La Pacifique [2004] QBCCMCmr 655 (21 December 2004)

1.1 Accordingly, I make the following adjudications:

(a) The application by Stephen Craig Jermyn and Therese Ann Jermyn is allowed;

(b) The recommended lot entitlement schedule for Lots 1 to 49 as set out in Table 4 of the Leary and Partners Pty Ltd report on "Contribution Lot Entitlement Analysis" for La Pacifique CTS 9876" is a just and equitable allocation of entitlements and, accordingly, I direct that the lot entitlement schedule for La Pacifique CTS 9876 be amended in accordance with Table 4 of the Leary Report;

(c) I direct that the lot entitlement schedule for the La Pacifique CTS 9876 be amended in such time as to require contribution payments to be made in accordance with the amended lot entitlement schedule from 1 April 2005, i.e. for the last quarter of the current financial year and thereafter.

(d) The applicant pay the specialist adjudicator’s costs of and incidental to the application.

2 Additional observations

2.1 It should also be recorded that, after receiving the instructions from the Commissioner of Body Corporate, I did receive a letter dated 31 August 2004 from the applicant, Mr Jermyn, a copy of which letter is attached to this decision. It is noted that Mr Jermyn expressed some concern as to the financial burden which may be borne by a change in the entitlement schedules and proposed, in some form of hopeful anticipation, that if a decision was made that the schedule should be varied some staggering or delay in the coming into effect of that lot entitlement should be implemented. The applicant suggested that "it only take effect from the next change of ownership for that unit."
2.2 He did propose the formulation of some mathematical procedure which would accommodate that. In response to that letter, I simply make the following observations:

(a) In my opinion, such an approach is unworkable and would, in the same way as the current lot entitlement allocation might be seen to impose an unjust or inequitable burden upon some existing unit holders, by such a staggering of a coming into effect of my adjudication place an unfair burden on both new owners and existing owners.
(b) Secondly, I would regard such an approach as being functionally unworkable in a unit block where there are 49 lots, any one or more of which could be placed on the market at various times throughout the year. In a worst case situation, assuming that every unit changed hands in a one year period, that would cause 49 changes in the lot entitlement schedule or something of the order of four or five changes to the schedule per month. Such an outcome is clearly unpalatable and unacceptable.

Body Corporate Community Management Act 1997 – Section 239 Dispute Resolution Application Reference No. 0072-2004

1.1 This is a Specialist Adjudication pursuant to Section 265 of the Body Corporate and Community Management Act 1997 (hereafter "BCCMA"). The appointment of the specialist adjudicator occurred on 21 June 2004.

1.2 The applicants in this case are Stephen Craig Jermyn and Therese Ann Jermyn. Mr and Mrs Jermyn are the owners of Lot 49 in Building Unit Plan 5320 which is the real property description of La Pacifique - Community Title Scheme 9876.

1.3 The La Pacifique unit complex is located at 60 Goodwin Terrace, Burleigh Heads.

2.2 It is said by the applicants, at part 8 – grounds of their application that "current situation does not comply with the Act". I take that to be an assertion by the applicants that the manner in which the lot entitlements are presently set out is not just and equitable.

3.1 In order to assist me in coming to a decision in this adjudication, I have been provided with extensive documentation including:

(b) A document entitled "Contribution Lot Entitlement Analysis" for La Pacifique CTS 9876 by Leary & Partners (undated but clearly prepared for contemplation of the meeting of February 2003);

(c) Newspaper extracts referring to the decision in Fischer v Body Corporate for Centrepoint Community Title Scheme 7779;

(d) Letter Body Corporate Administration to the Office of the Commissioner for BCCM dated 25 May 2004 together with an annexure of a committee meeting of La Pacifique CTS 9876 of 16 April 2004;

(e) Various submissions by unit owners referring to a proposal to adopt the Leary report or otherwise amend lot entitlements;

3.3 After receiving the appointment and documents from the Office of the Commissioner for Body Corporate and Community Management, three additional documents were received, being:

(a) submissions dated 27 September 2004 which were lodged by Mr and Mrs Solomon; and the other

3.4 The most important document, apart from the views of the various unit holders which are varied and based upon different considerations, almost all of which reflect some degree of self-interest, is the report prepared by Leary & Partners (hereafter referred to as "the Leary Report").

