Ocean Side [2005] QBCCMCmr 148 (15 March 2005)

Last Updated: 5 July 2005

Office of the Commissioner for Body Corporate and Community Management SPECIALIST ADJUDICATION (Adjustment of Lot Entitlements)

Number: 0034-2004

Applicant: HAROLD LANGLEY ROIGARD



Respondent: BODY CORPORATE FOR OCEAN SIDE

COMMUNITY TITLES SCHEME 27220

ORDER
Body Corporate and Community Management Act 1997
(Sections 48 and 280)

I ORDER that the contribution lot entitlement schedule for community titles scheme 27220 be adjusted so that the allocation of entitlements among the lots is as follows: Lot No Entitlement Lot No Entitlement 1 6 10 6 2 6 11 6 3 6 12 6 4 6 13 6 5 6 14 6 6 6 15 6 7 6 16 7 8 6 17 7 9 6 Aggregate 104

Dated 15 March 2005




G. F. Bugden
Specialist Adjudicator

Office of the Commissioner for Body Corporate and
Community Management

SPECIALIST ADJUDICATION
(Adjustment of Lot Entitlements)

Number: 0034-2004

Applicant: HAROLD LANGLEY ROIGARD



Respondent: BODY CORPORATE FOR OCEAN SIDE

COMMUNITY TITLES SCHEME 27220

DETERMINATION
15 March 2005

Application

1. This application was made under section 48(1)(b) of the Body Corporate and Community Management Act 1997 ("Act"). It seeks an order of a specialist adjudicator adjusting the contribution lot entitlement schedule in community titles scheme 27220 ("Scheme").

2. The body corporate for the Scheme is automatically the Respondent to the application by virtue of section 48(2)(a) of the Act. Owners of lots in the Scheme may elect to become joined as a respondent, but no elections have been received.

The Scheme

3. The Scheme is situated in Golden Four Drive, Bilinga. It comprises 17 lots and common property. Significant features of the common property include a swimming pool, lift, ground floor reception area, large roof decks and basement car parking and storage areas. Of the 17 lots, 10 are 2 bedroom residential units and the other 7 (including 2 penthouses on the top level of the building) are 3 bedroom units. The penthouses have the potential for higher occupancy than the other 3 bedroom units.

4. The Body Corporate and Community Management (Accommodation Module) Regulation 1997 ("Accommodation Module") applies to the Scheme. A Caretaking and Letting Agreement is in place in favour of an on-site caretaker who has purely contractual rights under that agreement to use the reception area and a basement storeroom. The caretaker has to keep those areas "tidy and free from litter". While the use of those areas is restricted to the caretaker and the body corporate has maintenance responsibility for them (beyond cleaning), the arrangement is a temporary one based on contract. Therefore, the lot attached to the caretaking arrangements should not be treated any differently merely because of those contractual arrangements.

5. The penthouses have exclusive use of the roof areas. Responsibility for maintenance of these areas therefore depends on the terms of the by-law granting that exclusive use. Section 122(2) of the Accommodation Module is relevant, as it provides:

"An exclusive use by-law is taken, in the absence of other specific provision in the by-law for maintenance and operating costs, to make the owner of the lot to whom exclusive use or other rights are given responsible for the maintenance of and operating costs for the part of the common property to which the exclusive use by-law applies."

6. The by-law simply requires the penthouse owners to keep the area in a clean and tidy condition. It seems clear to me that the by-law does not intend the owners of the lots entitled to exclusive use to bear maintenance and operating costs beyond those associated with keeping the area clean and tidy. Therefore the bulk of the maintenance and operating costs in respect of the roof areas will fall on the body corporate, yet all lot owners will not have the benefit of use of these areas.

7. Apart from the reception and roof areas, all other common property facilities are available for use by the owners and occupiers of all lots.

The Law

8. Section 48(4) of the Act requires an order of a court or specialist adjudicator made on this type of application to be consistent with the principle stated in section 48(5), which is in the following terms:

"(5) 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."

9. Section 49 then sets out the criteria for deciding just and equitable circumstances. It provides:

49(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.

10. In Fischer & Others v. Body Corporate for Centrepoint community titles scheme 7779 [2004] QCA 214 the Court of Appeal held that the key issue in determining these applications is the extent to which the various lots draw upon the services and amenities provided at the expense of the body corporate. Chesterman J. (with whom McPherson JA. and Atkinson J. concurred) said [at pars. 25 and 26] -

"The submission for the applicants is that this Part of the Act is concerned with the just and equitable distribution of body corporate expenses among apartment owners and that in making an adjustment of a lot entitlement schedule the court must pay regard only to the origin and allocation of body corporate expenditure.

