Teneriffe Hill Apartments [2005] QBCCMCmr 322 (14 June 2005)

Last Updated: 2 August 2005

BODY CORPORATE AND COMMUNITY MANAGEMENT ACT 1997

APPLICANT: YATES NOMINEES PTY LTD AS TRUSTEE FOR THE TENERIFFE DEVELOPMENT TRUST RESPONDENT: BODY CORPORATE FOR TENERIFFE HILL APARTMENTS COMMUNITY TITLES SCHEME 24567 ORDER OF THE SPECIALIST ADJUDICATOR

Made on 14th day of June 2005

After reading the application, the submissions made on behalf of the Applicant, the Respondent, various lot owners and the supporting materials, I order as follows: 1. That the Contribution Schedule Lot Entitlements for the Body Corporate for Teneriffe Hill Apartments Community Titles Scheme 24567 be adjusted to the recommended schedule as set out in the report of Simpson and Linkhorn dated 24th September 2004. A copy of recommended contribution schedule is attached to this order. 2. That the Respondent shall within three months from the date of receipt of a copy of this order prepare and register with the Queensland Land Registry of the Department of Natural Resources and Mines a new Community Management Statement to give effect to the adjusted contribution lot entitlements. 3. That the Applicant pay the costs of the application and this order fixed at $4,400.00.

___________________________
Bernard V McGowan
Specialist Adjudicator





(a3014)

BODY CORPORATE AND COMMUNITY MANAGEMENT ACT 1997

APPLICANT: YATES NOMINEES PTY LTD AS TRUSTEE FOR THE TENERIFFE DEVELOPMENT TRUST

RESPONDENT: BODY CORPORATE FOR TENERIFFE HILL APARTMENTS

COMMUNITY TITLES SCHEME 24567

REASONS FOR DECISION OF SPECIALIST ADJUDICATOR

BACKGROUND

1. Building Unit Plan No. 106708 in respect of complex known as Teneriffe Hill Apartments was prepared pursuant to the Building Units and Group Titles Act 1980-1990, received the approval of the Brisbane City Council on 13^th January 1998 and was registered by the Registrar of Titles on 27^th January 1998. The strata plan for the scheme was registered after the enactment of the Body Corporate and Community Management Act 1997 ("the Act"). Under the transitional provisions, the scheme was registered in accordance with the Building Units and Group Titles Act 1980. The scheme was registered with a single lot entitlement schedule.

2. Under the Building Units and Group Titles Act 1990 the original developer was responsible for setting lot entitlements.

3. The original developer was Yates Nominees Pty Ltd. It is also the Applicant in this matter having retained ownership of several lots in the complex.

4. A Community Management Statement was registered shortly after registration of BUP106708. This statement was prepared in accordance with the provisions of the Act. The Community Management Statement contains a schedule of lot entitlements which mirrors the schedule of lot entitlements in BUP106708.

5. Yates Nominees Pty Ltd filed this Dispute Resolution Application on 23^rd April 2004 seeking the adoption of a new contribution lot entitlement schedule as contained in the report of Leary and Partners which accompanied the Application. The report of Leary and Partners is dated 26^th September 2003.

6. The Applicant, being an owner of lots in the scheme is able to bring this Application by virtue of section 48(1) of the Act notwithstanding that the Applicant is the original developer and set the original lot entitlements which the Application seeks to change.

7. Submissions have been lodged in response to the Application by many lot owners and the Body Corporate has also lodged submissions together with an expert report of Simpson and Linkhorn dated 24^th September 2004.

8. The outcome sought in the Application deals with the contribution lot entitlement schedule. There is no application before me to adopt an alternative interest lot entitlements schedule. I therefore did not consider any alteration to the interest lot entitlements schedule in the scheme.

STATUTORY PROVISIONS

9. In relation to the Application, section 238(1) of the Act states:

"A person, including, if appropriate, the body corporate for a community titles scheme, may make an application if the person is a party to, or is directly concerned with, a dispute to which this chapter applies."

10. The chapter referred to is Chapter 6 of the Act.

Section 245(1) of the Act states:

"The applicant may, with the Commissioner’s permission, change the application at any time before the Commissioner makes an initial dispute resolution recommendation under Part 5."

I am satisfied that the Commissioner granted the required permission to change the application to name the respondent as an Affected Person. I am also satisfied that the Applicants are entitled to bring the Application.

11. The Application can only relate to a matter referred to in Chapter 6 of the Act. The Application is a "dispute" within the meaning of section 227(1) and (2).

