Finisterre Villas [2002] QBCCMCmr 608 (7 October 2002)

DJ ReardonREFERENCE: 0336-2002

ORDER OF AN ADJUDICATOR

MADE UNDER PART 10 OF CHAPTER 6

BODY CORPORATE AND COMMUNITY MANAGEMENT ACT 1997

Number of Scheme:	17318
Name of Scheme:	Finisterre Villas
Address of Scheme:	129 Woodward Street EDGE HILL QLD 4870

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

Norman Griffett and Lynn Cropp, the Owners of Lot 3

I hereby order that the application for an order that motions 2, and 3 considered and carried by the Body Corporate at the annual general meeting held on 10 May 2002 (“the AGM”) be declared void, is dismissed.

I further order that the application for an order giving effect to motion 4, considered by the Body Corporate at the AGM, is dismissed.

I further order that the contributions payable by owners of lots included in the scheme toward the Body Corporate’s sinking fund on 1 January 2003, 1 April 2003 and 1 July 2003 shall each be $200 per lot entitlement (excluding GST).

I further order that the application for an order giving effect to motion 11 considered by the Body Corporate at the AGM, is dismissed.

I further order that the Applicants may retain the garden shed they have installed on common property on the following two conditions:

(1) The Applicants must at all times comply with the Body Corporate’s by-law concerning the storage of flammable materials, and

(2) Within 3 months of the date of this order, the Applicants must seek and obtain any required local authority approval for the garden shed and provide a copy of such approval to the Secretary for the Body Corporate.

STATEMENT OF ADJUDICATOR’S REASONS FOR DECISION - REF 0336-2002

“Finisterre Villas” CTS 17318

1. Orders sought

The Applicants, the Owners of Lot 3, have sought orders of an adjudicator under the Body Corporate and Community Management Act 1997 (“the Act”) concerning motions considered by the Body Corporate at an annual general meeting held on 10 May 2002 (“the AGM”). The Applicants also sought a number of interim orders as part of the dispute resolution application.

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 the Act or the community management statement; or
c)	a claimed or anticipated contravention of the terms of, 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 “Finisterre Villas” community titles scheme consist of 4 lots and common property. The scheme was originally created by a building units plan of subdivision (now known as a building format plan) registered on 20 April 1995. The community management statement for “Finisterre Villas” indicates that the Body Corporate and Community Management (Standard Module) Regulation 1997 (“the Standard Module”) applies to the scheme. The financial year for the Body Corporate appears to run from 1 April to 31 March each year.

2. Application, interim order and submissions

This dispute resolution application was made on 6 June 2002. On 15 July 2002, I dismissed the application for interim orders in the terms sought by the Applicants, but I did issue the following interim orders-

“I further order that the Body Corporate must not remove or otherwise interfere with, or engage a person to remove or otherwise interfere with, the garden shed erected on common property by the Owners of Lot 3.

I further order that within 7 days of the date of this order, the Secretary for the Body Corporate must provide a copy of this interim order and the accompanying statement of reasons to the Owners of Lots 1,2 and 4”.

On 16 July 2002, the Commissioner for Body Corporate and Community Management invited all owners of lots included in the scheme to make a written submission about the application. The Owners of Lots 1, 2, and 4 have made written submissions about the application. In accordance with section 196 of the Act, the Applicants requested, and were provided with, a copy of the submissions made in respect of the application. The Applicants have made a written reply to the submissions.

On 21 August 2002, the Commissioner for Body Corporate and Community Management made an initial case management recommendation that the application should be the subject of departmental adjudication.

3. Matters in dispute

As stated previously, this application concerns a number of motions considered by the Body Corporate at the AGM. I intend to consider each of the motions in dispute in turn.

3.1 Motion 2 Statement of accounts

The first motion considered by the Body Corporate at the AGM, and raised in the application, concerns the Body Corporate’s financial statements for the year ended 31 March 2002. The minutes of the AGM record motion 2 in the following terms:

“2 APPROVAL OF STATEMENT OF ACCOUNTS ORDINARY RESOLUTION

That the non-audited Statement of Accounts for the Administration and Sinking Funds for the year ending 31 March 2002 attached to the Agenda be approved.

Note: Norman Griffett requested that the following statement be included: “Accounts do not reflect that the body corporate has met its obligations in terms of the sinking fund contributions-refer BCCM Standard Module Regulations Sec 94(3).

RESOLVED that Motion 2 be carried Yes 3 No 1 Abstain 0 Invalid 0”

The notice of the AGM provided to me by the Applicants includes the following financial statements and other documents described as Financial Year End Accounts for the period 1 April 2001 to 31 March 2002:

• Balance Sheet,

• Income and Expenditure statement for the Administrative Fund,

• Income and Expenditure statement for the Sinking Fund,

• Income and Expenditure statement for a Special Fund,

• Notes to the accounts,

• Debtor financial status report,

• Bank Reconciliation.

