Panorama 22 [2001] QBCCMCmr 80 (13 February 2001)

P J HanlyREFERENCE: 0679-2000

ORDER OF AN ADJUDICATOR

MADE UNDER PART 10 OF CHAPTER 6

BODY CORPORATE AND COMMUNITY MANAGEMENT ACT 1997

Number of Scheme:	10397
Name of Scheme:	Panorama 22
Address of Scheme:	22 Dandaloo Drive, CURRUMBIN QLD 4223

TAKE NOTICE that pursuant to an application made under the abovementioned Act by

Patricia Anne OSBORN, the owner of Lot 5

P J HanlyI hereby order that the application by Patricia Osborn, the owner of Lot 5 for an order2n:

That an increase in Body Corporate fees may be made only at an Annual General Meeting, and that it may not be made retrospectively.

Therefore the fees for 2000/1 remain at $500 per lot.

That a ten year plan is required to be developed showing all maintenance proposed for the building. This plan can then be used to justify or negate any proposal to increase Body Corporate fees.

This plan is to be produced by the next Annual general Meeting,

is dismissed.

STATEMENT OF ADJUDICATOR’S REASONS FOR DECISION - REF 0679-2000

“Panorama 22” CTS 10397

The applicant, Ms Patricia Anne Osborn of Lot 5 has sought the following order of an adjudicator under the Body Corporate and Community Management Act 1997 (“the Act”), quote -

That an increase in Body Corporate fees may be made only at an Annual General Meeting, and that it may not be made retrospectively.

Therefore the fees for 2000/1 remain at $500 per lot.

That a ten year plan is required to be developed showing all maintenance proposed for the building. This plan can then be used to justify or negate any proposal to increase Body Corporate fees.

This plan is to be produced by the next Annual general Meeting.

Section 223(1) of the Act provides that an adjudicator may make an order that is just and equitable in the circumstances (including a declaratory order) to resolve a dispute, in the context of a community titles scheme, about –

a) a claimed or anticipated contravention of the Act or the community management statement; or

b) the exercise of rights or powers, or the performance of duties, under this Act or the community management statement; or

c) a claimed or anticipated contravention of the terms, or the termination of, or the exercise of rights or powers under the terms of, or the performance of duties under the terms of an engagement contract or an authorisation contract.

An order may require a person to act, or prohibit a person from acting, in a way stated in the order (section 223(2)). An adjudicator’s order may contain ancillary or consequential provisions the adjudicator considers necessary or appropriate (section 230(1)).

In the supporting grounds, the applicant provided a copy of the following documents:

1. The agenda for the Annual General Meeting (“AGM”) dated 24 May 2000 including the Statement of Income and Expenditure for the year ending 30 March 2000. Motion 5 on the agenda proposed increasing total contributions to $550 per annum per lot, with $350 allocated to the administrative fund and $200 allocated to the sinking fund.

2. The minutes of the AGM dated 24 May 2000. Under motion 5, it was resolved that the contributions be increased to $600 a year to “allow for increased costs and the GST”.

3. A letter to the Body Corporate Manager dated 16 September 2000 opposing a proposed motion regarding contributions to be considered at a forthcoming Extraordinary General Meeting (“EGM”).

4. The agenda of the EGM dated 28 September 2000 showing one motion to increase fees to $600 for Lots 1 to 4 and $1200 for Lot 5. The motion states that the increase “is to accommodate the 10% GST and to help build up the Sinking Fund. This Motion be effective from 1 April 2000”.

5. The minutes of the EGM dated 28 September 2000 which indicate that the motion concerning the increase in the contributions was passed.

A copy of the application was forwarded to the secretary for distribution to all owners (excluding the applicant) and to the committee. In her response to the application, Ms Farmer (the secretary and treasurer) states that the increase in the body corporate contributions is in accordance with the Act so that major works can be done over the next ten years. Ms Farmer states that more detailed forecasts will be included in the agenda for the next AGM. Ms Farmer also states that the first contribution payment for the current financial year is due in October 2000.

Ms Farmer has submitted that sinking fund expenditure in the next few years for items such as painting, tiles replacement and the replacement of gutters and downpipes could cost the body corporate approximately $6000. The Statement of Income and Expenditure for the period ending 30 March 2000 shows that the balance of the sinking fund was $2558.29. While Ms Farmer has provided some detail on expected expenditure from the sinking fund, the decision to increase the sinking fund contribution from $200 per lot to $250 per lot at the AGM and the subsequent EGM dated 28 September 2000 was based on a general statement to accommodate the GST and to allow for increased costs. The secretary/treasurer is incorrect to state that the increase in contributions is in accordance with the Act. The only compliance with the legislation in relation to this matter has been that contributions have been determined at a general meeting. The applicant is understandably concerned about the decisions being made regarding the financial management of this body corporate. Lot owners are entitled to more detailed disclosure from the body corporate, and the legislation makes provision for full and proper disclosure.

Section 94(5) of the Body Corporate and Community Management (Standard Module) Regulation 1997 ("the Standard Module") places an obligation on the committee to prepare proposed budgets for adoption at each annual general meeting. Section 94(6) provides that “Copies of the proposed budgets must accompany the notice of an annual general meeting”. Section 95(1) of the Standard Module provides:
“95.(1) The body corporate must, by ordinary resolution-

(a) fix, on the basis of its budgets for a financial year, the contributions to be levied on the owner of each lot for the financial year;

(b) decide the number of instalments in which the contributions are to be paid; and

(c) fix the date on or before which payment of each instalment is required.”

