A Serviced Apartment Owner's Guide to Refinancing Management Rights Loans

For a serviced apartment manager, refinancing starts with the loan on the management rights and the manager's unit. Beside it sit the loans on the equipment that keeps the rooms turning over, and any unsecured debt from a refit. Each one is set out here with the effect a different rate, term or security would have on its repayment and on the interest left to pay.

Does the bank's annual review feel a little tighter each year, even though the complex is letting as well as ever? Is the caretaking agreement getting shorter while the loan on the rights barely seems to move? Do the repayments on the laundry machines and the reception refit land just as hard in the off-season, when half the pool sits empty? And would it help to know whether the refinance should come before or after the owners vote on extending your agreement?

Your rights, your unit and the complex's equipment can all be looked at together. Ardent Capital Group can assist a resident manager with refinancing each of those loans, from the rights and the unit to the linen laundry and the reception refit.

How management rights work, and why the loan can feel heavier each year

A serviced apartment complex is run by a manager who holds the management rights, a business most guests never notice. Those rights are what the main loan is secured over, and that loan is called a management rights loan.

Management rights bundle two agreements with the body corporate, which is the owners of every lot in the building acting together.

• The caretaking agreement. The body corporate pays the manager a salary to look after the common property: the pool, the gardens, the lifts and the cleaning of shared areas.
• The letting authority. This gives the manager the right to run a letting business from the complex. Owners who choose to let through the manager make up the letting pool, and the manager earns commission on each stay.

In Queensland, a manager who holds both is called a caretaking service contractor. The Queensland Government's guidance says this person generally owns or leases a lot and runs the letting business from it. That lot is the manager's unit, and a resident manager may also live in it.

The agreement runs for a set number of years. Under Queensland's body corporate rules, the maximum term of a caretaking engagement is 10 years under the Standard Module and 25 years under the Accommodation and Commercial modules. A module is the set of regulations a building is registered under. The maximum includes any options to extend or renew. Other states run their own strata and letting rules, so these caps are Queensland's alone.

The loan can feel heavier even when trade is steady, because the rights earn income only for as long as the agreement runs. Each year leaves one fewer, even if the salary and the pool look the same.

Extending the agreement is called a top-up. In Queensland, the body corporate can amend an engagement by ordinary resolution at a general meeting. An ordinary resolution passes when more votes are cast for the motion than against it. If the amendment adds an option to extend the caretaking contract, the vote must be held by secret ballot, and a motion to extend can be considered only once in a financial year. The terms of a top-up are for the body corporate and your strata lawyer. For the finance, a top-up adds years to the agreement the management rights loan is secured on.

Example: a resident manager's loans side by side

The manager pays each debt on its own schedule, at its own monthly cost. The figures are illustrative. The manager holds the rights to a short-stay complex registered under Queensland's Accommodation Module, with 14 years left on the caretaking agreement.

The rights and the manager's unit were bought together with one loan. Since buying, the manager has put the on-site linen laundry on an equipment loan. The reception refit and a new booking system went on an unsecured business loan, one with no property or equipment pledged as security.

The manager owes $1.2M on the rights and the unit, at an assumed 8.5%, with 120 months to go, and repays $14,878 a month. Together the three loans take $20,206 from the account each month. The figure drops to $17,824 once the loan for the refit ends after month 30, and to $14,878 once the equipment loan on the laundry ends after month 36. The management rights loan finishes four years before the agreement does.

Beside these loans, the business keeps an overdraft. An overdraft is a credit limit on the business account, drawn on when cash runs short and paid back as money comes in.

This one has a $40k limit, of which $25k is drawn. Its interest, at an assumed 11%, comes to about $229 a month, and it is kept out of the refinance options. The rates on the rights, laundry, refit and overdraft are assumptions for the sums in this example, not offers.

What a refinance can change on the management rights loan

A refinance pays out the old management rights loan, or several of the manager's loans, from a new loan. How much leaves the business account each month, and what the management rights loan costs overall, rests on three settings.

