Sometimes when this happens the committee may not see fit to obtain legal advice on the matter.
In any event, whether the amendments are sought as part of an assignment or otherwise, the danger lies in the exact nature of the proposed variations being sought by the manager.
We have seen proposed variations that go way beyond the scope of the “Gallery Vie” decision.
An example of this is where the manager seeks to have the owners strip away all of the termination rights in the agreements, leaving the body corporate only with the termination rights under the legislation. That will surely fix the “Gallery Vie” issue!
Another example is where the variation is drafted such that the restriction on termination survives the appointment of a receiver.
Put simply, bodies corporate should obtain advice whenever a manager seeks to have its agreements varied to deal with the Gallery Vie issue.
The owners need to be assured that they are only varying the termination rights to deal solely with the issue created by the Gallery Vie decision and that they are not unnecessarily “selling the farm”.
As always, we’re here to help.
Feel free to contact us in the event a manager at your scheme, or a scheme managed by you, seeks to have agreements varied on the basis of Gallery Vie.
Warm regards, Mark.