The Applicants object to this motion on the basis that the accounts do not include any statement that the sinking fund has not been maintained in accordance with section 94(3) of the Standard Module.

Section 94 of the Standard Module requires bodies corporate to adopt an administrative fund budget, and a sinking fund budget for each financial year. Section 94(3) of the Standard Module sets out the requirements for the sinking fund budget in the following terms:

(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 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).

From reading the material before me, it is evident that the Applicants consider that the Body Corporate has not previously met its obligations in accordance with section 94(3) and continues not to do so. The Applicants contend that it follows that the statements of account for the Body Corporate for the 2001-2002 financial year should not be accepted.

Section 105(1) of the Standard Module requires bodies corporate to keep proper accounting records, and to prepare a statement of accounts for each financial year showing the income and spending (or receipts and payments), of the body corporate for the financial year. In the case of bodies corporate that prepare accounts on a cash basis, section 105(3) of the Standard Module requires that the accounts must include disclosure of the following:

“(a) total contributions paid in advance to the administrative and sinking funds;

(b) total contributions in arrears, and total outstanding penalties;

(c) balances for all financial institution accounts and investments;

(d) all outstanding receipts and payments.”

Section 45(2) of the Standard Module provides that the agenda for each annual general meeting of bodies corporate must “provide for the presentation of accounts for the financial year.”

In my view, the legislation does not require the statement of accounts to include an assessment of the adequacy, or otherwise, of the administrative or sinking fund budgets. Rather, this is a matter that should be considered and decided by bodies corporate in the context of adopting budgets each financial year. For this reason, I do not consider that the Applicants objections to motion 2, warrant an order disrupting the Body Corporate’s decision to carry motion 2.

3.2 Motions 3 and 4 Audit

The Applicants also raise concern about motions 3 and 4, as set out on the agenda of the AGM. The minutes record motions 3 and 4 in the following terms,

“3 NO AUDIT SPECIAL RESOLUTION

That the body corporate’s statement of accounts for the financial year 01 April 2002 to 31 March 2003 not be audited.

RESOLVED that Motion 3 be carried Yes 3 No 1 Abstain 0 Invalid 0”

4 APPOINTMENT OF AN AUDITOR ORDINARY RESOLUTION

That the body corporate’s statement of accounts for the financial year 01 April 2002 to 31 March 2003 be audited, the proposed auditor being Lawrence & Reed.

RESOLVED that Motion 4 be not voted on.”

Section 106 of the Standard Module sets out requirements for auditing the statements of accounts of bodies corporate operating under the Standard Module. In general terms, a body corporate must have its statement of accounts for each year audited by a qualified auditor (see section 107 of the Standard Module regarding auditing qualifications and experience), unless the body corporate resolves by special resolution not to have its statement of accounts audited. Section 45(3)(b) of the Standard Module provides that the agenda for each annual general meeting of a body corporate must “provide for the appointment of an auditor of the body corporate’s accounts for the next financial year or for a special resolution that the accounts are not to be audited”.

In this case, it is clear that the Body Corporate has resolved, by special resolution, not to have its statement of accounts for the 2002-2003 financial year audited. From a reading of the material before me, I understand that the Applicants main desire for an audit stems from their concerns regarding the adequacy of the sinking fund. The Applicants also make a fairly general statement that an audit will improve the financial reporting of the Body Corporate.

As discussed previously, section 105 of the Standard Module makes provision for the statement of accounts, which do not include an assessment of the adequacy of the budgets adopted by a body corporate. I do not consider that an audit of the statement of accounts as contemplated in section 106 of the Standard Module would address the Applicants concerns regarding the sinking fund. My understanding is that generally, the scope of an audit of the statement of accounts would include an assessment of whether the statement of accounts was free from material error, misstatement or fraud, but would not necessarily include a broader assessment of whether or not the Body Corporate was meeting its obligations under provisions of the Act not relating to the statement of accounts. I do not consider that this latter type of audit, which could be loosely described as a “performance audit”, is what is contemplated by section 106 of the Standard Module.

I consider that my views on this issue are somewhat supported by section 106(6) of the Standard Module which provides the following:

(6) On finishing an audit of the body corporate’s statement of accounts

for a financial year, the auditor must give a certificate-

(a) stating whether the statement of accounts gives a true and fair

view of the body corporate’s financial affairs; and

(b) if the statement of accounts does not give a true and fair view of

the body corporate’s financial affairs—identifying the

deficiencies in the statement.

In my view, the outcome of an audit as described in section 106(6) does not include the type of assessment sought by the Applicants. For this reason, I intend to dismiss the application for orders overturning the outcome of motions 3 and 4.

