MANAGEMENT RIGHTS SCHEME PRODUCT DISCLOSURE STATEMENT

Transcription

1 Lot No:.. Apartment No:... Purchaser:.. MANAGEMENT RIGHTS SCHEME PRODUCT DISCLOSURE STATEMENT

2 INDEX 1 WHAT IS BEING OFFERED WHAT IS A MANAGEMENT RIGHTS SCHEME THE KEY AGREEMENTS IN THE SCHEME CARETAKING AGREEMENT ON-SITE MANAGER S AGREEMENT EXCLUSIVE AUTHORITY TO ACT AS MANAGING AGENT (ALSO KNOWN AS LETTING AGREEMENT ) ABOUT THE ON-SITE MANAGER AND LICENSEE THE ON-SITE MANAGER LICENSEE HOW DOES THE SCHEME AFFECT YOUR PROPERTY RIGHTS YOUR RIGHTS IN GENERAL OWNER S USE - YOUR RIGHTS TO USE YOUR APARTMENT WHAT SORT OF RESORT COMPLEX IS BEING OPERATED UNDER THE SCHEME THE RIGHTS OF THE ON-SITE MANAGER THE ON-SITE MANAGER S RIGHTS IN RELATION TO PROPERTY AT THE RESORT WHAT RETURNS CAN YOU EXPECT RETURNS ARE NOT GUARANTEED WHAT FACTORS AFFECT THE RETURNS TO OWNERS HOW RETURNS ARE GENERATED WHEN RETURNS ARE MADE AVAILABLE TO OWNERS HOW YOUR RETURNS ARE CALCULATED WHAT IF THERE IS NEGATIVE RETURN WHAT IS PROFIT ENTITLEMENT AND HOW IS IT CALCULATED WHAT TAXES DO YOU PAY ON YOUR RETURNS WHAT ARE SCHEME COSTS DIRECT COSTS TERMINATING YOUR LETTING AGREEMENT TERMINATING THE APPOINTMENT OF THE ON-SITE MANAGER AS ON-SITE MANAGER AND CARETAKER TERMINATION BY THE STRATA COMPANY TERMINATION BY A MAJORITY OF OWNERS WHAT HAPPENS IF THE ON-SITE MANAGER IS REMOVED HOW ARE THE MANAGEMENT RIGHTS TRANSFERRED TRANSFER OF ON-SITE MANAGER S PROPERTY RIGHTS GOODS AND SERVICES TAX REPAIR AND REFURBISHMENT DURATION OF PARTICIPATION AND SELLING YOUR APARTMENT FOR FURTHER INFORMATION CONTACT DETAILS HOW TO JOIN THE SCHEME EXECUTION BY ON-SITE MANAGER ANNEXURE 1 LETTING AGREEMENT... 1 DK:103488:0014D Disclosure Statement (final )

3 IMPORTANT NOTICE Before purchasing a short stay apartment at Denmark Waterfront and/or making a decision whether to become a member of the Denmark Waterfront Management Rights Scheme, you should consider whether to consult the following professional advisers: an investment adviser who is either a securities licensee or an authorised representative of a securities licensee; a taxation adviser; and a lawyer. 1 WHAT IS BEING OFFERED As an owner or a potential purchaser of an apartment ( Apartment ) at Denmark Waterfront (the Resort ) you are invited to join the Denmark Waterfront Management Rights Scheme ( the Scheme ). The Scheme offers owners the opportunity to take part in a management system that pools income and expenses between participating owners of apartments at the Resort ( Participating Owners ). It allows for Apartments to be managed, promoted and operated in a co-ordinated manner. Joining the Scheme is voluntary and you should consider all of the information in this Product Disclosure Statement ( PDS ) before deciding whether to join the Scheme. If you wish to join the Scheme then you must appoint Jacobs Daly Pty Ltd, Young Daly Pty Ltd, Michael Scholfield and Janet Elizabeth Grace Brackley trading as Denmark Waterfront ABN ( the On-site Manager ), who shall act in conjunction with their nominated licensed real estate agent, being Clifford Roy Jefferson (T/C 2886) at the date of this document ( the Licensee ), as your letting agent. This is done by signing the Exclusive Authority to Act as Managing Agent (also known as the Letting Agreement ) and returning it to the On-site Manager. All Participating Owners will sign a Letting Agreement on the same terms and conditions as you to ensure the Scheme is run in a co-ordinated, efficient and effective manner. It costs you nothing to join the Scheme, however by signing a Letting Agreement you are agreeing to pay the On-site Manager a Management Fee of 13.2% (plus GST), 14.5% (inc GST), of your portion of the income generated by the Scheme. No fee shall be payable by you to the Licensee, with the On-site Manager responsible for the costs of the Licensee. The purpose of this PDS is to explain the particular features of the Scheme. 2 WHAT IS A MANAGEMENT RIGHTS SCHEME Management rights are the business of on-site caretaking and letting of apartments in strata-titled developments. A management rights scheme works this way: (d) (e) (f) (g) (h) there are parts of the strata plan that do not form part of a strata apartment. These are known as common property and would include things like roads, pathways, gardens, lawns, recreation areas and swimming pools; the common property is owned by the strata company. The strata company is the name given to the collective group of all owners of the strata apartments; the strata company commences upon the registration of the strata plan; each owner s share of the common property is determined by the Unit Entitlement attributed to their strata apartment; the strata company is entitled to appoint a caretaker to maintain the common property on its behalf. The caretaker is paid a salary by the strata company to do this work. Where it is necessary the caretaker will engage skilled tradespersons, at the cost of the strata company, to do the work. The agreement between the strata company and the caretaker is called the Caretaking Agreement and outlined in more detail in paragraph 3.1; the strata company also has the right to allow an on-site manager to conduct a letting business from the strata plan including the common property. The agreement between the strata company and the on-site manager is called the Onsite Manager s Agreement and outlined in more detail in paragraph 3.2; the management rights are the Caretaking Agreement and On-site Manager s Agreement; owners of strata apartments may appoint the on-site manager as their agent to let their apartment. This is done by both the on-site manager and the owner entering into an agreement called an Exclusive Appointment to Act as Managing s u m m e r s l e g a l 25 October :52 PM Page 1

