Bahia [2002] QBCCMCmr 493 (9 August 2002)

RA MeekREFERENCE: 0310-2002

ORDER OF AN ADJUDICATOR

MADE UNDER PART 10 OF CHAPTER 6

BODY CORPORATE AND COMMUNITY MANAGEMENT ACT 1997

Number of Scheme:	13693
Name of Scheme:	Bahia
Address of Scheme:	154 The Esplanade SURFERS PARADISE QLD 4217

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

Paul John Mulhearn, the owner of lot 27


RA MeekI hereby order that the in respect of the proposed removal of the party wall separating lots 27 and 28, the owner of those lots, Paul John Mulhearn and the body corporate shall enter into and execute a Deed of Indemnity in the form proposed by the body corporate solicitor, but subject to the changes set out in the accompanying Statement of Adjudicator’s Reasons for Decision. n
STATEMENT OF ADJUDICATOR’S REASONS FOR DECISION - REF 0310-2002

“Bahia” CTS 13693

The applicant Paul John Mulhearn, the owner of lot 27, has sought the following orders of an adjudicator under the Body Corporate and Community Management Act 1997 (the Act), quote -

1.	An order that the conditional consent of the body corporate for Bahia ... in relation to the removal of the common non-structural wall between lots 27 and 28 (including the requirement to sign the Deed of Indemnity in the form submitted) is unreasonable.
2.	An order that the body corporate consent to the removal of the said dividing wall on the conditions outlined in Appendix “A”.
3.	An order that in the event that a Deed of Indemnity be necessary, the terms of such Deed must not directly or indirectly prevent or restrict the transfer of lot 27 and/or 28 or impose any conditions on the transfer of the said lots or otherwise impose unreasonable requirements.

Section 223(1) 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)).

The circumstances of this application are known to both parties and I do not propose to restate these here in any detail. Briefly though, the applicant is the owner of both lots 27 and 28 and is seeking body corporate authorisation for the removal of a dividing wall between the two lots. Subject to the provision of structural engineer’s reports (which the applicant has provided to the body corporate), the body corporate committee has agreed to give its consent under by-law 13 headed “Structural Alternations” subject to the applicant agreeing to execute a Deed of indemnity which has been prepared by the body corporate solicitor. It is the requirement for the execution of this document as the condition for the giving of its consent, and the terms of the document itself, that the applicant objects to.

The applicant contends that in light of the expert reports which have been provided (two of which are by the original structural engineers for the construction of the building) that he “is being unjustly called upon by the ... committee ... to execute a most unreasonable Deed of Indemnity”. The applicant has attached a list of conditions which he believes “adequately protects the interests of the body corporate” without the need to execute the Deed of Indemnity.

The applicant further contends that the deed “in the form proposed” is beyond the power of the body corporate “because such condition, in effect, constitutes a restriction on the transfer of a lot, which is prohibited under s.142(3).”

I disagree with this conclusion. Section 142(3) provides that a by-law cannot prevent or restrict a transmission, transfer, mortgage or other dealing with a lot. There is nothing however in the by-law which has this effect, and consequently, the by-law is not inconsistent with section 142(3). The provision refers to the by-law, not to any agreement entered into.

The body corporate committee submits that it is concerned with the “long term ramifications to the structure of the building”. The purpose of the Deed of Indemnity is to “hold the owner of the lots, both now and in the future, responsible for the structural integrity of the lots and for any rectification work that may be found to be required to common property should the removal of the dividing wall impact now or in the future on the buildings structure”.

The application raises two questions. Firstly whether the committee requirement for the execution of the deed is a reasonably requirement in the circumstances. If the answer to this is yes, then a further, and more difficult question arises. Namely, whether the deed proposed by the body corporate committee is reasonable in its terms.

I note that the applicant submits that the requirement of the deed is unreasonable, and that the body corporate committee should accept the conditions to which he is agreeable as set out in the appendix marked “A”. I note that these conditions appear to be limited in time to the undertaking of the work. For example, responsibility for damage to common property should any be caused. This suggests to me that if during removal of the wall, common property is damaged, then it will be the responsibility of the applicant to repair. The body corporate committee contends that it has concerns for the longer term ramifications.

I conclude that the body corporate committee is not acting unreasonably in requiring the deed. I consider that, given the nature of the project, there are aspects or concerns which are not dealt with in the applicant’s proposed conditions; in particular, the longer term considerations. Having said this however, I consider that the evidence of the engineering reports is such that the potential future ramifications for the structural integrity of the building should not be overrated. The reports indicate that the wall is “non load bearing”, and that it can be removed “without adversely affecting the structural integrity of the building”. In essence, based on the findings in the reports, it seems to me that the removal of the wall will practically have no adverse effect whatsoever in terms of the structural integrity of the building. The reasonableness of the requirements of the body corporate regarding the deed must be viewed in this light.

Given that I am about to review the reasonableness of the terms of the deed, I consider it a reasonable expectation of the parties that I indicate some basis or qualification for undertaking this exercise. Obviously I am an adjudicator appointed for the resolution of disputes under the Act; specifically to make orders which are just and equitable for the resolution of those disputes. I am also a solicitor admitted in Queensland (1987) who as an employed solicitor in private legal practice, specialised in commercial and property type transactions.

The proposed deed is of ten (10) clauses, numbers 7, 9 and 10 of which are technical or necessary for operative effect, and I consider, are reasonable inclusions.

In place of the remaining clauses, the applicant “remains willing to provide an indemnity to the effect offered in his letter of 19 April 2002 – that is, to indemnify in relation to any damage suffered by the two units below the applicant’s units (units 24 and 25) and the two units above ... (units 30 and 31) caused by the applicant’s proposed works, for a period of 7 years from the date the wall is removed”.