12. Section 265(1)(c) of the Act provides:

"(1) The adjudication of a dispute must be specialist adjudication if:

(c) another provision of this act provides the adjudication to be specialist adjudication."

13. Section 48(1) of the Act states:

"The owner of a lot in a Community Titles Scheme may apply:

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

Section 48(4) states:

"The order of the Court or specialist adjudicator must be consistent with:

a) if the order is about the contribution schedule, the principle stated in sub- section (5)."

The principle stated in sub-section 48(5) is as follows:

"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."

14. Section 49 provides the criteria for deciding just and equitable circumstances. The section is as follows:

"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.

49(2)

This section sets out matters 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 nor 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 respective market values of the lots.

49(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.

49(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.

49(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 Title Scheme; or

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

49(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.

EXTRINSIC MATERIALS

15. Section 46(7) of the Act which was inserted in 2003 states:

"For the contribution schedule for a scheme for which development approval is given after the commencement of this subsection, the respective lot entitlements must be equal, except to the extent to which it is just and equitable in the circumstance for them not to be equal".

16. The explanatory notes accompanying this change stated, in effect, that the fundamental concept was that usually all lot owners are equally responsible for the cost of upkeep of common property and for the running costs of the community title scheme unless it can be demonstrated that it is just an equitable for there to be inequality. The notes further state that costs should be borne in proportion to the benefit obtained and not in proportion to the units value.

17. An example was given of a basic scheme with a range of lot sizes. In this example the contribution schedule would be equal unless particular lots had features like private lifts or swimming pools.

18. This subsection only applies to development approvals given after 2003 but is helpful background information as section 48(5) uses similar wording.

CASE LAW

19. In their submissions the Applicant and the Respondent have each referred to Fischer & Ors v. Body Corporate for Centrepoint Community Title Scheme 7779 (2004) Q ConvR.

20. In that case, the Appellants were the owners of lots in an apartment building known as Centrepoint. It consisted of two towers with underground parking. The Lots were all residential. The smallest apartment was 81m² and the largest 241m². The common area contained a number of amenities for owners and guests. The Body Corporate for Centrepoint which was originally incorporated under the Building Units and Group Titles Act 1980 (Qld).

21. The Respondent in the Centrepoint case, having been incorporated under the Building Units and Group Titles Act 1980 (Qld) had only one schedule of lot entitlements. That schedule was taken to be both the contribution schedule lot entitlement and the interest schedule lot entitlement for the purposes of the Act.

22. The Appellants sought to vary the contribution entitlement schedule. Both the Appellants and the Respondent called expert witnesses.

23. The experts each undertook an exercise of identifying the relevant costs, categorising them and then allocating them among the lot owners at Centrepoint. The experts had regard only to the expenses incurred by the Respondent in operating and maintaining its buildings and the extent to which the apartments consumed those expenses differentially and concluded that the lot entitlement schedule was not just and equitable.

24. The basis for the experts’ opinion did not go beyond identifying and classifying the extent to which different apartments placed greater financial burden on the body corporate than other apartments. The Trial Judge concluded that this approach was too narrow and considered that a determination of lot entitlements among apartment owners could take other factors into account including the effect of a change on the value of the apartments and the amenity of the apartments. The application was dismissed by the Trial Judge and the contribution schedule was left unaltered.

25. The Appellants appealed. Justices Chesterman, McPherson and Atkinson on appeal said that the issue at hand was whether in determining an application for the adjustment of a contribution lot entitlement schedule and, in particular, in determining the extent to which it is just and equitable that respective lot entitlements not be equal, the enquiry should be at large (save for the matters described in section 49(5)) or whether it should be limited to matters which show how apartments differently affect the cost of running and maintaining a community title scheme.

26. Chesterman J. found that the question of whether a schedule should be adjusted should 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, as what is at issue is the "equitable" distribution of costs.

27. The Court found that the Act is intended to produce a contribution lot entitlement schedule that divides body corporate expenses equally except to the extent that the apartments disproportionally give rise to those expenses or disproportionally consume services. Such a determination can only be made by reference to factors that have a financial impact or consequence on the body corporate and should not be affected by factors that go to an apartment’s value or amenity.

28. The Court suggested that the "... starting point is that the entitlement should be equal. A departure from that principle is allowable only where it is just or fair to recognise inequality. The focus of the enquiry is the extent to which an apartment unequally causes costs to the body corporate".