4 Agent (also known as a Letting Agreement ). The details of the Exclusive Appointment to Act as Managing Agent are discussed further in the remainder of this PDS including paragraph 3.3. Management rights schemes are regulated by the Australian Securities and Investments Commission ( ASIC ). This regulation requires, amongst other things, that the holder of an Australian Financial Services License or Real Estate Agent License be involved in the management of the Scheme and that all funds of the Scheme be held in an account on trust for the Participating Owners. 3 THE KEY AGREEMENTS IN THE SCHEME There are three key agreements that make up the Scheme, namely the Caretaking Agreement, the On-site Manager s Agreement and the Exclusive Authority to Act as Managing Agent. 3.1 Caretaking Agreement When the strata plan for the Resort is registered, the strata company will appoint the On-site Manager or their nominee ( the Caretaker ) under the Caretaking Agreement to: keep the common property clean repair and maintain the common property (except where this requires the services of a skilled tradesperson) maintain the gardens and landscaped areas keep roads, pathways and car parks clear of any debris maintain public liability insurance, and comply with all relevant laws. The Caretaker will be paid a caretaking fee (the initial fee being $50,000 per annum) which will be reviewed each year for providing this service. The Caretaker will be entitled to spend a certain amount of money per month for material purchased or services engaged on behalf of the strata company in accordance with a budget agreed between the strata company and the Caretaker. The Caretaker will be entitled to transfer its interest in the Caretaking Agreement subject to obtaining the prior approval of the strata company, which must not be unreasonably withheld. The initial term of the Caretaking Agreement is 5 years, commencing upon registration of the strata plan. There are eight (8) options to renew the term, each for a further term of 5 years. The Caretaking Agreement can be terminated early in the circumstances outlined in paragraph 13. A copy of the Caretaking Agreement is available from the office of the On-site Manager upon request. 3.2 On-site Manager s Agreement The strata company will also appoint the On-site Manager as the party with the right to conduct an exclusive on-site letting service for owners under the On-site Manager s Agreement. The On-site Manager s Agreement runs concurrently with the Caretaking Agreement. The initial term of the On-site Manager s Agreement is 5 years, commencing upon registration of the strata plan. There are eight (8) options to renew the term, each for a further term of 5 years. The On-site Manager s Agreement can be terminated early in the circumstances outlined in paragraph 13. Some of the important obligations placed on the On-site Manager in running the letting service include the following: running the letting service competently maintaining the staff and office/reception area within the Resort during such hours as are reasonably necessary to properly provide the letting service supervising standards and conduct of tenants making efforts to ensure the best possible return to letting owners accepting the right of owners to use other letting services or let their Apartments themselves marketing the Resort according to a pre-determined budget The On-site Manager is not paid a fee by the strata company for providing the letting services, but, if you appoint them to let your Apartment, they are entitled to charge you a management fee for the letting services provided to you under the Exclusive Authority to Act as Managing Agent. s u m m e r s l e g a l 25 October :52 PM Page 2