The applicant contends that the need for a more far reaching deed is negated by several considerations including that -

• the body corporate and lot owners are afforded “adequate protection” under the provisions of section 120 and 121 of the Accommodation module;

• presumably the engineers who have provided a report would owe the body corporate and other owners a duty of care;

• under section 127 of the Act, the body corporate has rights against the applicant “in relation to any interference with the support provided by lots 28 and 29 (sic) for another lot or the common property;

• The body corporate might also have recourse against the applicant under section 129 of the Act headed “Nuisances”.

A reference to section 227 of the Act headed “Order to repair damage or pay compensation” might be added to the above list.

I consider however that reference to a list of potential remedies the body corporate or lot owners might have, misses the central point or purpose of a Deed of Indemnity; namely to indemnify. To the extent that I consider that the body corporate is reasonably entitled to such an indemnity, I intend to now consider the reasonableness of clauses 1 to 8 of the proposed deed.

Clause 1 entitles the body corporate to require the applicant to replace the party wall “if the body corporate is not satisfied with the structural adequacy of the building”. It seems to me that the body corporate should not be granting authorisation in any form unless it is absolutely satisfied that the removal of the wall will not affect the structural adequacy of the building whatsoever. This in my view, the body corporate can only be satisfied of by reference to the expert reports which have been provided. Given the point in time when I consider the body corporate should be satisfied of the effect of the removal of the wall on the structural adequacy of the building, I consider clause 1 to be unnecessary. This clause goes beyond the notion of “indemnity”.

Clause 2 is related to clause 1 and is similarly unnecessary in my view.

Clause 3 states that the owner “is liable for all costs of any kind whatsoever incurred by the body corporate ...”. I consider that this clause is simply too wide and should be more specific. I suggest the clause should either be deleted on the basis that the subject of the clause is in my view adequately provided for in proposed clauses 4 and 6 of the deed, or the clause should specify or refer to those costs for which the applicant has agreed to be responsible for. Costs beyond this, for example, future reports or legal expenses, I consider should be claimed as part of any relevant proceeding commenced at that time, or alternatively would be recoverable under clauses 4 or 6.

Clauses 4 and 5 are similar in their intent and effect, and in my view are the reason for the deed’s existence. They provide the indemnity both to the body corporate and to owners. I am of the view that these clauses are reasonable and do not unreasonably extend the potential liability of the applicant beyond that which would arise under the operation of various sections of the legislation in any event. My one objection is that the period of the indemnity is unrestricted as to time. I conclude that this is unreasonable in that over time, other factors might start to affect the building structure (for example, concrete cancer). I have noted the applicant’s offer of a more limited indemnity “for a period of 7 years from the date the wall is removed”. I note the analogy that in Queensland, the work of a registered builder is insured against defects for a period of 6 years. I conclude the applicant’s reference to a 7 year limitation on the period of the indemnity to be a reasonable one, and that clauses 4 and 5 should be amended to reflect this limitation as to the term of the indemnity.

I am satisfied that the terms of proposed clause 6 are reasonable, subject to one amendment; namely the addition of the work “reasonable” in the first line so that it now reads “The Owner shall pay to the body corporate the reasonable costs of the body corporate ...”.

Proposed clause 8 is the clause in respect of which there has been greatest disagreement. I note that the body corporate committee has now agreed to re-word the clause from one which prevents the applicant from disposing of either of the lots without the wall being replaced, to one which now requires the applicant to obtain from an intending purchaser a similar Deed of Indemnity.

The applicant submits that even the latter proposal “will have the effect of restricting transmission, transfer, mortgage or other dealing with the lots”. I have previously dealt with this aspect, and do not consider it a correct interpretation of section 142(3) of the Act. More generally, the applicant states that he has owned unit 27 “for over 25 years and has always acted in good faith towards the body corporate”. The conduct of the applicant has not been placed in issue by the body corporate.

The question is whether the latter proposal of the body corporate is reasonable. A difficult legal question arises at this point; namely whether in the event of the sale of the lots by the applicant, the deed, in the absence of the proposed provision, is of no further effect. If the effect of the sale is to terminate the obligations under the deed, then the requirement for the applicant to obtain a similar deed from the purchaser appears prudent for the reasonable protection of the body corporate. Alternatively, in the event of sale of the lots, does the applicant remain personally liable under the deed. If so, then there is no need for the applicant to obtain a similar deed from the purchaser, as the body corporate is protected by the terms of the existing deed on the basis that its obligations continue.

I consider that the answer to this question depends on whether the obligations under the deed are taken to be personal, or alternatively, are taken to run with the land. I do not know the answer to this question, although I lean towards the obligations being personal in nature, and therefore continuing to bind the applicant notwithstanding that the applicant has sold the lots. There is nothing in the deed which suggests a contrary interpretation, although this may be the effect of the operation of law. I accept however that this conclusion might be wrong in law. In the circumstances, I would be interested to know the thoughts of the legal advisers acting for the parties on this question. However I pose this as an academic exercise and not one to be undertaken at the expense of the parties, if the legal advisers should elect to indicate a view. In any event I have previously restricted the operation of the indemnity to a period of 7 years from the removal of the wall.

Given that I do not know the answer to the legal question which I consider arises in the event of sale of the lots by the applicant, I consider that the following clause should be included in the deed so as to ensure the continuation of the terms of the indemnity for the 7 year period contemplated, quote –

The indemnity given under this Deed shall remains in force, and shall be personally binding on the Owner for a period of 7 years from the date of the removal of the party wall, unless, during such period, the Owner has sold the lots, and has obtained from the purchaser of the lots, an indemnity in the same terms as this indemnity.