Reef Royale [2004] QBCCMCmr 34 (20 January 2004)

Last Updated: 30 September 2005

Office of the Commissioner for Body Corporate and Community Management SPECIALIST ADJUDICATION (Adjustment of Lot Entitlements) Number: 0288/2003

Applicant: MARION HEAD

Respondent: THE BODY CORPORATE FOR REEF ROYALE

FINAL DETERMINATION
20 January 2004

The History of the Application

1. This is an Application under section 48(1)(b) of the Body Corporate and Community Management Act 1997 ("the Act") for an order of a Specialist Adjudicator for the adjustment of the Lot Entitlement Schedule in Community Titles Scheme 16736 ("the Scheme").

2. The Body Corporate for the Scheme is a Respondent by virtue of section 48(2)(a) of the Act. Owners of lots in the Scheme may elect to become joined as a Respondent. The owners of Lots 1 to 8 have, by their solicitors Stacks the Law Firm, made submissions in response to the Application.

3. On 18 April 2003 the Applicant (who is the owner of Lot 9) delivered submissions (with the Application) to the Office of the Commissioner for Body Corporate and Community Management ("the Commissioner"). On 29 July 2003 the owners of Lots 1-8 delivered submissions to the Commissioner.

4. On 22 August 2003 I was appointed Specialist Adjudicator for the purpose of determining the Application.

5. On 16 September 2003 I made directions in relation to the delivery of further submissions.

6. On 29 September 2003 I received the Applicant’s further submissions (dated 21 September 2003) and on 19 November 2003 I received further submissions from the owners of Lots 1 to 8 (dated 18 November 2003).

The Scheme

7. The Scheme is situated at 22 Marine Parade, Miami. It relates to Building Units Plan No. 103165 registered under the Building Units and Group Titles Act 1980 on 12 September 1995.

8. The Scheme consists of 9 residential Lots. Lots 1 to 4 are two bedroom units, Lots 5 to 8 are three bedroom units and Lot 9 is a three bedroom penthouse.

9. The building has six residential levels and a basement carpark. The building is serviced by one elevator. There is a pool and spa on the ground floor.

10. Lots 1 and 2 are on the ground floor, Lots 3 and 4 are on the first floor, Lots 5 and 6 are on the second floor, Lots 7 and 8 are on the third floor and Lot 9 (the penthouse) consists of the fourth and fifth floors.

11. Each Lot has two car parking spaces in the basement carpark. Lots 2, 3, 4, 5 and 6 have tandem carparks. There is one visitors carpark.

12. By virtue of the transitional provisions of the Act, the Lots and common property in BUP103165 became CTS 16736. The Lot Entitlements that applied to the various Lots before the Act commenced were preserved by the transitional provisions of the Act.

13. The present Lot Entitlement Schedule is as follows:

Lot Contribution Interest

1 9 9

2 9 9

3 9 9

4 9 9

5 11 11

6 11 11

7 11 11

8 11 11

9 19 19


Relevant Legislation

14. The Act was amended in March 2003 when the present provisions were inserted by the Body Corporate and Community Management and Other Legislation Amendment Act 2003.

15. This is an application pursuant to section 48(1)(b) of the Act for an order for the adjustment of a Lot Entitlement Schedule.

16. The Lot Entitlement Schedule consists of two parts, the Contribution Schedule and the Interest Schedule.

17. Section 47(2) of the Act provides:

The contribution schedule lot entitlement for a lot is the basis for calculating –

(a) the lot owner’s share of amounts levied by the Body Corporate...; and
(b) the value of the lot owner’s vote for voting on an ordinary resolution...

18. Section 47(3) of the Act provides:

The interest schedule lot entitlement for a lot is the basis for calculating –

(a) the lot owners share of common property; and

(b) the lot owner’s interest on termination of the scheme, including the lot owner’s share in body corporate assets on termination of the scheme; and
(c) the unimproved value of the lot...

19. Section 48(1) provides:

The owner of a lot in a community titles scheme may apply-

(a) ...

(b) under chapter 6, for an order of a specialist adjudicator for the adjustment of a lot entitlement schedule.

20. The application must be determined in accordance with the principles stated in section 48(5) and (6) of the Act.

21. Section 48(5) provides:

For the contribution schedule, the respective lot entitlements should be equal, except to the extent to which it is just and equitable in the circumstances for them not to be equal.