5 The On-site Manager may transfer its interest in the On-site Manager s Agreement with the prior approval of the strata company, which must not be unreasonably withheld. The On-site Manager may also replace the Licensee with another licensed real estate agent or holder of an appropriate Australian Financial Services Licence, or be licensed themselves, to meet the licensing requirements of ASIC for the Scheme. Under the On-site Manager s Agreement the On-site Manager and their agents are responsible for all operational duties. The Licensee or any replacement are responsible for monitoring and ensuring the Scheme s compliance with the requirements of ASIC (including the operation of the trust accounts of the Scheme and the Scheme s licensing requirements). A copy of the On-site Manager s Agreement is available from the office of the On-site Manager upon request. 3.3 Exclusive Authority to Act as Managing Agent (also known as Letting Agreement ) The Exclusive Authority to Act as Managing Agent is the agreement signed between you as owner and the On-site Manager, under which you appoint the On-site Manager as your agent to let your Apartment. By signing a Letting Agreement, you will appoint the On-site Manager as your exclusive agent to manage your Apartment under a system of management rights. The key features of the Letting Agreement are detailed below: you are free to terminate the Letting Agreement on 90 days notice. If you do this, then you will be able to appoint an offsite letting agent to let your Apartment or you may let the Apartment yourself. the On-site Manager is entitled to charge you a commission on any revenue earned from the letting of your Apartment. The commission (or Management Fee ) payable is currently 13.2% (plus GST), 14.5% (inc GST) of gross Pool Income of the Scheme. You will be charged GST on the Management Fee. if a majority of Participating Owners vote to remove the On-site Manager as on-site manager then there is a procedure in place that requires the On-site Manager to transfer the management rights to a new on-site manager within 9 months. This procedure is explained further in paragraph 13 of this PDS. The Letting Agreement forms annexure 1 of this PDS. If you wish to appoint the On-site Manager as your letting agent and join the Scheme then you should read this PDS in full and sign the Letting Agreement. 4 ABOUT THE ON-SITE MANAGER AND LICENSEE 4.1 The On-site Manager The On-site Manager, Jacobs Daly Pty Ltd, Young Daly Pty Ltd, Michael Scholfield and Janet Elizabeth Grace Brackley trading as Denmark Waterfront ABN , do not hold an Australian Financial Services License or Real Estate Agent license. Clifford Roy Jefferson is a licensed real estate agent who has been engaged to meet these requirements for the Scheme. The On-site Manager, being represented by Bill and Claire Jacobs, have managed the Denmark Waterfront since July 2006, and have been members of the Denmark Visitors Centre and the Denmark Chamber of Commerce since that time. Over the last 2 years they have had particular involvement with the local Chamber of Commerce. Prior to this Claire Jacobs had extensive experience in local government both in West Australia and Queensland and Bill Jacobs, who is an engineer, worked for many years on major construction projects around Australia and overseas. 4.2 Licensee Clifford Roy Jefferson is a director of the JRJ Nominees Pty Ltd ACN , trading as Joss Harman and Associates. Clifford Roy Jefferson is a licensed real estate agent in Western Australia and member of the Real Estate Institute of Western Australia. Clifford Roy Jefferson has been in real estate for the past 30 years and has held a real estate agent licence since Clifford Roy Jefferson or any replacement is responsible for monitoring and ensuring the Scheme s compliance with the requirements of ASIC (including the operation of the trust accounts of the Scheme and their independent auditing). s u m m e r s l e g a l 25 October :52 PM Page 3