29. The Court further concluded that section 49 of the Act should accordingly be interpreted to mean "that those identified matters to which a court may have regard, are to be regarded only to the extent, if any, that they affect the cost of operating a community title scheme".

30. The Court of Appeal in Centrepoint found the trial judge to have been wrong in considering factors such as location of lots, value of lots and bases or understandings upon which owners purchased their lots.

31. The Appeal was allowed and it was ordered that a contribution lot entitlement schedule in terms compiled by the Respondent’s expert, would be just and equitable.

32. The Centrepoint case dealt with a complex where all lots were for residential use. In the case of Sandhurst Trustees Limited v Condah Bay Investments Pty Ltd (2003) QDC 438 the District Court considered an application to adjust contribution schedule entitlements in a complex involving ten commercial lots and two hundred residential lots. The ten commercial lots had contribution entitlements more than twice that which would have applied if the equality principle prevailed.

33. Robin DCJ, in considering section 49 of the Act, stated:

"In my opinion, the new provision reinforces what has been the principle all along, that some positive justification must be shown for departing from equality".

34. Each side in that case engaged experts and to a considerable extent the parties reached common ground as to the methodology to be adopted.

The Respondent in that case conceded that the commercial lot contribution entitlements were excessive but disagreed with the commercial lot owners about the extent of the reduction required. Both sides contended for an outcome closer to equality of contribution lot entitlements than what appeared in the original plan with the Applicant arguing for a greater reduction than the Respondent.

35. His Honour stated that he had seriously considered whether the outcome of the application should be equal lot entitlements, in accordance with the strong legislative policy favouring equality.

36. He took the view that it was pointless to embark on any detailed resolution of the differences between the two experts. He preferred "a broad brush approach rather than one which focused too closely on the last dollar or percentage point". He said that it must be accepted that "the exercise the court embarks on is necessarily a rough and ready one. There is much scope for arguments as to which lot owners benefit from particular facilities and services".

37. Each of these cases is helpful in setting the criteria which I must take into account when considering whether there should be a departure from the principle that there should be equality of contribution.

SUBMISSIONS

38. The application is supported by an expert report from Leary and Partners which concludes that the current contribution schedule cannot be justified and that a contribution scheme contained in Part B: Table 6 of that report is recommended.

39. The Respondent Body Corporate does not dispute that an adjustment of the contribution schedule is appropriate. It relies on a report from Simpson and Linkhorn of Resident Building Services which provides a proposed contribution schedule which varies from that of Leary and Partners. Both experts have approached their brief by attempting to follow the precedent espoused in the Centrepoint case.There is a difference of opinion between the experts in the final setting of contributions. The most important difference between the two reports is the treatment of the management costs. This is a significant item as it constitutes approximately one half of the body corporate budget.

40. In addition submissions have been received from 17 individual lot owners opposing the application. Several of the individual lot owners submit that there should be no change to the contribution schedule. No additional expert evidence has been provided in support of any of the submissions of the individual lot owners.

41. To better understand the submissions I conducted an on site inspection of the complex on 20^th May 2005.

ANALYSIS OF SUBMISSIONS

42. The evidence supports a variation of the contribution lot entitlement schedule. The Centrepoint decision and section 49(5) of the Act establish that arguments based on amenity, valuation of lots and understandings or misunderstandings on the part of lot owners are to be disregarded in my adjudication. Many individual lot owners have made submissions against any change to the schedule relying on such arguments.It is understandable that such issues loom large from an individual lot owner’s point of view but there is no authority permitting me to accept these submissions. The prevailing principle for adjustment of the contribution schedule is that the respective lot entitlements should be equal except to the extent to which there is positive justification to depart from equality.

43. There is such justification to depart from equality. The two commercial lots do unequally cause costs to the Body Corporate in comparison to the residential lots. To assess the extent of the inequality involves an analysis of the expert evidence.This evidence has considered the apportionment of costs in respect of each of the Administrative Fund and Sinking Fund

ADMINISTRATIVE FUND BUDGET

44. Much has been made in the submissions for the Applicant and the Respondent of the apportionment of costs of the onsite building manager particularly with respect to general cleaning and maintenance.The by-laws of the Scheme do provide some assistance in dealing with the divergence of opinion.

