Apartment building management rights are assets in demand judging by the prices they command.
Management rights company Aurora paid $2.58m for appointment to the position of caretaker and on-site letting agent for 319 apartments and penthouses in the twin tower Chester & Ella development in Chester Street New Farm.
Payment of such a large sum didn’t guarantee Aurora’s appointment as property manager for every rental apartment in the building because investor owners are entitled to appoint any real estate agent they choose for that role.
Aurora would gain a competitive advantage by being on-site but it also needed to rely on referrals of apartment buyers to it from developer Kokoda.
Those referrals wouldn’t come cheap.
The deal signed up in April 2018 provided for payment of the $2.58m on completion together with a further sum of $2.1 million which was to be held by Kokoda or on its behalf in a retention fund.
That sum was to secure payments to Kokoda for each of property management referral signed up by Aurora during the 12-month period following completion.
Amounts were to be drawn from the retention fund on a monthly basis to pay a sum for referrals that depended on whether the properties taken under Aurora’s management during that month were of the one, two, three, or four-bedroom variety.
In March 2021 the parties agreed by way of a deed of variation to extend the period over which such monthly adjustments would be paid from the retention fund to Kokoda to 24 months from completion.
The payments were made by Aurora to Kokoda in December 2019 from which time Aurora took up its caretaking and on-site letting agent role.
Presumably this was around the same time those units that had been sold off the plan were completed.
Kokoda continued to make sales and in October 2021, Aurora substituted – as permitted under the management rights procurement contract – an unconditional $1.7m bank guarantee for the cash balance then held in the retention fund.
Two days after the end of the two-year adjustment period – without notice to Aurora – Kokoda called on Westpac to pay it the whole of the $1.7m guarantee proceeds.
Aurora’s Jenny Xiong immediately demanded the return of that sum but for $268k which she agreed was payable for some recent referrals her company had managed to sign up.
Kokoda’s Margaret Bolton refused that request, contending that there had been an oral agreement to extend the adjustment period by a further six months and that a further 29 management referrals valued at $490k were in the pipeline.
She repaid $1.035 million to Xiong’s company on Christmas Eve, retaining $733k.
Aurora’s District Court proceedings – filed in May 2022 – were placed on the commercial list by Judge Bernard Porter KC in November 2022 and subsequently listed for trial on 30 January 2023 when Jenny Xiong gave evidence.
She conceded Kokoda was entitled to a further $255k for 10 more unaccounted for management referrals up to the end of the adjustment period.
Despite having been legally represented at previous case reviews, Kokoda did not front the court and there was no appearance on its behalf.
On examining the material and pointing out various discrepancies in the developer’s argument, Judge Porter accepted Jenny Xiong’s evidence and ruled that nothing was payable for two referrals Kokoda had claimed for but which had only come in after the end of the adjustment period.
“Her account was consistent with the contemporaneous documents and indeed, nothing in the defendant’s pleaded case is, itself, consistent with those documents,” he observed.
In an ex-tempore judgement, he ordered that Kokoda pay Aurora a total of $469,113.78 plus a further $24,000 in interest together with its legal costs including indemnity costs of December 2022.