22. Section 48(6) provides:

For the interest schedule, the respective lot entitlements should reflect the respective market values of the lots included in the scheme when the court or specialist adjudicator makes the order, except to the extent to which it is just and equitable in the circumstances for the individual lot entitlements to reflect other than the respective market values of the lots.

23. It is necessary to consider the provisions of section 49 when considering whether it is just and equitable to make an order contemplated by sections 48(5) and (6).

24. Section 49 provides:

(1) This section applies if an application is made for an order of the District Court or a specialist adjudicator for the adjustment of a lot entitlement schedule.

(2) This section sets out matters to which the court or specialist adjudicator may, and may not, have regard for deciding -

(a) for a contribution schedule – if it is just and equitable in the circumstances for the respective lot entitlements not to be equal; and

(b) for an interest schedule – if it is just and equitable in the circumstances for the individual lot entitlements to reflect other than the respective market values of the lots.

(3) However, the matters the court or specialist adjudicator may have regard to for deciding a matter mentioned in subsection (2) are not limited to the matters stated in this section.

(4)	The court or specialist adjudicator may have regard to –

(a) how the community titles scheme is structured; and

(b) the nature, features and characteristics of the lots included in the scheme; and

(c) the purposes for which the lots are used.

(5) The court or specialist adjudicator may not have regard to any knowledge or understanding the applicant had, or any lack of knowledge or misunderstanding on the part of the applicant, at the relevant time, about –

(a) the lot entitlement for the subject lot or other lots included in the community titles scheme; or

(b) the purpose for which a lot entitlement is used.

(6) In this section –

"relevant time" means the time the applicant entered into a contract to buy the subject lot.

"subject lot" means the lot owned by the applicant.

The Applicant’s submissions

25. The effect of the Applicant’s submissions is that the Lot Entitlements are presently unfair and ought to be adjusted. The Application is not clear as to whether it is the contributions schedule or the interest schedule which ought to be amended. I will proceed on the basis that the application relates to both.

26. The reasons provided by the Applicant (without differentiation between the Contribution Schedule and the Interest Schedule) for the amendment are:

(a) The replacement cost of unit 9 is less than that suggested by the disparity in Lot Entitlements.

(b) Each unit has two carparks.

(c) The elevator is used by all residents.

(d) The pool, spa and barbeque area are used by all residents.

(e) The front gardens cannot be viewed from Lot 9.

(f) Part of the patio of Lot 9 is fenced off.

(g) The Applicant lives on her own and is retired.

(h) Lot 9 has a market value in the vicinity of $1,000,000.00 to $1,200,000.00.

27. The Lot Owners submit that the Lot Entitlements ought not be varied for the following reasons:

(a) Inadequate evidence of valuation has been provided;

(b) While all units have two carparks, the carparks for Lots 2, 3, 4, 5 and 6 are tandem carparks;

(c) The units on the ground floor and first floor use the lifts less than the upper floors. Lot 9 has private key access to the elevator from the fourth floor and the elevator directly accesses Lot 9 (it does not access a foyer from which access is gained to the unit);

(d) The view from Lot 9 is not significantly impaired by the inability to see the ground floor gardens. The view from Lot 9 is better than that from all other units;

(e) The floor area of Lot 9 is more than double any other Lot except Lot 1;

(f) On a "per floor" calculation the Lot Entitlements of the Lot 9 floors are less than every other floor;

(g) The wall area (for maintenance purposes) of Lot 9 is 22% of the total wall area of the scheme;

(h) Extensive watering of plants in Lot 9 increases the water usage of the scheme and may require frequent maintenance of the water proofing membrane;

(i) The Applicant is not the only occupant who lives alone;

(j) Lot 9 has more balconies than any other Lot and this increases maintenance costs;

(k) The market values of the lots are:

Lot Bedrooms Value Range

1 – 4 2 $475,000 - $500,000

5 – 8 3 $725,000 - $750,000

9 3 $1,200,000 - $1,500,000

The Interest Schedule

28. Pursuant to section 48(6) the interest schedule lot entitlement ought to reflect the respective market values of the Lots, unless it is just and equitable in the circumstances not to do so.

