Management Rights sell as a multiple of the net profit. For example if the net profit is $100,000 the management rights might be valued at (say) 4.5 times that - $450,000 plus the value of the manager's unit and equipment.

Net profit should be calculated on the basis of income less expenses. Do not include in the expenses the Manager’s "wages", bank interest or income tax. Make sure the income does not include illegal payments like "kick backs" or secret commissions from suppliers that are engaged by the manager to work for the owners.

The letting pool is the name given to the group of owners using the letting service. The name is misleading as it implies that income is pooled and paid to people equally. This is not usually the case. Management rights work on an individual accounting basis, every owner receives the income for his or her unit less the expenses for that unit.

It is important to know how many are in the pool. You should also ask about the units not in the letting pool. Are they live-in owners? lock ups? or are they with outside letting agents?  You can learn a lot about a business by asking these questions. The number with outside letting agents will be your key to how well the building is being run at the moment. More than a couple of outside letting appointments would be abnormal. This might be your chance to improve the business by winning those owners from the outside agents.

Management rights have a definite beginning and a definite end. Usually, under the Standard Module the original term is for ten years and under the Accommodation Module, the term can be up to a maximum of twenty-five years.  Most of the major lenders require a minimum of seven to ten years before they will finance the business. 

At the end of the term of the agreements, there is no requirement on the Body Corporate to renew them, so it is important for the Manager to negotiate a renewal with the Body Corporate at an appropriate time.  This then ensures certainty and retains the value of the agreements.  Obviously, having a reasonable period of certainty is important to a Management Rights purchaser. 

When assessing a Management Rights business you should be aware of the amount of the Body Corporate remuneration. Does it increase each year? Does it increase to "market" at the beginning of each option period? What does the Manager have to do for the remuneration?

Within a building or complex your unit is on a title which you own and the common property is shared with other owners and controlled by the Body Corporate. Some Management Rights are created with the office/reception area for the business on the Manager’s title, others have an office/reception area on the Body Corporate's common property. If the office is on the common property then you need to establish your right to use the office. You should have "exclusive use" of the area under one of the Body Corporate by-laws or under the contract with the Body Corporate. Ownership of the office/reception area or having control of it under exclusive use can be important to renewing agreements with the Body Corporate at the end of the agreement term.

Caretaking is about looking after the common property. The caretaking functions are set out in some detail in most agreements.  The most important thing about caretaking is to know whether the agreement requires you to actually do the caretaking work or to supervise others doing the work. People talk about "do agreements" and "supervisory agreements".

Where the duty must be performed by the Manager, you must do the work personally or pay staff yourself.  If the agreement is Supervisory then work is actually done by employees or contractors paid by the Body Corporate. The Manager or Management Staff must supervise this work. Generally, with Supervisory agreements even though the Body Corporate pays the workers, the Manager has the right to hire and fire. It's hard to be an effective supervisor if you don't have that right.

You will receive payment from the Body Corporate for caretaking. Usually this is paid each month. You are not an employee of the Body Corporate so you have to pay your own tax (and super, holiday pay and sick leave).

1. In addition to what the agreement says, find out exactly what the current caretaker is doing and analyse your own skill set to ensure that you can do it just as well if not better.
2. Make sure there is provision for increasing the caretaking remuneration each year. The salary should at least be linked to the consumer price index (CPI) to keep pace with inflation.
3. Check who pays for the material and equipment necessary to perform the caretaking duties.