3.3 Motion 7 Adoption of sinking fund and fixing of contributions

I will now turn to motion 7 considered by the Body Corporate at the AGM, which relates to the adoption of a sinking fund budget, and the fixing of owner’s contributions to the sinking fund. As stated previously, the Applicants have expressed a view that the Body Corporate has not to date properly complied with section 94(3) of the Standard Module (outlined above) by raising a reasonable capital amount for the sinking fund.

Originally, motion 7 proposed raising $1,636 in owner’s contributions to the sinking fund in the 2002-2003 financial year. The minutes record that one of the Applicants sought to amend the motion to incorporate the transfer of $4,400 from the administrative fund to the sinking fund, and to increase the contributions payable by owners on 1 July 2002, 1 October 2002 and 1 January 2003 to $430 per lot. The minutes record that the requested amendment failed, however go on to state that a further amendment that the contributions payable on 1 April 2003, and 1 July 2003 be increased to $162.50 per quarter was carried. Before proceeding any further, I would point out to owners that the legislation makes no provision allowing for the transfer of funds between the administrative and sinking funds.

In support of their application, the Applicants have provided me with a copy of a sinking fund forecast for the Body Corporate prepared by ACVAL D.J. Jones & Co, which is dated 18 January 2000. This forecast includes a sinking fund audit anticipating the Body Corporate’s future repair and maintenance costs, and in addition, sets out a schedule of suggested contributions until 2020.

The sinking fund forecast anticipated a sinking fund balance of $6,820 at the end of the 2002 calendar year. By my calculations, it appears that at the current rate of contributions, the likely balance of the sinking fund at the end of the 2002 calendar year is approximately $2,464 (balance of the sinking fund as at 31 March 2002 of $1646.20, plus $409 in contributions payable on 1 July 2002 and $409 in contributions payable on 1 October 2002).

In my view, the purpose of section 94(3) of the Standard Module is to facilitate a more equal distribution of capital costs across time, and therefore a more equitable distribution of costs among the different owners of lots included in the scheme, both past and present. Ensuring that the requirements of section 94(3) are satisfied will also largely alleviate the need for the Body Corporate to raise large amounts of capital at single points of time to meet expenses that should have been properly budgeted for over a period of time.

While bodies corporate are not strictly required to comply with the recommendations of persons performing a sinking fund forecast, in this case, the discrepancy between the Body Corporate’s sinking fund, and the sinking fund forecast is a matter of concern.

I agree with the Applicant that the amount of contributions set is not adequate. However, the difficulty arises in determining what order I should make that is just and equitable in the circumstances to remedy the situation. I am satisfied that I should make an order increasing the contributions to the sinking fund, however, I am extremely reluctant to take away the body corporate’s right to determine the issue for itself in future years. In my view, such an order would detract from one of the key secondary objectives of the Act, which is “to balance the rights of individuals with the responsibility for self-management as an inherent aspect of community titles schemes”.

In addition, I do not consider that it would be appropriate for me at this time to effectively disrupt decisions made by the Body Corporate in previous years concerning the sinking fund by ordering current owners to make up the difference between the current sinking fund balance, and that anticipated in the sinking fund forecast.

I note that the average quarterly contribution for each owner suggested in the sinking fund forecast for 2003-2012 is approximately $192. In the circumstances, I intend to order that the contributions payable by owners on 1 January 2003, 1 March 2003 and 1 July 2003 shall be $200 per lot entitlement, excluding GST. At its next annual general meeting, the Body Corporate will again need to consider a motion concerning the sinking fund and to set contributions. I strongly urge the Body Corporate in making this decision to keep in mind the comments made in this statement of reasons, and the guidance provided by the sinking fund forecast. If a dispute arises regarding contributions set for the 2003-2004 financial year, then an interested party would be entitled to make a further application to this Office.

An issue arises in the submissions and reply to submissions concerning contributions that were “set but not issued” in 2000 and 2001. In my view, the information provided to me on this matter is quite unclear, therefore I do not intend to make any comment or determination of it at this time.

3.4 Motion 11 Exclusive Use

In the application, the Applicants also raise concerns regarding motion 11 considered at the AGM. The minutes record motion 11 as follows:

“11 EXCLUSIVE USE RESOLUTION WITHOUT DISSENT

Proposed by: L Cropp & N Griffett Lot No: 3

To enable the owner of occupier of Lot 3 in the building to be entitled to the exclusive use for themselves and the licensees of the exclusive use of the area as described in Lot 2 in BUP 102182 and detailed as the rear garden area itemised as the hatched area marked “A” in the attached plan.