6 5 HOW DOES THE SCHEME AFFECT YOUR PROPERTY RIGHTS 5.1 Your rights in general By appointing the On-site Manager as your exclusive letting agent you are not entitled to appoint any other letting agent to let your Apartment. If you join the Scheme your rights to use your Apartment are also limited. This is discussed in more detail below. 5.2 Owner s Use - Your rights to use your Apartment Subject to the terms of the Letting Agreement you and your guests are encouraged to use your Apartment. If you own a short stay apartment however you must not use that apartment for 3 months or more in any 12 month period. This restriction applies whether or not you decide to join the Scheme and is imposed by the Shire of Denmark under its Town Planning Scheme. The use of your Apartment is subject to availability and accordingly it is recommended that you make a request/booking to use your Apartment as soon as possible, particularly during peak seasons and school holidays. The On-site Manager will determine whether your Apartment is available at the time you wish to use it and will use reasonable endeavours to reallocate any pre existing booking to another Apartment within the Resort. You will have to pay a fee to use your Apartment, however the fee that will be payable will be much less than the rack rate paid by guests of the Resort to use your Apartment. A fee is payable because you will not be entitled to any Owner s Income on any day that you, or your guest, uses your Apartment, but you will be required to pay your Owner s Costs together with a management fee calculated on the rack rate that would otherwise be payable. The terms Owner s Income and Owner s Costs are explained in more detail later in this PDS. If you are the trustee of a superannuation fund then, as required by law, you may only use your Apartment upon payment of the prevailing room rate to the operator and you will be entitled to Owner s Income and you must pay Owner s Costs whilst you stay in your Apartment. 6 WHAT SORT OF RESORT COMPLEX IS BEING OPERATED UNDER THE SCHEME Catering for both the tourism and corporate market, the 1 hectare Resort adjacent to Wilson Inlet will be a 4 star accredited facility. In the past, while trading as motel style accommodation, it has become one of the preferred locations to stay while in Denmark. The Resort is located 3kms from the town of Denmark and 7kms from the Southern Ocean. Surrounded by abundant bird life, flora and fauna, the Resort land slopes through large karri trees down to the water s edge providing sweeping views across the water s of the Wilson Inlet. The facility has an on-site restaurant and this will be complimented by the building of a new commercial lot intended for a boutique micro brewery or other complimentary use. The Resort will feature a children s playground with surrounding grassed picnic area and an indoor facilities room. Denmark is in the heart of The Great Southern of Western Australia, being located in close proximity to Albany, Walpole and Mt Barker. This region is renowned for it s old-growth forest, rugged coastal beauty, rivers and inlets, beaches, local produce including wine, local artists and all the activities associated with this environment. Denmark enjoys a steadily growing population with most people employed in servicing both the agricultural and tourism industries. The Resort consists/shall consist of: 18 new one bedroom short stay apartments; 4 new two bedroom short stay apartments; 8 existing one bedroom short stay motel units; 6 existing one bedroom short stay studio units; 7 new one bedroom permanent residential apartments; 3 new two bedroom permanent residential apartments; 3 commercial lots, one which houses the existing Che Serà Serà Restaurant, one which may be used as a miro brewery and one that is intended for uses complementary with the Resort; It is planned, that upon completion of this development, the currently existing motel and studio units will either be renovated, or demolished and re-built, to be in closer conformity to the style and appearance of the new units. The cost of such works will be borne by the developer, jointly with the owners of those existing lots, being lots 1 to 14 inclusive. s u m m e r s l e g a l 25 October :52 PM Page 4

7 Owners who join the Scheme will receive income derived from accommodation, tour commissions and telephone charges after operating costs have been paid. The number of Apartments that form part of the Scheme will depend upon how many owners choose to participate. Both short stay and permanent residential apartments may participate. Because the Scheme is voluntary it is not possible to provide an exact number of the Participating Apartments. 7 THE RIGHTS OF THE ON-SITE MANAGER The On-site Manager is given the right to operate an exclusive letting service from the reception area of the Resort. This right is granted to the On-site Manager by the strata company. As an owner and a member of the strata company you will grant the On-site Manager the right to operate the letting services. By appointing the On-site Manager as your letting agent you are giving the On-site Manager the exclusive right to let your Apartment to guests of the Resort. 8 THE ON-SITE MANAGER S RIGHTS IN RELATION TO PROPERTY AT THE RESORT The On-site Manager, should it not be the owner of such lot, is/will be the lessee of: lot 51, being the reception, and with it have a right of exclusive use of the common property storage area adjoining Lot 48 and Lot 49; lot 24 being the manager s residence. Pursuant to the by-laws of the strata company of the Resort and to ensure continued availability to enable the efficient operation of the Resort, the owners of lot 51 and lot 24 are obliged to lease this lot, on commercial terms, to whoever may be the On-site Manager from time to time. The On-site Manager, who is also the developer of the Resort, may continue to own real estate interests within the strata plan including: (d) (e) Lot 51, being the reception; Lots 48-50, being the commercial lots; and Lots within the Resort that have not be yet sold to the public Lots will not form part of the Letting Pool and therefore not have a profit entitlement. The Licensee does not own any real property at the Resort. 9 WHAT RETURNS CAN YOU EXPECT 9.1 Returns are not guaranteed Returns to owners are not fixed or guaranteed in any way under the Scheme. However, if you join the Scheme, you will enjoy the benefits of pooling income and expenses with other owners. 9.2 What factors affect the returns to owners Your returns will be influenced by expenses such as any land tax that may be assessed by the Office of State Revenue in Western Australia, or any income tax assessed on income earned (rent). There are also a number of risk factors which could impact on the performance of the Resort and therefore on your returns. These factors include the following: returns are subject to the performance of the On-site Manager, the tourism market in Western Australia in general,and the Southern region in particular. You should be aware that occupancy and room rates cannot be predicted with certainty and, as a result, deviations in returns (up or down) are normal and to be expected; s u m m e r s l e g a l 25 October :52 PM Page 5