Although the Act gives no clear indication one way or the other, the preferable view is that a contribution schedule should provide for equal contributions by apartment owners, except insofar as some apartments can be shown to give rise to particular costs to the body corporate which other apartments do not. That question, whether a schedule should be adjusted, is to be answered with regard to the demand made on the services and amenities provided by a body corporate to the respective apartments, or their contribution to the costs incurred by the body corporate. More general considerations of amenity, value or history are to be disregarded. What is at issue is the ‘equitable’ distribution of the costs."

11. Neither the Act nor Fisher’s case are particularly useful in determining how precise one has to be when trying to distribute costs equitably. However, the legislative history of the Act, as well as the Explanatory Notes to the Bill for the Body Corporate and Community Management and Other Legislation Amendment Act 2003 and the second reading speech on that Bill, do provide some indication of how precise one has to be. Given the uncertainty in the Act itself it is appropriate for regard to be had to those materials. I canvassed those materials in Deltaline Properties Pty Ltd v Body Corporate for Surfers Hawaiian community titles scheme 5682 (pars. 21 to 25) [27 November 2003 File 0296/2003] and I will not repeat the exercise here. It is sufficient to say that the following principles flow from those materials:

• In the absence of significant difference in the extent to which lots utilize the services and facilities provided by the body corporate the contribution schedule lot entitlements should be equal. This also applies when comparing penthouse lots with other lots in the same building. In the absence of significant difference in the utilization of services and facilities (e.g. a private lift and/or a private swimming pool maintained at body corporate expense) the entitlement for a penthouse lot would generally be the same as the entitlements for the other residential lots in the building. In other words, the size of the lot itself and its accommodation capacity are not deciding factors.
• Even if the entitlement for a penthouse lot is different, the entitlements for the other lots would be expected to be equal, notwithstanding they are of different size and value.

12. It follows that one only departs from the principle of equality if the extent of use of services and facilities by the respective lots is significant enough to require such departure to ensure the allocations are just and equitable.

The evidence

13. For this application I have the benefit of 2 expert reports and numerous submissions, for and against the application, from a number of lot owners. One report was provided by the applicant and the other by the body corporate. The applicant’s report was prepared by Ms Kaylene Arkcoll of Leary & Partners Pty Ltd on 31 March 2004 ("Applicant’s Report"). The body corporate’s report was prepared by Messrs Del Linkhorn & Scott Simpson of Body Corporate Consultants on 17 December 2004 ("Respondent’s Report").

14. Both reports conclude that the existing contribution schedule lot entitlements are not just and equitable and need to be adjusted. However, they differ as to the extent of adjustment that is necessary.

15. The following table shows the existing contribution schedule lot entitlements in the Scheme and the manner in which the Applicant’s Report and the Respondent’s Report propose that they be adjusted -

Lot No	Existing Entitlement	Applicant’s Proposed Entitlement	Respondant’s Proposed Entitlement
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17	22 22 39 25 25 40 27 27 42 28 28 42 29 29 43 50 50	6 6 6 6 6 6 6 6 6 6 6 6 6 6 6 7 7	573 570 603 574 573 603 574 572 603 575 572 603 577 575 603 629 622
Totals	568	104	1001

16. The Applicant’s Report analyzed the body corporate’s proposed administrative fund budget for the year to 31 August 2004 and the actual expenditure from that fund for the preceding 3 years. This data was then used to prepare a list of expense items for that fund and an allocation of each expense item was made against each lot in the Scheme based on an estimation of the extent to which a lot utilized each particular item. In all cases the allocation among lots was made on an "equal" basis. The report contains comprehensive and useful commentary as to the reasons for various allocations.

17. Excluded from the administrative fund allocations were expenses relating to building replacement insurance (because they are recovered by the body corporate based on interest schedule lot entitlements). Lift expenses were allocated equally in reliance on evidence from lift experts to the effect that "trip related expenses" are not the main contributor to maintenance and service costs.

18. The following extract from the report (page 2) explains the approach adopted in relation to the sinking fund:

Table 3 lists the body corporate sinking fund expense items we have analyzed. We have converted these expenses into annualized costs by dividing the current cost of carrying out each work item by the allowed "overall replacement life". This ensures that our calculations are based on what the budget allowance should be long term and not distorted by short term maintenance neglect or under funding. We have indicated the method which we recommend should be used to allocate each of those expenses.

19. Allocation of sinking fund expenses used a range of criteria, namely, equal allocation, quantification per lot and lot floor area. Allowance was made for maintenance and replacement of areas associated with the roof deck and the allocation of those costs to the penthouses. The most significant cost in this regard related to the replacement of the roof carpet. Again, the report gives useful commentary about the allocations chosen.