In relation to both the AGM and the EGM, section 42(3)(d) of the Standard Module provides that the notice of a proposed general meeting must “contain or be accompanied by explanatory or other materials required under this regulation to be contained in or to accompany the notice”. The footnote to this subsection makes reference to section 94 budgets as being caught by section 42(3)(d). However, the notices of both meetings which I received did not contain a proposed budget. The absence of such vital and necessary information could potentially result in the invalidation of a body corporate resolution relating to administrative or sinking fund contributions.

It is not enough to make generalized statements concerning the formulation of a budget, be it for the administrative fund or the sinking fund. In this regard, section 94(1) and (2) of the Standard Module provides:

“Budgets

94.(1) The body corporate must, by ordinary resolution, adopt 2 budgets for each financial year—

• the administrative fund budget

• the sinking fund budget.

(2) The administrative fund budget must—

(a) contain estimates for the financial year of necessary and reasonable spending from the administrative fund 19 to cover—

(i) the cost of maintaining common property and body corporate assets; and

(ii) the cost of insurance; and

(iii) other expenditure of a recurrent nature; and

(b) fix the amount to be raised by way of contribution to cover the estimated recurrent expenditure mentioned in paragraph (a).

(3) The sinking fund budget must—

(a) allow for raising a reasonable capital amount both to provide for necessary and reasonable spending from the sinking fund 20 for the financial year, and also to reserve an appropriate proportional share of amounts necessary to be accumulated to meet anticipated major expenditure over at least the next 9 years after the financial year, having regard to—

(i) anticipated expenditure of a capital or non-recurrent nature;

and

(ii) the periodic replacement of items of a major capital nature;

and

(iii) other expenditure that should reasonably be met from capital; and

(b) fix the amount to be raised by way of contribution to cover the capital amount mentioned in paragraph (a).

Example—

Painting of the common property is anticipated to be necessary in 3 years time at a cost currently estimated at $3 000. The contribution amount for the sinking fund in the budget for the financial year must therefore include the annual proportional share for painting of $1 000. Next year, the estimated cost has increased to $3 400 and so the second year levy will be $1 200. The estimated cost in the third year is $3 500, so with the $2 200 accumulated, a levy of $1 300 is necessary to meet the cost. In larger schemes, the sinking fund will have several projects being funded for various future times.”

Basically, the sinking fund budget involves a process of: the body corporate first identifying future major/capital maintenance (eg painting, replacement of guttering) requirements; determining when that maintenance event will fall due; allocating the likely cost of each maintenance event evenly over the intervening years; levying those amounts on owners each year so that when each maintenance event falls due there are earmarked funds already accumulated to enable the work to carried out. It is a concept which shares the burden of major/capital maintenance over all owners through the course of their ownership. The Standard Module gives a simple painting example of this concept following section 94(3).

The body corporate has not formulated or accepted proper administrative or sinking fund budgets. The expenditure items to which Ms Farmer has referred must be included and budgeted for in the respective budgets, and in regards to the sinking fund, the proposed total expense must be proportioned over the time before the expense on that item is expected to be incurred.

It is clear that the body corporate has not complied with its legislative obligations in regards to financial management. However, for the following reasons I have dismissed the application that the contributions payable by lot owners remain at $500 per lot. Firstly, four of the five owners have agreed to the current contributions to the funds. I have also given consideration to the fact that there are no grounds to support any contention that the contributions were unreasonable. The budget forecasts relating to the sinking fund included with the applicant’s letter dated 16 September 2000 to the body corporate do not make appropriate provision in accordance with section 94(3) of the Standard Module. Secondly, the increase in the sinking fund contribution is an attempt to budget for anticipated future capital expenses. Thirdly, the financial year for this body corporate ends on 31 March 2001 and the contributions paid by owners for this financial year must be accounted for in the formulation of the budget and the contributions payable for the next financial year.


Lastly, section 95(5) of the Standard Module provides that the contributions levied on the owner of each lot must be proportionate to the contribution schedule lot entitlement of the lot. The Community Management Statement for this scheme shows that Lots 1 to 4 each have a contribution schedule lot entitlement of 1 and Lot 5 has a lot entitlement of 2. Therefore, the previous practice of this body corporate to levy contributions equally between the five lots cannot continue and the contributions levied on lot owners cannot be shared equally based on the present lot entitlements.

While it is necessary that the budgets be presented to each AGM, the body corporate is not prevented from making subsequent decisions regarding the budgets and the contributions accepted at an EGM should the prevailing circumstances warrant such an action. However, the body corporate cannot make a decision to, for example alter the amount of a contribution which has already been paid based on the determined date on which the payment was required. The decision at the EGM dated 28 September 2000 was to change the amount of the annual contributions which are payable half yearly. The secretary/treasurer has submitted that the first contribution was due in October 2000, a date after the meeting. Even though the relevant motion stated that the change in contributions be effective from 1 April 2000, I do not consider that this decision is retrospective as it relates to contributions which are still payable to the body corporate. However, a general date of “half yearly” is unacceptable and the body corporate must be aware of the requirements of section 95(1)(c) of the Standard Module when determining the dates on which contributions are to be paid.

While I have dismissed the application, I would remind the body corporate and its committee of the legislative obligations concerning financial management. In this regard, the committee must ensure that proper proposed budgets are submitted to the next AGM, and that lot owners receive this documentation and the other necessary financial information with the notice of the AGM.