3.5 That the submissions received might be seen as motivated by self-interest and is obviously not unusual because it must be acknowledged that Mr and Mrs Jermyn are also self-interested in their application because, if successful, it will result in some adjustment of lot entitlements.

4.1 I have approached the information provided to me on the basis that Leary and Partners Pty Ltd as professionals and as experts in this field have approached the task in a dispassionate and objective manner. Indeed, I should record that I see no basis upon which any criticism can be levelled against their approach to their analysis of the contribution lot schedule and the analysis of the cost impact of individual lots within La Pacifique on the Body Corporate’s administrative and maintenance expenditures.

4.2 It should be made clear at the outset that my analysis of the Leary Report has been conducted having regard to the decision of the Queensland Court of Appeal handed down on 25 June 2004 in the matter of Fischer v Body Corporate for Centrepoint Community Title Scheme 7779.

5.1 There are three elements which either underlie or are incorporated into the Leary Report which ought to be acknowledged. They are:

(a) Leary had regard to administrative expenditure for three one-year periods from 1 December 1999 to 30 November 2002. The utilisation of those figures has been conducted in a way which compellingly suggests that the costs adopted by them for the report have been ascertained to be representative, e.g. where there have been variations, they have adopted average historical cost rather than the most recent cost.

(b) The second matter is that they have analysed the corporate sinking fund expense items and converted those expense items into annualised costs, having regard to the "overall replacement life" of the item.

(c) The third important element in the Leary report is their acknowledgement that, in the past, lot entitlements have been arbitrarily allocated and seem to be influenced by market value factors such as floor area and a height within a tower of individual lots.

5.2 The Leary report in A-3 identifies its basis for seeking to determine what is described in section 46(4) of the BCCMA as the "just and equitable" contribution which should attach to the respective lot entitlements of individual units.

6.1 It is appropriate at this point to refer to the decision of the Court of Appeal in Fischer. That decision delivered in June of this year held that the BCCM Act intended to create a scheme for equal distribution of lot entitlements except to the extent that apartments disproportionately contributed to the expenses of running the community title scheme or consumed its services. Adjustments to lot entitlement schedules should accordingly be determined by reference to the apartments’ various demands on services and amenities provided by the Body Corporate and contributions to costs incurred by the Body Corporate.

6.2 The Court also went on to hold (see the decision of Chesterman J) that general considerations of an apartment’s amenity or the history of its value should be disregarded.

6.3 It is appropriate to note as well that the Centrepoint community title scheme was one which consisted of 51 apartments located in two towers, together with three levels of underground carparks and a common area which contained a number of amenities including a sauna, a swimming pool and a games room. There are clearly considerable parallels with the La Pacifique complex.

7.1 It should be noted that the Leary Report, for the reasons which are set out below, might be seen as somewhat prophetic of the Fischer decision because the Leary Report was clearly provided prior to February 2003; whereas the Fischer decision was handed down by the Court of Appeal in 2004 in response to an earlier decision of the District Court.

7.2 Returning to the Leary Report, it should be noted that, one might have thought sensibly, they suggest that administrative costs ought to be apportioned equally across each particular lot.

7.3 Further, they explain a proper basis for the manner in which they have treated the Body Corporate building replacement insurance premium. In doing that, they recognise the usual impossibility of obtaining an itemised premium breakdown from insurance companies as between premiums for all other insurance cover and the cost of the non-building replacement policies allocated between particular lots.

7.4 It is also noteworthy that in the treatment of maintenance costs the Leary Report says:

7.5 That sentiment, to a large degree, anticipated the observations of Chesterman J in the Fischer decision. His Honour said, having referred to the amendments to the Act and the explanatory notes which accompanied amendments to the Act and having also referred to the second reading speech of the relevant minister observed:

7.6 Although I do not propose to comment individually on each of the elements, I should acknowledge that I have read carefully and considered the views expressed in the Leary Report with respect to:

7.7 It should also be noted that with respect to the variations in physical lot features, I would, should it be necessary, be prepared to find that the approach taken by the Leary report to matters such as:

7.8 Similarly, the approach to an equal distribution of non-usage affected items is in accordance with the intention of the Act.