8 (d) (e) (f) (g) (h) the tourism and travel market conditions in Australia and overseas will have a bearing on returns. There is no guarantee of demand for strata apartments of this type or the attraction of Denmark and Southern West Western Australia in general as a future destination for domestic or international travellers; the success of the Resort will be affected by general economic factors. Should the economy experience a downturn, then this is likely to have an effect on the revenue and occupancy levels which can be achieved at the Resort. The government s policies in relation to taxes, exchange rates and other issues may also impact upon the returns. Nevertheless it is not expected the Resort is going to be affected to any greater extent than any other properties in the accommodation market; historically, demand for accommodation in Southern West Western Australia is seasonal. It is anticipated that the peak period of demand will be from mid-december to the end of April each year as well as the school holiday periods; the success of the Resort will be affected by the performance of and goodwill associated with the On-site Manager, including their relationship with travel agents, general marketing and the desire of guests to return based on the levels of service previously enjoyed. If the On-site Manager were to change then this may have an effect on the performance of the Resort and therefore the returns to Participating Owners; the costs and expenses of the Resort are variable and may change. Any change will alter returns to Participating Owners; with any tourism/short stay accommodation development, occupancy rates can be affected by a number of factors including weather conditions, increases or decreases in competition, the state of the domestic and international airline industry as well as the Resort s reputation as a holiday/accommodation destination; an investment in an Apartment at the Resort is an investment in real property. Therefore, if the costs associated with owning real property increase or decrease, this will affect your returns. For example, any change in the costs of council rates, land tax, strata scheme fees and levies, will affect your returns because these are expenses which you must pay directly. 9.3 How returns are generated Your returns will be generated by you and other owners making Apartments available to the On-site Manager to let to paying guests of the Resort. All of the Apartments that are being let by the On-site Manager make up the Letting Pool. Income and expenses will be pooled for all Apartments in the Letting Pool. The income from letting rooms in the Letting Pool is called Pool Income and the expenses incurred in operating the management rights scheme and the Letting Pool are known as Scheme Costs. 9.4 When returns are made available to owners The On-site Manager will pay you each month, by electronic funds transfers, an amount based on the returns generated from the use of the Apartments in the Letting Pool for the previous month. The On-site Manager will also report to you at the end of each month. The report will detail occupancy, Pool Income collected and details of Scheme Costs paid by the On-site Manager. 9.5 How your returns are calculated Your return ( Owner s Income ) for any month will be your Owner s Revenue minus your Owner s Costs. The On-site Manager will collect all income from the use of the Apartments in the Letting Pool ( Pool Income ). Your Owner s Revenue for any month will be the total Pool Income for that month multiplied by the fraction that is your Apartment s Profit Entitlement and then divided by the total number of Profit Entitlements of all Apartments in the Letting Pool. Your Owner s Costs for any month will be the total Scheme Costs multiplied by the fraction that is your Apartment s Profit Entitlement divided by the total number of Profit Entitlements of all Apartments in the Letting Pool. Money received by the On-site Manager from guests of the Resort who let Apartments in the Letting Pool will be deposited into an account to be held on trust on behalf of the Participating Owners ( Trust Account ). The On-site Manager is entitled to deduct all s u m m e r s l e g a l 25 October :52 PM Page 6