• The interest rate. On a management rights loan kept to its 120 months, a cheaper rate cuts both the monthly debit and the interest bill. The rate offered turns on the security, the letting record and the borrowers' credit history.
• The length of the loan. Counted in months, the term sets how long the management rights loan has to be repaid. Stretching it cuts each debit, but the debt stays around longer and gathers more interest. That can still suit a manager while bookings recover after rooms have been refurbished.
• The security for it. Security is whatever the lender may sell if the debt goes unpaid. A loan secured by the manager's unit or other property is generally cheaper than one secured by the letting business alone. Once offered, that property is tied to the debt.

For management rights, the term has a second limit that most loans do not. The agreement is the life of the asset. A loan on the rights that ran past the end of the agreement would still be owed after the income it was secured on had stopped.

All three loans here are amortising: each runs down to nil by the end of the term, unless it ends in a balloon, a lump sum left to the final repayment. A repayment is part interest and part reduction of the debt. Interest is worked out on the debt that remains, so on a management rights loan the early years are the interest-heavy ones.

Worked example: splitting a single repayment on the management rights loan

Splitting one repayment shows where the manager's money goes early on. Take the $1.2M loan at an assumed 8.5%. In the first month, $8,500 of the $14,878 repayment is interest, and $6,378 comes off the balance. Across the year's twelve repayments, interest takes roughly $98,900 and the debt on the rights and unit shrinks by about $79,600. The balance is shrinking every month, even while most of each repayment is interest.

Refinancing each loan in the complex

Each of the manager's loans paid for something with a different working life: the rights, the laundry, or the front desk.

The loan on the rights and the manager's unit

This largest debt holds two different things. The rights are a business whose value rests on the salary, the letting income and the years left on the agreement. The manager's unit is real property, a lot in the building with its own title.

Subject to the lender, this loan can be secured by a mortgage over the unit, a general security agreement over the letting business, and guarantees from the directors. That agreement lets the lender claim the business's assets, including the rights, if the loan is not repaid. Each director's guarantee makes that director personally liable for the debt if the business falls short.

A refinance can change the rate and the term, and how the two parts are secured. Because the unit is real property, it can be offered as security on a loan of its own, apart from the rights. Our page on refinancing serviced apartments and management rights covers the property side in more detail, including the manager's lot and topping up the agreement term.

If part of the management rights loan is fixed, leaving it can mean a break cost, a fee for ending a fixed rate early. The more rates have fallen since the rate was fixed, the bigger it is. A written payout figure from today's lender is the first number to get. It shows the amount that settles that loan in full on a set date.

The linen laundry and housekeeping equipment

A complex that washes its own sheets and towels runs machines that work every day of the year. The on-site laundry runs commercial washers and dryers, plus a roller iron that presses the sheets. Housekeeping adds trolleys and vacuum cleaners.

Each of these has an effective life: the number of years an asset can be used to produce income, taken from the ATO's determination or worked out by the business. It is a tax figure, not a promise of how long the equipment will run. The ATO's accommodation table lists the washers and dryers of hotel and motel laundries at 10 years, roller irons at 20 and vacuum cleaners at 3.

In the example, the equipment loan on the laundry has 36 months left on machines with a 10-year effective life, so it ends well inside their working years. Folded into a 10-year loan, the same $90k would be repaid over a decade. If the washers and dryers are paid off before month 36, the contract may set an early payout charge. That is a fee some contracts charge for clearing the loan ahead of schedule.

The reception refit and other unsecured debt

The front desk and the booking system are what guests meet first, and they were paid for with the dearest of the three loans. With no property as security, an unsecured business loan is generally priced above a secured one.

A refinance can roll this balance into the management rights loan, at the secured rate but over the longer term. A refit with a short life would then be repaid alongside the rights for years after it is replaced.

The overdraft, the season and the ATO

A serviced apartment business has two kinds of income arriving at different paces. The caretaking salary comes from the body corporate on the terms of the agreement, and it holds steady through the year. Letting income rises and falls with the destination's calendar: school holidays, events, and weekday business travel in city complexes.