45. The by-laws of the scheme relevantly provide, in relation to cleaning and maintenance as follows:

a) By by-laws 41(b) and 42(b), the Body Corporate meets the costs of cleaning, maintaining and repairing the exclusive use carparking areas at its own expense.
b) In respect of the commercial court yard, by-laws 43(b) and (c) relevantly state :
"(b) The Body Corporate will be responsible for keeping the exclusive use area clean and tidy and will otherwise perform the duties of the Body Corporate under the Act at its expense.
"(c)" Subject to Clause (b) above each Proprietor (and if more than one jointly) to whom exclusive use is given by this by-law shall keep and maintain the said part or parts of the Common Property together with the fixtures attached thereon clean and tidy and in a state of good and serviceable repair".
c) By-law 46(g) provides:
"The general public shall have access to the Commercial Lots and the exclusive use courtyards and carparking area granted to the Commercial Lots.

46. Leary and Partners have allocated the general cleaning and daily maintenance of the whole of the courtyard equally between the lot owners observing that these are used freely by all lot owners as there is no physical bar preventing this. However these by-laws contemplate such costs being met by the commercial lot owners regardless of whether there is unobstructed access or not. In fact erecting physical barriers is not something which is contemplated by By-law 46(g).I am advised that no external cleaning contractor is separately engaged by either the body corporate or the commercial lot owners to undertake the cleaning and daily maintenance of the commercial courtyard and that all cleaning and daily maintenance is undertaken by the on site manager.

47. It is possible for the Body Corporate to bill to the commercial lot owners a fee for the on site manager’s time spent undertaking the maintenance and cleaning work that he does in these areas. However this may be impractical and an acceptable and convenient approach is to increase the lot contribution of the commercial lots to allow for this.

48. Leary and Partners have undertaken their apportionment using typical industry time and cost allowances. Simpson and Linkhorn have engaged B & D Turner Pty Ltd who assessed the amount of time spent by the onsite manager performing tasks relating to the commercial areas and applying an accepted industry hourly rate.

49. In my opinion the most logical way to apportion cost contribution is to look to the specific duties that the on site manager is required to perform that relate solely to the commercial areas and then calculate the additional cost to the body corporate for these duties.

50. The commercial lot exclusive areas are very large. The on site manager’s contract obliges the manager to undertake daily cleaning and hosing of these areas and daily cleaning and mopping of toilets. On a weekly basis the on site manager must mop paving areas and exposed walls and also clean all external glass surfaces fronting the commercial area.

51. B & D Turner Pty Ltd have allowed 12 hours a week of the on site manager’s time for the management, cleaning, maintenance, supervision and control of the commercial areas. This appears to me to be conservative. I spoke with the on site manager, Mr Cooper, on my inspection. He informed me that the external glass cleaning duties for the commercial lots and the toilet cleaning duties alone consume approximately 10 hours of his time each week. The hourly rate assessed by B & D Turner Pty Ltd of $22.65 is not an unreasonably one.

52. Leary and Partners also argue that a large part of the building management contract is attributable to the requirement that the manager be available onsite. This requirement is found in the Schedule of Duties in the management contract. Whilst I agree with this, I note that the on site manager also conducts a letting business under a letting contract entered into with the Body Corporate and by virtue of that contract is in practical terms available on site anyway. In any event, it is evident that B & D Turner Pty Ltd have considered this point. They have approached the exercise by assessing the additional time and therefore the additional costs of the onsite manager which specifically relate to the commercial areas.

53. The Applicant submits that this approach may produce a distorted result. I disagree. For example if the time assessed by B & D Turner Pty Ltd (12 hours) was divided into an average working week for the on site manager of say 60 hours, it would still produce a percentage to be apportioned to commercial lot work of 20%.

54. I prefer the approach of Simpson and Linkhorn in their analysis of the administrative budget items.

SINKING FUND BUDGET

55. With respect to the sinking fund items, I have undertaken a comparison of the competing reports from Leary and Partners and Simpson and Linkhorn on these items. Unfortunately the comparison is complicated and I am persuaded by the comments of the view of Robin DCJ in Sandhurst Trustees that a broad brush approach should be adopted rather than one which is focused too closely on the last dollar and percentage point.

56. The submission on behalf of the Body Corporate is as follows:

"An examination of the approaches of the two experts shows that of the 56 line items, Mr Linkhorn favours equality in 37 items and adopts a different approach for 19 items. In contrast, the Leary report says only 11 items should be equal and the remaining 45 items should be other than equal. Mr Linkhorn’s approach is to be preferred as it is based on the legislative principle of equality as the preferred basis of calculation and varies only where it is just and equitable to do so".