9 Scheme Costs and authorised fees and charges from the Trust Account before paying the balance to you and other owners in accordance with the calculation set out above. 9.6 What if there is negative return If Pool Income is less than Scheme Costs in any month then your Owner s Income will be a negative amount. This is known as an Owner s Deficit. If there is an Owner s Deficit in any month then the On-site Manager is entitled to send you an invoice for your share of the Owner s Deficit and you must pay the amount within 21 days of the date of the invoice. Your Owner s Deficit is calculated in the same way as your Owner s Income. If you fail to pay your Owner s Deficit within 21 days the On-site Manager will charge you interest at the rate set out in the Letting Agreement. If you fail to pay your Owner s Deficit within 21 days the On-site Manager is entitled to: deduct the amount of your Owner s Deficit from your future Owner s Income; and take action to recover the outstanding amount (plus interest) from you as a liquidated debt; and if you are not the trustee of a superannuation trust, take a charge over your Apartment which will rank second behind any then existing encumbrance registered against your Apartment. If the On-site Manager believes that there will be an Owner s Deficit in any month it is entitled to hold back returns payable to you in earlier months to meet the anticipated Owner s Deficit. The On-site Manager is not entitled to hold back your returns for a period of more than 3 months. 9.7 What is Profit Entitlement and how is it calculated The Unit Entitlement of your Apartment (strata lot) establishes the value of your vote at strata council meetings and the percentage of strata costs that you must pay by way of strata levies. The Unit Entitlement of your Apartment is determined by the value of your Apartment compared to the value of all of the other strata lots on the strata plan. The Profit Entitlement of your Apartment establishes the amount of income you receive and expenses you pay in the Scheme. The Profit Entitlement of your Apartment is/will be similar to the Unit Entitlement, but not the same. This is because the Profit Entitlement of your Apartment will be determined, not only by the value of your Apartment, but also by the amount of Pool Income your Apartment is likely to contribute to the Pool. This will be based on the rack rate or room rate charged by the On-site Manager for your Apartment. Additionally the commercial lots do not have any profit entitlement as they cannot participate in the Scheme. Because the Resort has not yet been constructed, the Profit Entitlement for the Apartments has not yet been finalised. The preliminary Profit Entitlement for the Apartments is provided in annexure A of the Letting Agreement. The On-site Manager will contact you, in writing, prior to the commencement of the Scheme with details of the Profit Entitlement of your Apartment should it change from the preliminary figure. 9.8 What taxes do you pay on your returns IMPORTANT NOTE The taxation implications for Participating Owners will vary depending on each individual s tax position. You are strongly advised to seek your own taxation advice from your accountant or financial adviser. The information contained below is of a general nature only and is not intended to be relied upon. Generally speaking, all owners will be required to include in their tax returns any assessable income derived from ownership of their Apartment at the Resort and owners will be able to claim deductions for any losses or outgoings to the extent to which they were incurred in producing the relevant assessable income. In addition, owners should be able to claim other deductions such as capital allowances or depreciation, based on the extent of the owner s use of their Apartment for the purpose of producing assessable income. For example, if an Apartment is used for personal use by its owner for one quarter of the year, then generally speaking the owner will only be entitled to claim a deduction in respect of three quarters of the expenses they incur in producing that income. s u m m e r s l e g a l 25 October :52 PM Page 7

10 10 WHAT ARE SCHEME COSTS Scheme costs include the following expenses: audit costs the cost of marketing the Resort including the cost of promotional material, advertising, travel, sponsorship and agents fees bank charges commissions to travel agents, booking agencies, wholesalers and airline companies consumables credit card collection costs external consultants and legal costs relating to the operation of the Scheme routine repairs, maintenance, replacements and redecorating of your Apartment cleaning of your apartment and linen services; signage costs staff wages, salaries, training, uniforms and entitlements statutory imposts cost of goods for resale taxes in respect of staff entitlements insurance premiums payable by the On-site Manager with respect to the Resort any costs incurred in the provision of any services to guests of the Resort such as pay television, in house movies, telephone, facsimile and internet facilities; any other expenses reasonably incurred in the operation and management of the Apartments in the Letting Pool and the Resort costs of administering the Scheme management/fees and commissions the refurbishment levy costs associated with the transport and transfer of guests. 11 DIRECT COSTS You are required to pay all the direct costs for your Apartment. Direct costs are: land tax water rates local authority rates, and strata levies. You may elect for the On-site Manger to attend to payment of your direct costs on your behalf from your Owner s Income on the terms and conditions set out in the Letting Agreement. 12 TERMINATING YOUR LETTING AGREEMENT You or the On-site Manager may terminate your Letting Agreement and with it the appointment of the On-site Manager as your exclusive letting agent, by giving to the other person 90 days written notice of termination. However in the event that you terminate your appointment of the On-site Manager you agree to honour all confirmed rental reservations for your Apartment up to 12 months in advance where those reservations cannot be satisfactory accommodated or relocated by the On-site Manager. If you elect to terminate the On-site Manager s appointment then you may appoint an off-site agent to manage your Apartment, or you may manage it yourself. You will however need to make your own arrangements with the off-site agent or by yourself about how your Apartment will be managed, including arrangements for cleaning the Apartment. You will also have to make your own arrangements for telephone and other services provided by the On-Site Manager, as you will not be entitled to use the PABX telephone system and other services provided by the On-site Manager unless you reach an agreement with them otherwise. If you elect to terminate the On-site Manager, whether you appoint an off-site agent or manage the Apartment yourself, the On-site Manager shall still control access to your Apartment (controlling the keys for this purpose) and maintain a register of guests. This is incorporated in the strata company by-laws of the Resort. Pursuant to the strata company by-laws for the Resort the On-site Manager may charge you a reasonable commercial fee for such service, this fee is currently an initial fee of $25.00 per check in and $3.00 per day thereafter during that guests stay. The On-site Manager shall not be required to provide any other services or assistance to you or your guest. s u m m e r s l e g a l 25 October :52 PM Page 8