29. The evidence of valuation which has been put before me consists of:

(a) On behalf of the Applicant – a letter dated 19 September 2003 from Lu Vang, a Property Consultant with Ray White Mermaid Beach which values Lot 9 at $1,000,000.00 to $1,200,000.00;

(b) On behalf of the owners of Lots 1 to 8 – a letter dated 17 October 2003 from Ruth Ryan Realty which values Lots 1 to 4 in the range $475,000.00 to $500,000.00, lots 5 to 8 in the range $725,000.00 to $750,000.00 and Lot 9 in the range $1,200,000.00 to $1,500,000.00.

30. Of significance is the fact that the valuation evidence presented by the Applicant does not address the value of Lots 1 to 8 and is specifically stated to be a "very conservative opinion".

31. In those circumstances I propose to rely upon the valuation of Ruth Ryan rather than that of Lu Vang.

32. Taking the middle of each range provided by Ruth Ryan, the following market values are arrived at:

Lot Mid Range Valuation Percentage of total

value of Lots

Lot 1 $487,500.00 7.8%

Lot 2 $487,500.00 7.8%

Lot 3 $487,500.00 7.8%

Lot 4 $487,500.00 7.8%

Lot 5 $737,500.00 11.8%

Lot 6 $737,500.00 11.8%

Lot 7 $737,500.00 11.8%

Lot 8 $737,500.00 11.8%

Lot 9 $1,350,000.00 21.6%

Total $6,250,000.00 100.0%

33. The present Interest Schedule Lot Entitlements are as follows:

Lot Entitlement Percentage of total

Lot Entitlements

Lot 1 9 9.1%

Lot 2 9 9.1%

Lot 3 9 9.1%

Lot 4 9 9.1%

Lot 5 11 11.1%

Lot 6 11 11.1%

Lot 7 11 11.1%

Lot 8 11 11.1%

Lot 9 19 19.2%

Total 99 100.0%

34. As can be seen from the above tables, the Interest Schedule Lot Entitlements roughly approximate the market value of the Lots. In fact, based on the valuation of Ruth Ryan the Interest Schedule Lot Entitlement of the Applicant is slightly less than what the valuation suggests.

35. However, in view of the fact that the Interest Schedule Lot Entitlements approximate the market values, the fact that by their very nature the valuations are approximates and are described as a range only, and the fact that the owners of Lots 1 to 8 do not seek to amend upwards the Applicant’s interest schedule Lot Entitlement, in my opinion it is just and equitable to allow the Interest Schedule Lot Entitlements to remain as they are.

Contribution Schedule

36. Pursuant to section 48(5) of the Act, for the Contribution Schedule, the respective Lot Entitlements should be equal, except to the extent to which it is just and equitable for them not to be equal.

37. The words "just and equitable" are words of the widest significance and do not limit the jurisdiction of the Court. It is a question of fact (Burnitt Investments Pty Ltd v Body Corporate for St Andrews Community Titles Scheme 20508 [2002] QDC at 17).

38. Section 49(4) specifies certain matters to which the Specialist Adjudicator may have regard in deciding whether to amend the Contribution Schedule. Section 46(8) details these same considerations in respect of schemes for which development approval is granted after the commencement of the section.

39. The Explanatory Notes to the Amending Bill in 2003 gives an indication of the intention underlying section 46 and consequently section 49:

Clause 10 amends section 44 (now section 46) to change the requirements for the number that is allocated for the contribution schedule lot entitlement.

The change is intended to reinforce the concept that usually all lot owners are equally responsible for the cost of upkeep of common property and for the running costs of the community titles scheme. However, it is recognised that there are many valid instances where the contribution schedules do not have to be equal. The amendment provides that usually the numbers in this schedule are equal, unless it can be demonstrated that it is just and equitable for there to be inequality.

The need for difference is best shown by examples.

Example 1 Where a basic community titles scheme contains lots having different uses, for example, a combination of residential and business lots (restaurants, small shops and the like) the contribution schedule can be different to reflect the higher maintenance and utilities use of the shops in comparison to lower requirements for the residential lots.

Example 2 In a layered scheme there may be a difference in the contribution schedule of each basic scheme in the layered arrangement depending on the nature of each of the basic schemes. If the layered scheme was a building that compromised a number of basic schemes including a car park, shopping centre, hotel and residential schemes, the contribution schedule would be different between, for example, the car park and the shopping centre to reflect the different service needs, the different levels of consumption of utilities and the different maintenance and refurbishment costs. A similar difference would exist between the hotel and the residential schemes.