Costs do not pause in the quiet months. Housekeeping and reception staff are paid under the Hospitality Industry (General) Award, which Fair Work lists as covering serviced apartments. An award sets the minimum pay and conditions for the staff it covers. Online travel agents take commission on each booking. The overdraft carries the gap between a quiet month's receipts and the wages and owner payments due.

Rolling the off-season overdraft into the management rights loan would turn it into fixed instalments, and the limit the manager draws on in quiet months would close. GST is the goods and services tax. The manager reports it, along with other taxes, to the ATO on a BAS, short for business activity statement. A BAS debt the manager is paying off to the ATO in instalments can, subject to the lender, be cleared inside the refinance. The interest on the management rights loan may be deductible, meaning it can be claimed as a business expense. From 1 July 2025, the general interest charge the ATO adds to late tax is not deductible. Your accountant confirms how each applies to the manager's own tax.

Putting the complex's loans together

With each debt looked at separately, the rights, the laundry and the refit can now be weighed as one set.

Worked example: comparing four refinance choices for the $1.35M

The repayment and the interest do not always move together. Each choice is measured against leaving the loans untouched, by the difference in the monthly debit and in the interest left until the last repayment.

Rounded, illustrative numbers. Each rate is assumed for the sums and is neither a quote nor a market rate. Not included: the overdraft, any break cost, early payout charges, set-up fees and the cost of valuations.

Combining everything into one loan over 15 years, or 180 months, cuts the repayment by $7,109 a month and adds $394k of interest. It also runs a year past the end of the caretaking agreement, so it would only line up with the rights after a top-up.

Moving the manager's unit onto a separate loan works differently. The unit is real property with a long life, so a 25-year term on it matches the asset. That split lowers the repayment by $6,058 a month, and the split adds $294k of interest. After month 120, only the $3,109 unit repayment remains.

By contrast, a lower rate on the management rights loan alone saves $57k of interest without lengthening anything. Each of the other three choices swaps a lighter month now for more interest later. Which suits depends on the years left on the agreement, the season ahead and the plans for the rooms. Using the payout figures for your own loans on the rights, the laundry and the refit, we can build this comparison for your complex and put the choice you make to lenders whose policy suits management rights.

What can secure the refinanced loans

A resident manager can offer a lender several kinds of security, and each works differently.

• The manager's unit. As real property, it can secure the management rights loan or a loan of its own. If you live in it, it is your home as well as security.
• The letting business. A general security agreement is registered on the PPSR, the national register of security interests in personal property. It does not cover land, buildings or fixtures to land. A refinance of the rights replaces the old lender's PPSR entry with one in the new lender's name.
• Guarantees from the directors. A management rights loan can carry a guarantee from each director, subject to the lender.
• A home away from the complex. A house you own elsewhere can be offered too. Lending against a house is generally cheaper and can run longer, but the house is then exposed to the business debt. Whether to offer it is your call. The mortgage on the home itself is covered on our page of home loans for accommodation business owners, including for managers who live on site.

A second set of rights, or the unit held in a trust

Some managers hold the rights in a company and the unit in a family trust, or run the rights to a second complex through another entity. The loans in each entity can be refinanced together, with the guarantees that link them given again to the new lender. Your accountant advises on how the company and trust are arranged.

Before you apply to refinance the rights

The body corporate's calendar and the destination's seasons both shape when the application is best made.

Timing around the agreement and the season

A few dates in the complex's year affect the cost of the refinance and the figures the application carries.

• A top-up motion on the agenda. A vote that passes adds years to the agreement. It can help to time the application after the general meeting, so the extra years are on paper.
• A break cost bigger than the saving. Ask for written payout figures first. If the fee to leave a fixed rate on the management rights loan is larger than the saving, the move can be reconsidered as that fixed period winds down.
• Overdue BAS or tax returns. Lodging them first means the application carries up-to-date figures.

The caretaking salary and the letting income

The business earns in two different ways, and the agreement ties them together.

• The caretaking salary. It is set in the agreement and paid by the body corporate, so it is the steady part of the income.
• The letting pool. Owners can choose to let privately or through another agent, so the number of lots in the pool can change. The current pool list and the commission earned on it show how the letting side stands today.
• Years left on the agreement. The agreement's end date, and any top-up passed, go in with the income figures.

