Managed Investment Schemes - Holiday Letting - ASIC Review

You may have heard the term ‘Managed Investment Scheme’ and wondered how it relates to holiday letting units that you or your clients might own.

Managed Investments are financial schemes, regulated under the Corporations Act (the “Act”), that have three distinct features:

1. A Manager has the day to day control over the scheme as opposed to the actual members;
2. Members contribute money or money’s worth as consideration to acquire rights to the benefits produced by the scheme; and
3. Contributions are pooled or used in a common enterprise to produce financial benefits for the members.

Where units are made available for an operator to let, or contributions are pooled for the purposes of operation of the letting business, it is likely that the unit is part of a Managed Investment Scheme.

There are strict regulations on developers who purport to sell units that are part of a managed investment scheme. The developer must ensure that the buyer is properly armed with sufficient financial information to make an informed decision about whether to buy. In circumstances where a Managed Investment Scheme is applicable, a Product Disclosure Statement must accompany the contract. This is a detailed statement (complying with the Act) which informs the buyer as to the proposed details of the scheme.

A range of class order relief has been granted in relation to serviced strata schemes, the most common of which is Class Order CO 02/305. If the scheme meets with the criteria contained in the class order, the developer is exempt from complying with some requirements of relating to Managed Investments Schemes in the Act.

The class orders are however badly in need of reform and ASIC recently released a consultation paper (which expired in March) relating to reform of 8 class orders, (including CO02/305) which will expire between 2016 and 2018. It is understood that ASIC intend to remake and consolidate the 8 class orders into a single instrument relating to serviced apartments so that the substantive effect of the relief in each class order is continued past expiry.

Any amendment to the class orders is likely to alter what disclosure developers must include in their off the plan contracts of sale and we are monitoring the situation closing. We will report again when further information from ASIC is at hand.

In the meantime, Maxine Fenlon or David Patton of our office can be contacted with any queries in relation to this matter, or community titles schemes generally.