7.9 To the extent that they have been able to identify circumstances in which substantial differences in usage of items might call for the expenses related to such items being apportioned accordingly, that finding is qualified by the need "to correlate this (i.e. substantial difference in usage) with a quantifiable effect on the Body Corporate expenditure."

7.10 The Leary report allocates the administrative fund expense items equally between all of the units.

7.11 When it comes to sinking fund expense items, the general approach, in respect of those items which can be identified as benefiting all owners with an item life not likely to be affected by specific lot factors, has been to distribute them equally across lots. That is an approach with which I agree.

7.12 However, with matters such as the painting of the external façade of the building, and the replacement or repair of the balustrade to particular units and the pressure cleaning of the façade of the building where different units either occupy or utilise different surface areas or have longer or shorter balustrading provision, then the approach adopted of assessing the quantity per lot again, is, in my opinion, a fair and equitable approach to the allocation of the burden of those items.

7.13 The information summarised in Table 4 – Cost Impact Assessment and Recommended Entitlement Schedule to the Leary report seems to me to take account of two factors. The first of those is the general approach of the Act which emphasises that lot entitlements should be equal except to the extent that it is just and equitable in particular circumstances for them not to be equal. That is, as observed by Chesterman J, the starting point of the Act.

7.14 The other relevant factor is that the Leary Report does attempt, where appropriate, to visit upon individual lots any extra expenditure items that can be demonstrated to be consumed or required to a greater or lesser extent than an equal apportionment by the particular characteristics of those individual lot.

7.15 The main feature of the La Pacifique lots appears to be that, with the exception of the number of bedrooms per lot and some of this variation in layout, the main difference in attribute as between any two units is the amenity element and the height in the building of the unit. The amenity element clearly will be reflected in the market value. The Act specifically recognises that that is not a factor to be taken into account in allocating lot entitlement.

7.16 Secondly, the height in the building also has an impact upon the value and amenity and again the Act appears to require that no variation or adjustment should be made for the difference in height in a building as between different lots in that building.

7.17 It is my opinion that, on a proper construction of the Act as a whole, it is clear that the considerations to which I should have regard are the physical characteristics of the community title scheme and the relation of each lot to that scheme rather than to any matters which may be seen as peculiar to particular owners whether those matters are commercial, i.e. matters of value, or are personal.

7.18 Further, the terms of subsection 49 of the BCCMA refer to physical characteristics, structure and purposes and do not refer to any particular owner’s circumstances whether they be financial or otherwise. Equally, the explanatory notes for subsection 49(5) (see page 20 of the notes) make clear that the provision is intended to ensure that a just and equitable solution to the allocation of lot entitlements can be reached "without the court or the specialist adjudicator trying to find out or understand what may or may not have been in the mind or the understanding of the owner at the time of buying the lot in the scheme."

7.19 It might also be thought that the reference only to physical issues inherent to a building provides for greater certainty in the allocation of lot entitlements.

8.1 Some cognisance should be given to the various submissions which were provided to me.

8.2 It is not appropriate nor necessary to deal individually with the particular submissions but it should be recognised that the submissions seem generally to cover the following areas.

8.3 The first is that some consideration should be given to the height in the building of particular units. This submission can be disposed of by recognising that the Act itself does not contain any provision for differentiating between location on particular floors per se. The focus is on the extent to which particular units contribute to particular maintenance and other costs.

8.4 Secondly, it is said the re-adjustment to lot entitlements is likely to have some financial impacts upon persons whose lot entitlements change so as to make them liable for higher body corporate changes. This matter was considered above and it is noted that particular personal financial circumstances are not items to be taken into account, in my opinion, in adjudicating on this matter.