RESOLVED that Motion 11 be lost Yes 1 No 3 Abstain 0 Invalid 0”

The area of which the Applicants seek exclusive use is a lawn and garden area located to the southwest of Lot 3. From the photographs of the area provided as attachments to submissions to the application, it appears that the areas to the south west of the lots are already fenced, giving a somewhat de facto exclusive use to relevant owners/occupiers.

While the Act makes provision for a Body Corporate to grant exclusive use of areas of common property, it should be noted that by its very nature, an allocation of common property for the exclusive use of the owner or occupier of a particular lot effectively excludes other owners and occupiers from using and enjoying an area of common property that they otherwise would be able to use and enjoy. It seems to me that it is for this reason that the legislation requires the strongest form of resolution under the Act, a resolution without dissent, to form the consent of a body corporate to a by-law granting exclusive use of common property.

It is my view that because a grant of exclusive use effectively detracts from the rights of owners and occupiers, an Applicant seeking an order overturning an owner’s dissenting vote on a motion to grant exclusive use would need to present extremely convincing arguments clearly showing that the dissenting vote was unreasonable (for example, the dissenting vote was motivated out of spite or some other improper purpose), to be successful in this type of application. In my view this onus is even heavier in this case, given that 3 out of the 4 owners of lots in the scheme have dissented to the motion proposing exclusive use.

After reading the application, and the submissions, I am simply not satisfied that the Applicant has demonstrated unreasonabless on the part of the other owners such that I should disrupt the clear decision of the Body Corporate regarding this motion. For this reason, I intend to dismiss this part of the application.

3.5 Motion 12 Garden Shed

The final matter that I will consider in relation to this application concerns motion 12 considered by the Body Corporate at the AGM. The minutes record this motion as follows:

“12 GARDEN SHED SPECIAL RESOLUTION

Proposed by: L Cropp & N Griffett Lot No: 3

To permit the erection of a small size garden shed for the storage and protection of gardening implements in the area adjacent to Unit 3 denoted in the attached diagram as area “A” marked with hatching.

RESOLVED that Motion 12 be lost Yes 1 No 3 Abstain 0 Invalid 0

Note: Owner of Lot 3 is required to dismantle the garden shed installed without approval and to restore area to its original condition.

Note: Owners of Lot 3 signified their intention to refer matter to the Office of the Commissioner for adjudication.”

Section 114 of the Standard Module makes specific provision for improvements to common property by the owner of a lot included in the scheme in the following terms:

“114 Improvements to common property by lot owner—Act, s 121

(1) The body corporate may, if asked by the owner of a lot, authorise the

owner to make an improvement to the common property for the benefit of

the owner’s lot.

(2) The improvement must be authorised by special resolution of the

body corporate unless—

(a) the improvement is a minor improvement; and

(b) the improvement does not detract from the appearance of any lot

included in, or common property for, the scheme; and

(c) the body corporate is satisfied that use and enjoyment of the

authorised improvement is not likely to promote a breach of the

owner’s duties as an occupier.

(3) An authorisation may be given under this section on conditions the

body corporate considers appropriate.

(4) The owner of a lot who is given an authority under this section —

(a) must comply with conditions of the authority; and

(b) must maintain the improvement made under the authority in

good condition, unless excused by the body corporate.”

I understand that the garden shed in question is located on the area of common property to the south west of Lot 3 (the area that the Applicants have sought exclusive use of), and is adjacent to a fence separating the common property to the southwest of Lot 2. It is evident from the material before me that the Applicants installed the garden shed in question prior to obtaining the requisite approval of the Body Corporate in accordance with section 114 of the Standard Module. Nevertheless, I consider that it is now my role to determine whether the Body Corporate has acted reasonably by refusing the Applicants permission to install their shed on common property.



The main objections to the shed itself, appear to be the following:

• It is unclear whether the Council has provided approval for the shed,

• The shed is close to the bordering fence,

• Heat and sunlight will radiate off the shed,

• Flammable materials are being stored in the shed,

• The shed is visible from other lots and common property, and detracts from the appearance of the scheme land.

After reviewing photographs of the shed, I am of the view that the shed has minimal visual impact and does not significantly detract from the appearance of the scheme land. Similarly I am not convinced by the arguments concerning heat and sunlight being reflected off the shed, or that the shed will damage the nearby fence. For these reasons, I intend to order that the Applicants may keep their shed in its current location. However, this approval is subject to two conditions. Firstly, the Applicants must ensure that they comply with by-law 9 concerning the storage of flammable materials. Secondly, within 3 months of the date of this order, the Applicants must seek the written approval of the local authority for the shed, and present the approval to the Secretary for the Body Corporate. If the Applicants fail to comply with either or these conditions, the approval affected by this order is revoked, and the Applicants must remove the shed and restore the relevant area of common property to its previous condition.

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