20. The Respondent’s Report adopted a similar methodology. It too allocated all administrative fund expenses on an equal basis. However, in relation to the sinking fund expenses, it allocated those expenses in one of only 2 ways; on an equal basis or a floor area basis. It did not attempt to quantify any of the sinking fund items by any other means. Another difference related to the rounding of calculations. In the Applicant’s Report lot entitlement calculations are rounded to the nearest whole number (e.g. 5.86 is rounded up to 6). In the Respondent’s Report lot entitlement calculations are converted from a 2 decimal point figure to a 3 digit whole number (e.g. 5.74 is converted to 574).

21. It is useful to compare the approach of the 2 experts in relation to those items that are quantified in the Applicant’s Report (i.e. the items that give rise to the above point of difference between the 2 approaches). The following table sets out that comparison:

Item	Applicant’s Report	Respondent’s Report
Automatic door opener Repair and reseal windows Repaint building façade Replace aluminum balustrade Wash down building façade Replace roof deck carpet Replace roof sails Replace lobby carpet Paint walls Renew marble floor tiles	Equal basis Equal basis Quantity (measured external wall areas) Quantity (measured length of balustrade) Quantity (measured external wall areas) Quantity (to penthouse lots based on exclusive use areas) Equal basis Equal basis Equal basis Equal basis	Floor area basis Floor area basis Floor area basis Floor area basis Floor area basis Floor area basis Floor area basis Floor area basis Floor area basis Floor area basis

22. In the case of each of the items in that table, the Applicant’s Report provides an explanation as to why the particular method of quantification or allocation was chosen and the explanations are, by and large, convincing. For example; the roof deck carpet covers the penthouses’ exclusive use areas and cannot be used by other lot owners. Because of the wording of the exclusive use by-law the body corporate must maintain the carpet. Therefore, it is just and equitable that this cost should be allocated against the penthouse owners in proportion to the respective floor areas of their exclusive use areas.

23. I said that the explanations in the Applicant’s Report were "by and large" convincing because there is a question in my mind whether there is an argument that apportioning the wash down and repainting of the building façade on a wall area basis in preference to an equal basis is not, so as to speak, "splitting hairs". However, in this case I defer to the expert and accept that such methodology is preferable.

24. In contrast to the explanations in the Applicant’s Report, the Respondent’s Report makes no attempt to justify the choice of floor area as the chosen method of allocation. For example; why is the allocation to all lots on a floor area basis appropriate for the roof top carpet when the effect is to make owners who have no ability to use the carpet partly responsible for its replacement costs?

25. I am therefore persuaded to accept the calculations in the Applicant’s Report in preference to the calculations in the Respondent’s Report. My only reservation in moving forward on this basis concerns the use of a single digit whole number in preference to a 3 digit whole number. The single digit approach produces a result that is more in line with what I see as the clear intent of the legislature, namely, that equality is to be preferred unless there are substantive reasons for departing from equality to achieve a just and equitable result. On the other hand I am mindful of the approach of the Court of Appeal in Fischer’s case where the Court took the view (at par 35) that it was appropriate to make the least adjustment necessary to give effect to the principles required by the Act.

26. On balance, I lean towards preserving equality because the difference has such a minor impact on the respective liability of lot owners for contributions that it does not justify departing from such a clear legislative intention. It all boils down to a question of degree. In the case of virtually every community titles scheme there will be arguments as to why the contribution schedule lot entitlements should not be equal. For example; in a 2 story walk-up building why should the units on the ground floor contribute to the painting of the upstairs stair well that is not used by them? The question will always be whether the difference is compelling enough, in the interests of justice and equity, to depart from the preferred principle of equality.

27. Before I go any further I should say something about the submissions made to the Commissioner in this matter. It is clear that a substantial majority of lot owners oppose this application. Many of the submissions made the point that owners were aware of and accepted their lot entitlements at the time they purchased their lots and that this justifies leaving the entitlements unchanged. Others alluded to the possibility of the Queensland Government changing the Act and they requested that the application be delayed pending that change. These are matters that I cannot take into account.

28. The application does not depend on its popularity for its success and even on the body corporate’s own evidence there is a strong case for change in relation to the Scheme. The very nature of these legislative provisions means that existing rights will be affected. It is not open to me, particularly following the decision in Fischer’s case, to leave things as they are if that is not a just and equitable outcome within the meaning of the Act. As regards, the possibility of legislative change, at least until that occurs the applicant is entitled to have his application determined on the law as it currently stands and it is not open for me to interfere with that entitlement.

Findings

29. In this case, my findings are:

(a)	the present contribution schedule lot entitlements are not equal;
(b)	the present contribution schedule lot entitlements are not just and equitable;
(c)	equal contribution schedule lot entitlements would not be just and equitable; and
(d)	the proposed schedule in the Applicant’s Report is the preferred schedule to achieve a just and equitable result in the case of the Scheme.

30. I therefore find that the schedule proposed in the Applicant’s Report should be adopted for the Scheme and I propose to order accordingly.

G. F. Bugden
Specialist Adjudicator