Example 3 In a basic scheme, if all the lots are residential lots ranging in size from a small lot to a penthouse, the contribution schedule lot entitlements generally would be equal. However, the contribution schedule may be different if the penthouse has its own swimming pool and private lift. The contribution schedule should recognise this type of difference. The other lots in the scheme despite being of differing size or aspect would be expected to have equal contribution schedule lot entitlements.

40. I may have regard to the matters in section 49(4).

41. The main consideration in determining the contributions schedule is each Lot’s contribution to the maintenance and running costs of the Scheme.

42. The parties have provided little evidence in relation to these costs. I do however take into account the submissions made by the parties.

43. I would have expected the parties to address in more detail the various administrative fund and sinking fund expenses of the Body Corporate and to attribute those costs to each Lot for the purpose of calculating the proportional contribution to be made by each Lot to those costs.

44. Some costs will vary with the size of each Lot or the population capacity of each Lot. Other expenses will be equal from Lot to Lot regardless of size or population.

45. Doing the best I can with the evidence before me, I am satisfied that in the present circumstances it is just and equitable for the Contribution Schedule Lot Entitlements not to be equal.

46. The Applicant does not submit that they ought to be equal, only that the Lot Entitlement for Lot 9 ought to be reduced from 19 to 15 or 13 and Lots 1 to 4 increased to 10 and Lots 5 and 8 increased to 11.5.

47. In relation to the Applicant’s submission that the Lot Entitlement for Lots 5 to 8 ought to be 11.5, I note that section 46(6) requires a Lot Entitlement to be a whole number.

48. The Applicant and the owners of Lots 1 to 8 made submissions in relation to the floor area of the respective units.

49. What is also relevant to the expenses of the Body Corporate is the wall and roof area of each Lot that is common property. The owners of Lots 1 to 8 submit that Lot 9 comprises 22% of wall area of the Scheme.

50. Also cleaning costs, for example, can be expected to be greater for the Lots which are higher off the ground.

51. There is no evidence that any Lot will contribute more or less than any other to the general administrative cost of running the Body Corporate. Little evidence has been provided by the parties which would enable me to determine the extent to which the Contribution Schedule Lot Entitlements for the Lots should not be equal.

52. No evidence has been submitted from an independent professional body corporate manager or quantity surveyor that would allow me to decide with any accuracy (even using a broad brush approach) the extent that the contribution schedule lot entitlements should be varied.

53. I allowed further submissions from the parties hoping to elicit professional and independent appraisals of the Contribution Lot Entitlements and the various costs incurred by the Body Corporate. I could not direct either party as to the standard or type of evidence or submissions needed. Had I done so, I would have been assisting a party to this application. This would have been unfair.

54. The calculations of Lot Entitlements is "necessarily a rough and ready one. There is much scope for argument as to which lot owners benefit from particular facilities and services. There may be no easy answer... I think a broad brush approach is necessary, rather than one which focuses too closely on the last dollar or percentage point." (Sandhurst Trustees Ltd v Condah Bay Investments Pty Ltd, District Court of Queensland 28 November 2003 per Robin QC DCJ at paragraph 25).

55. Bearing in mind the lack of evidence produced by the parties, it is necessary for me to take such a broad brush approach.

56. I take into account the additional wall space and likely disparity in maintenance of the external components of each Lot.

57. I also take into account the fact that each Lot has access to and use of common facilities such as the pool. It does not matter in my opinion whether all residents use those facilities. The fact is they are provided for use and the cost of maintaining them is a Body Corporate expense.

58. In all of the circumstances and bearing in mind the submissions made and evidence adduced by all parties I am not satisfied that the Contributions Schedule ought to be amended.

59. It appears to me to be just and equitable for contributions not to be equal. On the evidence before me, I cannot make an order to alter the extent to which contributions are unequal to that requested by the Applicant.

Costs

60. Each party must bear their own costs of the Application (section 48(2)(c)).

61. In relation to the costs of the adjudication, the Applicant is responsible for those costs unless I otherwise order (section 280).

62. Bearing in mind the view I have taken on the substantive issues I do not propose to "otherwise order".

Orders

63. I make the following orders: (1) The Application is dismissed. (2) The Applicant pay the costs of the Adjudication.

Dated: 20/1/2004


.............................................
Joseph George Welch