11 13 TERMINATING THE APPOINTMENT OF THE ON-SITE MANAGER AS ON-SITE MANAGER AND CARETAKER 13.1 Termination by the Strata Company Under the Caretaking Agreement and the On-site Manager s Agreement, the On-site Manager and Caretaker may be removed by the strata company if they: are convicted of an indictable offence involving fraud or dishonesty are convicted on indictment of an assault or an offence involving an assault engage in misconduct or are grossly negligent in carrying out, or failing to carry out, the obligations required under the On-site Manager s Agreement or Caretaking Agreement do not carry out their duties under the On-site Manager s Agreement or Caretaking Agreement, and persist in not carrying out their duties for 30 days or more after the strata company, by written notice, requires them to do so carry on a business involving the supply of services to the strata company, or to owners or occupiers of lots, and the carrying on of the business is contrary to law, or transfer an interest in the On-site Manager s Agreement or Caretaking Agreement without the strata company s approval Termination by a majority of Owners A majority of Participating Owner s may terminate the services of the On-site Manager and Caretaker. Where a properly convened meeting of the strata company is held at which at least 51% of Participating Owner s (calculated by Unit Entitlement) vote to terminate the On-site Manager and Caretaker then their appointment will be terminated and the On-site Manager will be required to transfer the management rights in accordance with the procedure set out below What happens if the On-site Manager is removed Because management rights are like any business, the On-site Manager is entitled to sell the management rights at any time subject to obtaining the approval of the strata company. The strata company is entitled to reject the proposed sale in circumstances where it reasonably believes the proposed new on-site manager is not of sufficient financial standing or expertise to run the Resort How are the management rights transferred If the On-site Manager is removed as on-site manager and caretaker then it must, within 9 months, transfer the management rights to a person that is chosen by the On-site Manager that has not been involved in the operation of the Resort and is not controlled by a person that has been involved in the operation of the Resort. If the On-site Manager fails to complete the transfer of the management rights within the 9 month period, then it must transfer the management rights to a replacement on-site manager selected by a majority of owners for a price determined by one of the following methods: the average of 2 valuations for the management rights; or the highest bid for the management rights at an auction; or the highest amount tendered for the management rights Transfer of On-site Manager s property rights Should the management rights be transferred from the On-site Manager, the On-site Manager must transfer to that person control of all property the On-site Manager controls or possesses that is reasonably necessary to efficiently and effectively operate the Resort (including the right to use and occupy the reception and any manager s residence). This is an important safeguard to ensure that the On-site Manager could not inhibit the operation of the Scheme should the On-site Manager cease to be on-site manager of the Resort. 14 GOODS AND SERVICES TAX The Australian Taxation Office ( ATO ) has issued a public ruling which sets out the ATO s position in respect of the application of GST to strata titled apartments (GSTR 2000/20). The ATO s view is that a strata titled apartment, like the Apartments in the Resort, is Residential Accommodation. The supply of Residential Accommodation is an Input Taxed Supply, that is, no GST is charged on the supply of the accommodation. s u m m e r s l e g a l 25 October :52 PM Page 9

12 The expenses you will pay in respect to your Apartment (for example the On-site Manager s management fee and other expenses) will include GST. However, any GST paid on purchases that are made to assist in an Input Taxed Supply, cannot be claimed back from the ATO. IMPORTANT NOTES GSTR 2000/20 is currently being reviewed as a result of a recent court/tribunal decision, South Steyne Hotel Pty Ltd & Ors v Commissoiner of Taxation [2009] FCAFC 155 The taxation implications for Participating Owners will vary depending on each individual s tax position. You are strongly advised to seek your own taxation advice from your accountant or financial adviser. The information contained above is of a general nature only and is not intended to be relied upon. 15 REPAIR AND REFURBISHMENT Your Apartment will be cleaned and maintained by the On-site Manager in accordance with the terms of the Letting Agreement and in keeping with the overall high standard of the Resort. The On-site Manager will also arrange for and supervise repairs and replacements to the contents of your Apartment as and when the On-site Manager thinks appropriate. The cost of any such repairs and replacements shall be deducted from your refurbishment levies. The On-site Manager is entitled to deduct from your proportion of Pool Income a refurbishment levy which is to be used for capital expenditure on a renewal/refurbishment basis of the fitout of your Apartment. The refurbishment levy will be the maximum permitted by ASIC from time to time, this currently being 3% per annum of your Owner s Income provided that the balance for each Apartment you own shall not exceed $5,000. During anytime that your balance is the maximum permitted by ASIC the deduction of refurbishment levies shall be suspended. Your refurbishment levies will be deposited into an account to be held on trust on your behalf. At the end of the term of the Letting Agreement any balance of refurbishment levies held on your behalf will be returned to you. If there are insufficient funds accumulated from the refurbishment levy to maintain your Apartment to a high standard, then the Onsite Manager may call on you to make extra payments to fund the refurbishment works. The On-site Manager will be entitled to spend a certain budgeted amount, currently $3,000 (no limit in an emergency) without your authority. If more than the budgeted amount needs to be spent (except in an emergency), then you must give them authority before they can spend the money. You must reimburse the On-site Manager for any money spent by them for repairs and maintenance when called on to do so. Repairs, refurbishment and replacement of the common property will be carried out and supervised by the On-site Manager at the expense of the strata company and all owners will contribute to this cost via their strata company levies. Should you refuse to authorise or pay for any refurbishment, the On-site Manager may suspend your Apartment from the Scheme until such time that the refurbishment has been completed and you shall not be entitled to any income from the Scheme during this period. 16 DURATION OF PARTICIPATION AND SELLING YOUR APARTMENT There is no minimum time that you are required to remain in the Scheme and you are free to sell your Apartment at any time. There is no cost involved in withdrawing from the Scheme however you will be required to give the On-site Manager notice. You will be entitled to a prompt refund of any refurbishment levies held on trust on your behalf should you withdraw from the Scheme. You shall also be entitled to your Owner s Income, which will be paid in the same manner outlined in paragraph 9.4 and shall be calculated on a pro rata basis for any part month that you are in the Scheme. You must inform the On-site Manager if you intend to sell your Apartment and give the On-site Manager 90 days notice to terminate any Letting Agreement relating to that Apartment. If you want to sell your Apartment and you are a Participating Owner, then you must give every prospective purchaser a current PDS, which can be obtained from the On-site Manager. ASIC Class Order CO 02/305 ( CO 02/305 ) says that you must not offer to sell your Apartment in the Scheme or invite a person to buy your Apartment in the Scheme unless: s u m m e r s l e g a l 25 October :52 PM Page 10