8.5 Thirdly it is said that present owners of units in the building purchased, presumably, with a knowledge of what the lot entitlements were. It must always be accepted that purchasers, taking proper advice, would have recognised that the BCCM Act provides for adjustment of lot entitlements in circumstances where an existing allocation might be seen to be unjust and inequitable.

8.6 If representations were made at the time of purchase as to the immutability or permanence of the lot entitlement arrangements, then that is a matter in respect of which separate relief might be sought.

8.7 Fourthly, a number of submissions suggested that the physical characteristics of some units were not equal and therefore an equal contribution was not appropriate. I agree with that in the context of maintenance costs but recognise that inequality has been acknowledged in the calculations contained within the Leary report

8.8 Fifth, some of the submissions suggest that the lot entitlement and therefore body corporate fees should be assessed in some way similar to the assessment of rates based upon an annual or bi-annual valuation. That submission can be disposed of by acknowledging that the BCCM Act does not adopt that approach but refers instead the notion of justice and equity. Further, that approach has been, in my opinion, effectively disposed of by the decision in the Centrepoint Community Title Scheme case.

8.9 Sixth, A number of submissions were premised upon the notion that it is now unjust that some persons might now be required to pay higher body corporate fees and other persons obtain the benefit of paying lower body corporate fees. It might be thought that such an outcome is precisely why the Act sets out in section 46, 47 and 48.

8.10 In particular, section 48(5) sets out the principle to which I must have regard in deciding this matter. That is:

8.11 The decision I make is that, for the reasons set out above, I come to the view that, consistent with the Leary Report, the present allocation of lot entitlements is not equal and is not just and equitable and I also conclude that an equal contribution lot entitlement will also not be just and equitable.

8.12 Consistent with that finding, I conclude that the contribution lot entitlement schedule within Table 4 of Schedule B in the terms contained within Schedule B to the Leary Report would be a just and equitable lot entitlement schedule.

8.13 It is automatically and inevitably acknowledged that a fully informed mind equipped with the same or even a slightly different analysis might come to some subtly different view as to what is just and equitable but, in the circumstances of the present case, no other proposition has been put before me which would enable me to make those subtle adjustments to the recommended entitlement schedules set out in Table 4 of the Leary Report. Any changes such as may occur would, in my opinion, amount to only small fractions of a percent. The tenor of the BCCM Act is not to require an adjustment on a year by year basis to accommodate subtle changes which occur between various lot entitlements and the demands made by individual lots upon the operating expenses by individual buildings.

8.14 I am comforted in my view about that by the observations of His Honour Judge Robin in Sandhurst Trustees Ltd v Condah Bay Investments Pty Ltd, unreported, 27 November 2003 where His Honour said:

(d) The applicant pay the specialist adjudicator’s costs of and incidental to the application.

9.1 It should also be recorded that, after receiving the instructions from the Commissioner of Body Corporate, I did receive a letter dated 31 August 2004 from the applicant, Mr Jermyn, a copy of which letter is attached to this decision. It is noted that Mr Jermyn expressed some concern as to the financial burden which may be borne by a change in the entitlement schedules and proposed, in some form of hopeful anticipation, that if a decision was made that the schedule should be varied some staggering or delay in the coming into effect of that lot entitlement should be implemented. The applicant suggested that "it only take effect from the next change of ownership for that unit."

9.2 He did propose the formulation of some mathematical procedure which would accommodate that. In response to that letter, I simply make the following observations:

(a) In my opinion, such an approach is unworkable and would, in the same way as the current lot entitlement allocation might be seen to impose an unjust or inequitable burden upon some existing unit holders, by such a staggering of a coming into effect of my adjudication place an unfair burden on both new owners and existing owners.

(b) Secondly, I would regard such an approach as being functionally unworkable in a unit block where there are 49 lots, any one or more of which could be placed on the market at various times throughout the year. In a worst case situation, assuming that every unit changed hands in a one year period, that would cause 49 changes in the lot entitlement schedule or something of the order of four or five changes to the schedule per month. Such an outcome is clearly unpalatable and unacceptable.

Queensland Body Corporate and Community Management Commissioner - Adjudicators Orders

La Pacifique [2004] QBCCMCmr 655 (21 December 2004)