57. The approach of Simpson and Linkhorn is supported by a literal reading of legislation and by the case law.

58. There needs to be positive justification for departing from equality. There are differences between Leary and Partners and Simpson and Linkhorn over apportionment of expenses for a number of infrastructure items. I disagree with the methodology of Leary and Partners on these items as follows:

a) In my view one should treat contributions to emergency systems items such as fire detectors, fire hose, emergency lights and the like equally. Each lot owner equally benefits from emergency systems which are properly maintained.
b) Contributions to roof maintenance and associated plumbing – replacement of eaves, gutters, down pipes, roof sheeting - should be treated on a lot area basis. The view of Leary and Partners that it should be apportioned on a roofed floor area basis is not correct in my view. The entire complex benefits from a secure roof even if some units have unroofed terraced areas. Upon my inspection I only noted 2 unroofed terraces.
c) External painting and rendering benefits the entire complex and should be apportioned on a lot area basis rather than on the area of external painting pertaining to particular lots as suggested by Leary and Partners.
d) Costs pertaining to stairs and landings should be treated equally amongst all lot owners or at least on a lot area basis. The stairs and landings

located in the secure residential area do form part of the essential
infrastructure of the complex. Also some parts – the central stair well and
the fire stairs leading from the commercial car parks - are likely to used
by commercial lot owners or their customers.

59. There are some items in the sinking fund budget where I agree with the conclusions of Leary and Partners eg. their treatment of the brick paving in external areas and the treatment of toilet expenses but these are minor cost items and if one is to pick and choose different methodologies in respect of different items in the sinking fund budget this will only make marginal difference to the contribution schedule. Indeed it is likely to more heavily weight the contributions of the commercial lots.

60. I am largely in agreement with the approach of Simpson and Linkhorn and I don’t consider that any minor disagreement with the approach justifies an abandonment of it.

61. A number of submissions were received relating to the present under utilisation of the Commercial Lots and the ability to further subdivide Lot 2 thereby creating a greater usage of body corporate resources by commercial tenants and their patrons. I can only adjudicate in respect of the expenses of the body corporate as they presently stand. Each expert report has only addressed costs to the body corporate based on present circumstances in the commercial lots and exclusive use areas. On my inspection I noted that several tenancies were being fitted out in the Lot 2 area consequent upon the previous vacation of that area by a supermarket tenant. If there are increased body corporate costs due to more intensive usage of the commercial lots and exclusive use areas in the future, the parties may have to contemplate a further application for adjustment.

ORDERS

62. For the reasons outlined, I am not prepared to make an order in terms of the application, namely, that the Body Corporate adopt a new contribution lot entitlement scheme as contained in the report of Leary and Partners. Pursuant to section 48(4) of the Act my order must be consistent with the principle stated in section 48(5) that 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. I find that the extent to which it is just and equitable for the lot entitlements not to be equal is the extent detailed in the report of Simpson and Linkhorn.

63. In terms of costs of this application, section 280(2) provides that unless I otherwise order the Applicant is to be responsible for the costs of the adjudication. I see no reason to make any order otherwise and so the Applicant is to meet the costs of my adjudication which will be $4,400.00.I acknowledge receipt of the sum of $4400 from the Applicant as security for these costs.

64. For the reasons expressed above, I make the following orders:

4. That the Contribution Schedule Lot Entitlements for the Body Corporate for Teneriffe Hill Apartments Community Titles Scheme 24567 be adjusted to the recommended schedule set out in the report of Simpson and Linkhorn dated 24^th September 2004. A copy of the schedule is attached to this order.
5. That the Respondent shall within three months from the date of receipt of a copy of this order prepare and register with the Queensland Land Registry of the Department of Natural Resources and Mines a new Community Management Statement to give effect to the adjusted contribution lot entitlements.
6. That the Applicant pay the costs of the application and this order fixed at $4,400.00.

DATED this 14th day of June , 2005.


..................................................

BERNARD VINCENT McGOWAN

SPECIALIST ADJUDICATOR

TO: Yates Nominees Pty Ltd
C/- Flower and Hart Lawyers
Level 19, National Bank House
Cnr Creek and Adelaide Streets
BRISBANE Q 4001


AND TO: BODY CORPORATE FOR TENERIFFE HILL APARTMENTS
COMMUNITY TITLES SCHEME 24567
C/- Quinn and Scattini Lawyers
Level 28, Central Plaza 1
Queen Street
BRISBANE Q 4001