13 you have a product disclosure statement signed and dated by the On-site Manager that complies with Schedule D of CO 02/305; neither the On-site Manager nor you engage in any misleading or deceptive conduct or conduct likely to mislead and deceive in connection with the sale, and you give each person to whom an offer or invitation is made the product disclosure statement referred to in paragraph either at or before the time the offer or invitation is made. As a condition of any sale of your Apartment you shall ensure that any incoming purchaser unconditionally agrees to honour all confirmed rental reservation for your Apartment that the On-site Manager cannot otherwise satisfactorily accommodated / relocate, for a period of up to 12 months after termination of the Letting Agreement (whether termination is on or after settlement of the transfer of ownership). You unconditionally and irrevocably indemnify the On-site Manger and shall keep them indemnified against any loss or damage they may suffer or cost, expense or claim they may incur due to a failure by a purchaser of your Apartment to honour any such bookings. 17 FOR FURTHER INFORMATION If you require any further information please contact the On-site Manager whose contact details are set out below. Copies of the On-site Manager s Agreement and Caretaking Agreement are available from the On-site Manager upon request. 18 CONTACT DETAILS The On-site Manager Name: Registered Office: Jacobs Daly Pty Ltd, Young Daly Pty Ltd, Michael Scholfield and Janet Elizabeth Grace Brackley trading as Denmark Waterfront ABN c/- Paragon Consultants, P.O. Box 903, Claremont, Western Australia Principal Place of Business: Denmark Waterfront, 63 Inlet Drive, Denmark, Western Australia, 6333 Postal Address: 63 Inlet Drive, Denmark, Western Australia, 6333 Telephone: Facsimile: Contact: holiday@denmarkwaterfront.com.au William (Bill) Jacobs 19 HOW TO JOIN THE SCHEME Joining the Scheme is voluntary. If you wish to join the Scheme, appointing the On-site Manager as your exclusive letting agent you should: read this PDS in full which explains how the Scheme works; purchase an Apartment (together with a furniture package of the standard required for the Resort); enter into a Letting Agreement, by signing and returning to the On-site Manger the Letting Agreement annexed to this PDS. There is no fee payable to become a member of the Scheme, though you must first become an owner of an Apartment (including a furniture package of the required standard of the Resort). s u m m e r s l e g a l 25 October :52 PM Page 11

14 20 EXECUTION BY ON-SITE MANAGER To the best of the knowledge and belief of the On-site manager the information contained in this disclosure statement is in accordance with the facts and does not contain any information that is misleading or deceptive or is likely to be misleading or deceptive. This disclosure statement is dated the../../.. and is signed by, for, and on behalf of Jacobs Daly Pty Ltd, Young Daly Pty Ltd, Michael Scholfield and Janet Elizabeth Grace Brackley trading as Denmark Waterfront ABN William Jacobs Manager s u m m e r s l e g a l 25 October :52 PM Page 12

15 ANNEXURE 1 LETTING AGREEMENT Freshwater East Kimberley Apartments Letting Agreement s u m m e r s l e g a l 25 October :52 PM Page 1 Initial X: