Manuka Court [2004] QBCCMCmr 323 (23 June 2004)

Last Updated: 30 September 2005

REFERENCE: 0803-2003

ORDER OF AN ADJUDICATOR

MADE UNDER PART 9 OF CHAPTER 6

BODY CORPORATE AND COMMUNITY MANAGEMENT ACT 1997

Number of Scheme:	14489
Name of Scheme:	Manuka Court
Address of Scheme:	4 Holborow Close Surfers Paradise QLD 4217

TAKE NOTICE that pursuant to an application made under the abovementioned Act by Kristin Alanne GOETZ, as the owner of Lot 5,

I hereby order that within six (6) weeks of the date of this order the body corporate must have engaged an appropriate person and have had carried out a survey of the scheme building and environs to identify all major non-recurrent maintenance work, including the re-painting of the building which appears to be now due, in accordance with the requirements of section 94(3) of the Body Corporate and Community Management (Standard Module) Regulation 1997. I further order that as soon as possible after receipt of the analysis report containing the survey information made up to include the current body corporate financial year as if it were for the full year, the body corporate must call an extraordinary general meeting at which it must levy the special contribution which would otherwise have been levied at the last annual general meeting (after taking into account the actual amount levied on owners).

STATEMENT OF ADJUDICATOR’S REASONS FOR DECISION - REF 0803-2003

"Manuka Court" CTS 14489

The applicant, Kristin Goetz of Lot 5, has sought the following order of an adjudicator under the Body Corporate and Community Management Act 1997 ("the Act") -

"To increase the Sinking Fund levies to $500 per unit per annum as the balance in the Sinking Fund at the close of the financial year was only $2,726.15 and since that date $745 has been spent as 50% deposit on replacement of 2 windows. This after final payment of same the balance in the Sinking Fund will be $1,236.15! Other major works are imminent."


JURISDICTION:
This is a dispute between an owner (the applicant) and the body corporate (the respondent) concerning an alleged insufficiency in the contributions struck for the sinking fund at the annual general meeting held on 29 November 2003 in view of the small existing fund balance and the rectification work that needs to be done. This is a matter concerning the correct determination of owners’ contributions and the body corporate’s duty to maintain the common property, and therefore falls within the dispute resolution provisions of the legislation (see sections 227, 228 and 276 of the Act) and therefore may be determined by an adjudicator.

General powers of an Adjudicator in making an order:

Section 276(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 contractual matter about –
(i)	the engagement of a person as a body corporate manager or service contractor for a community titles scheme; or
(ii)	the authorisation of a person as a letting agent for a community titles scheme.

An order may require a person to act, or prohibit a person from acting, in a way stated in the order (section 276(2) of the Act). An adjudicator’s order may contain ancillary or consequential provisions the adjudicator considers necessary or appropriate (section 284(1) of the Act).


APPLICATION AND SUBMISSIONS:
Under section 243 of the Act, a copy of the application was provided to the respondent body corporate (committee) and to all other owners, with an invitation to each to respond to the matter of dispute raised in the application. The respondent committee made no submission, though the secretary Janette Laver made a submission as a co-owner of Lot 3 in favour of the application by Goetz. Both Laver and Goetz voted in favour of the $500 contribution motion at the annual general meeting, but were outvoted by Naismith of Lot 1, Bourke of Lot 4 and Nelson of Lot 6. The owner of Lot 2, Coral Foster, was unable to attend the AGM or give her proxy, but has made a submission saying that she would have voted in favour of the increased contribution.

The applicant did not view the submissions in order to lodge a written reply if felt necessary (see sections 244 and 246 of the Act).

The brief facts of the matters are as follows.

A report by Mark Wichlinski Consulting Engineers Pty Ltd dated 23 May 2003, based on an inspection of the scheme building, recommends certain work being carried out on a building that is now some 28 years old. The recommendations are for the following work: rectify the rusting roof areas; comprehensive replacement of much of the first floor balcony; repairs to the stairs leading to the same balcony; check and treat rust in carport structure; and the filling of a hole at the southern end of the property to prevent subsidence.

At the AGM held on 29 November 2003 a motion to increase the sinking fund contribution from $150 per lot per annum to $500, was defeated. The applicant states that this is the least amount necessary to attend to the major structural repair work to the "front street side balcony".

Apart from the matters referred to in the engineer’s report, the applicant says the building has not been painted for some 8 years and it must be done in the near future.

In her submission, Laver states that the sinking fund has been under-funded for many years. She had some sympathy for owners over the proposal to increase contributions from $150 to $500 a year, however she has confirmed to this office that urgent repair work has now been carried out to the balcony and a special contribution had been levied on owners in any case!


DETERMINATION:
"Manuka Court" was registered as a building units plan (now termed a building format plan) on 13 March 1995 and comprises six residential lots. It is regulated by the Body Corporate and Community Management (Standard Module) Regulation 1997 ("the Standard Module").

It appears obvious from the documents before me that the body corporate has not complied with the legislation in having its building surveyed and a proper analysis done as to major work required to be carried out to the building over the next 10 years (immediate first year and further 9 years). The payment in the past of such a small amount as $150 a year is a grossly inadequate amount for a 28 year-old building which, as can be expected, is showing the need for considerable maintenance.

In order that owners understand their obligation through the body corporate to maintain the building and the common property generally, I shall set out the general legislative requirements concerning body corporate finances.

The Standard Module, which regulates the "Manuka Court" body corporate, provides at Part 7 for the financial management of bodies corporate.

Briefly, it requires that an Administrative Fund budget be compiled according to estimates of reasonable and necessary "recurrent expenditure" to be incurred by the body corporate over the forthcoming financial year, for example, annual insurance premium, security lighting power costs, swimming pool chemicals, garden and lawn maintenance (see section 94(2)).

The body corporate must also compile a Sinking Fund budget based on its estimates of reasonable and necessary "non-recurrent/capital" expenditure to fund both its intended expenditure for the financial year ahead, and to proportionately accumulate funds to meet expected expenditure over the next 9 years. Only an investigation and analysis of the scheme’s future major maintenance requirements can achieve this 9-year future projection – the legislation gives a simple example of this concept following section 94(3). Basically, it is a system of identifying future major/capital repairs (eg painting, driveway re-surfacing, balustrade de-rusting, fence replacement) and accumulating moneys over the intervening years so that when the repair becomes due there are earmarked funds available to carry out the appropriate maintenance function. As each year passes, a new year is added to the projection so that each year the body corporate has a budget for expenditure in the immediate year ahead and a budget for accumulation of moneys over the next 9 years. The legislation does not require that a builder, engineer or quantity surveyor need necessarily carry out this survey, though it is obviously preferable. The alternative is that the body corporate does the survey itself. I would not recommend that in the case of "Manuka Court" because of the nature and number of repairs necessary.

The purpose of the 10 year sinking fund analysis is to ensure firstly that the money will have been accumulated by the time a repair falls due, and secondly that the burden of major repairs falls on all owners over the years. Under this system the annual sinking fund contribution is not a guessed amount, or an amount deemed "affordable" by owners, but is a calculated amount based on a consideration of envisaged future non-recurrent/capital expenses. Of course there may be some repairs that are not envisaged in which case a special contribution has to be levied (as for the recent balcony repairs). However this should be the rare exception and never the rule.

From the above discussion of the legal requirements for sinking funds, it will be obvious to owners that this has not been the case for this scheme and this must change. The engineer’s report is a good reference for some of the known repairs that must be included in the 10 year analysis. The glaring omission of not having accumulated funds for painting of the building must also be included – if the last painting was indeed some 8 years ago then it is now due (5 to 7 years is the recommended period).

It seems to me that it is too long to wait until the next AGM (some 5 months away) for the body corporate to remedy its failure to comply with the sinking fund 10 year analysis. Whether there is an owner with the expertise to survey and draw up the document, or whether a quantity surveyor or other building expert (builder or engineer) is engaged for the task, as is preferable (a number are familiar with the process and requirements), it must be done as soon as possible to commence accumulating the necessary funds. The committee needs to meet and decide this matter. My order is to this effect so the body corporate does not wait for the AGM to levy its first contribution. There may be further work that is immediately necessary but that may be determined by the person conducting the survey.