Because the loan on the management rights depends on the caretaking agreement, its annual review looks at how many years the agreement has left. The lender also checks how the letting pool has done, such as occupancy through the off-season. Our guide explains what a lender weighs at a management rights review.

Paperwork for the application

The body corporate records, the letting software and the accountant's files hold nearly everything the application uses.

• Written payout figures for the loans on the rights, the laundry and the refit, showing break costs and early payout charges where they apply
• The caretaking agreement and letting authority, with every amendment, and the minutes of the meeting that approved the latest one
• The current letting pool list and twelve months of letting and occupancy reports
• Statements from the online travel agents and recent statements for each business account
• Two years of the letting business's financial statements and tax returns, lodged BAS, and an ATO account statement
• Laundry and refit invoices, and statements for every personal loan and credit card the directors hold

Questions resident managers ask about refinancing

Our agreement has 12 years left. Is that too short to refinance?

Not necessarily. A refinance can still be looked at, subject to the lender. A top-up passed before you apply adds years to the agreement.

Can the manager's unit go on a separate loan from the rights?

It can, subject to the lender. The unit is real property with its own title, so it can secure a loan of its own. In the example, that split lowers the monthly repayment and adds interest, because the unit is repaid over 25 years and the other debts over 10.

I also own two apartments in the letting pool. Can they come into the refinance?

They can be, subject to the lender. Policy on apartments let through a short-stay pool differs from one lender to the next.

Should the top-up vote happen before I refinance?

The vote is the body corporate's decision. For the finance, a top-up that has passed adds years to the agreement, and an application lodged after the meeting carries them.

Two owners have taken their apartments out of the pool. Will that count against me?

It will show in the letting income. The current pool list, bookings since the change and any new lots joining help show where the letting side stands now.

Bookings drop away every off-season. Will a lender judge the business on those months?

The application can show the whole year, not only the quiet months. Twelve months of letting reports and statements put the off-season beside the peak, and the caretaking salary keeps arriving through both.

Is there a way to refinance the rights without my house as security?

Possibly, subject to the lender. The management rights loan can be refinanced on the security of the unit, the letting business and the directors' guarantees. Property security tends to bring a lower rate, but it ties the house to the business, so the decision is yours to make.

The laundry machines are on their own contract. Do they have to be paid out?

Not necessarily. The equipment loan can stay as it is while the management rights loan moves. If it is paid out early, the contract sets out any early payout charge.

Is there a limit on when the body corporate can vote to extend my agreement?

In Queensland, a motion to extend the agreement can be considered only once in a financial year. If it adds an option to extend the caretaking contract, the vote is held by secret ballot.

What does it cost to spread everything over 15 years?

In the example, it cuts $7,109 a month and adds $394k of interest, and the loan runs a year past the end of a 14-year agreement.

Talking through the rights and the loans on them

Every management rights loan is limited by the years the agreement has left. A refinance matches each debt to those years, to the life of what it bought, and to the income that repays it. Ardent Capital Group can assist with refinancing management rights and the manager's unit, apartments you own in the pool, the laundry and housekeeping equipment, and working capital for the off-season. Drawing on a background in financial planning, the Ardent Capital Group team can map out how the new loans sit with the rights, the unit and your household borrowing, and your accountant confirms the tax treatment of the new loans before you commit. Whenever suits you, we would be glad to meet, with the caretaking agreement on the table beside the loans that rely on it.

Written by

Nick Chong

Managing Director, M.AppFin, Dip. Mortgage Mgmt

Nick holds a Bachelor of Agricultural Economics, a Master of Applied Finance and an Advanced Diploma in Financial Planning. He founded Ardent Capital in 2016 after more than a decade in financial planning and mortgage broking. For the past ten years he has led a team of finance specialists, mortgage advisers, brokers and credit analysts, all working to secure optimal outcomes for clients and always acting in their best interests. The team brings both a qualitative and a quantitative approach to every deal.