Strata management businesses valued on contract terms, scheme mix and the income each contract can keep.

A strata management business is valued on the recurring fees its management contracts earn, after the cost of servicing them, adjusted for how long each contract has to run and how likely owners are to reappoint. State law caps contract terms, so every contract comes back to a vote: in NSW, appointments after the first AGM can run for up to three years. A valuer works scheme by scheme. Agency Valuations prepares fixed-fee written reports: $1,495 + GST where the revenue of what is valued is under $2 million.

What is a strata management business worth to a buyer?

A strata management business, called owners corporation management in Victoria and body corporate management in Queensland, earns fees from contracts with the owners corporations it manages. A buyer pays for the income those contracts are likely to keep producing, the team that services them, and the systems that hold each scheme's money and records.

Income usually comes in layers: a standard fee for the agreed duties, fees for additional services such as extra meetings and certificates, recovered disbursements, and in some businesses income connected to insurance placed for schemes. Each layer is measured separately because each carries a different risk. Some states require disclosure: in Victoria a manager must disclose in writing any payment or other benefit to the chairperson of the owners corporation, and in Queensland a body corporate manager must disclose such payments or benefits to the body corporate. Income that has not been properly disclosed is income a buyer cannot rely on.

How do contract terms and reappointment rules affect value?

Strata contracts are capped in length by state law, so durability shows in the reappointment record, not in the contract alone.

In NSW, a strata manager appointed at the first AGM can be appointed for 12 months, and after that agreements can run for up to three years. The manager must give notice of expiry three to six months before the expiry date, the strata committee can extend an agreement up to three months at a time until the AGM, and the owners corporation can remove a manager by majority vote at a general meeting.

In Victoria, a manager cannot be appointed for more than three years, or five for a retirement village owners corporation. If the owners corporation does not give notice of intent not to renew, the contract is taken to be renewed, and either party can then end it with at least one month's written notice. Since 1 December 2021, a contract cannot require a special resolution before the appointment is revoked.

In Queensland, a body corporate manager's engagement must not be longer than 3 years, and the body corporate engages a manager by ordinary resolution at a general meeting.

What drives the value of a strata management business?

Each driver is tested scheme by scheme.

• ·Schemes and lots under management, and the fee per lot each contract earns
• ·How much income comes from standard fees, and how much from additional services, disbursements or insurance-related income
• ·Reappointment history: contracts won, lost and renewed over the last two or three years, with reasons
• ·Contract expiry profile: how much income comes up for decision in the next 12 months
• ·Scheme concentration: one large scheme or one developer's buildings carrying a big share of fees
• ·Scheme mix: residential, commercial, mixed use and community schemes, and new buildings with defect disputes
• ·Portfolio manager loads and tenure, and who each committee deals with
• ·Licensing and supervision: the licences held and who is authorised to operate scheme accounts
• ·Fund records: monthly reconciliations, audits, complaints and tribunal matters
• ·Systems: whether scheme records, levies and meeting papers can be handed over cleanly

Which licensing and money rules matter in a sale?

A buyer has to be able to run the business lawfully from day one, so licensing is part of value.

In NSW, you need a strata managing agent licence to oversee strata or community land schemes. A class 1 licence holder nominated as licensee-in-charge can authorise trust account withdrawals, and class 2 holders cannot open or manage a trust account. In Victoria, a paid owners corporation manager must be registered with the Business Licensing Authority and insured, must hold all money on behalf of an owners corporation on trust, and must account separately for each owners corporation. In Queensland, body corporate managers do not currently need a licence, but a manager authorised to look after a body corporate's funds must prepare a reconciliation for all accounts within 21 days after the end of each month.

Whether each contract can move to a buyer, and how, depends on the contract and the law of each state, and that is for your lawyer. We reflect the answer in the risk the valuation prices.

When do strata managers need a valuation?

Common triggers include:

• ·Selling the business, or a portfolio of management contracts, to another manager
• ·Buying a portfolio to add to your own
• ·Merging two strata management businesses
• ·A partner or shareholder exit, or bringing a senior manager into equity
• ·Restructuring, or moving the business to a related entity, where market value matters for tax
• ·A dispute between owners, through an expert report
• ·Recording value at 30 June 2027, ahead of the CGT changes from 1 July 2027

What do we need from you?

You need nothing to enquire. After you engage us, we ask for:

• ·A schedule of every scheme at one date: lots, scheme type, state, contract start and expiry, and the standard fee
• ·24 months of fee income by scheme, split into standard fees, additional services, disbursements and any insurance-related income
• ·Contracts won, lost and renewed over the last two or three years, with reasons
• ·Your standard contract and a sample of signed contracts, including any with unusual terms
• ·Disclosures made to owners corporations of payments or benefits received
• ·A staff list with roles, tenure, remuneration and schemes managed, and your licence or registration details
• ·Accounts for two or three years, and recent fund or trust account audit reports

What does a strata management business valuation cost?

The band is set by the annual revenue of what is valued, excluding GST: the whole business, or shares in it, on total annual turnover; a portfolio of contracts sold on its own, on the annual fees those contracts earn. Under $2 million: $1,495 + GST, delivered in 2 business days. $2 million to $3 million: $2,495 + GST, 3 business days. $3 million to $10 million: $3,495 + GST, 3 business days. Above $10 million: quoted in writing before work starts, with the delivery date agreed before commencement. An expert report for a dispute is $4,495 + GST.

Each past valuation date adds $495 and each additional entity adds $795. Delivery time starts once payment and all required information have been received. You receive an independent written report that follows the guidelines of APES 225 Valuation Services, signed by a suitably qualified business valuer.