Palm Springs Retirement Village [2005] QBCCMCmr 562 (11 October 2005)

Last Updated: 19 July 2006

REFERENCE: 0392-2005

ORDER OF AN ADJUDICATOR

MADE UNDER PART 9 OF CHAPTER 6

BODY CORPORATE AND COMMUNITY MANAGEMENT ACT 1997

Number of Scheme:	30852
Name of Scheme:	Palm Springs Retirement Village
Address of Scheme:	40 Carmichael Court WYNNUM WEST QLD 4178

TAKE NOTICE that pursuant to an application made under the abovementioned Act by

D Garrett-Benson, the Owner of lot 30.

I hereby order that 1. The application for recovery of funds from the sale of service providers’ rights is dismissed. 2. Prior to the next annual general meeting, individuals are to be nominated for membership of the committee in accordance with sections 11, 14 and 14A of the Body Corporate and Community Management (Accommodation Module) Regulation which deal with nominations for annual committee elections and preclude nomination of a service contractor or an associate of a service contractor as voting members of the body corporate committee.

STATEMENT OF ADJUDICATOR’S REASONS FOR DECISION - REF 0392-2005

"Palm Springs Retirement Village" CTS 30852

THE SCHEME

"Palm Springs Retirement Village" is a subdivision of 82 lots on a Standard format plan. The regulation module applying to the scheme is the Body Corporate and Community Management
(Accommodation Module) Regulation.

APPLICATION

By application received by this Office on 31 May 2005, the applicant has sought the following outcome: Recovery of funds for sale of service providers rights.

The applicant then raises a number of additional concerns including the following:

• Mr & Mrs Issakidis allegedly have a conflict of interest as directors/ shareholders of the service company and members of the body corporate committee;
• Validity of body corporate levies;
• Eligibility of Jodaway Pty. Ltd. nominees to be members of the committee;
• Alleged fraud on body corporate by sale of management rights;
• Failure to notify alleged encumbrances noted on the titles of lots subsequently acquired;
• Lack of transparency in the calculation of levies;
• The need for a transfer of management rights to be approved by the body corporate;
• The need for a legal firm to be involved in resales of lots;
• Failure to include her name on the body corporate roll;
• The Operations Management Contract provides that the whole of the $90,000 fee is subject to increases in accordance with increases in the CPI rather than individual budget components;
• Transfers of common property;
• Entitlements to undercover parking;
• demeanour of the on-site managers;
• liability for body corporate fees;
• calculation of levies.

JURISDICTION

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 the 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)). An adjudicator's order may contain ancillary and consequential provisions the adjudicator considers necessary or appropriate (section 284(1)).

BACKGROUND

The principal relief sought by the applicant is Recovery of funds for sale of service providers rights, although the applicant but also raised numerous additional concerns as outlined above.

This retirement village has a certain amount of "history" beginning in the late 1980’s with the marketing of leasehold interests by the original developer when the village was subject to a mortgage. The village was operated by a receiver for a considerable period of time before it was purchased by Jodaway Pty. Ltd.

I understand that until 2002, the village was subdivided by leases over the various units. Palm Springs Retirement Village, Community Titles Scheme 30852 was registered on 2 December 2002 and from 2 December 2002 until 1 April 2003, Jodaway Pty. Ltd. was the owner of all lots.

On 21 January 2003 an Extraordinary General Meeting for the scheme was held, at which, according to the minutes, the following business was conducted:

• It was resolved that the body corporate appoint Jodaway Management Pty. Ltd. to attend to the body corporate management services for a fee of $8,300 plus GST per annum. These services were subcontracted to Body Corporate services Pty. Ltd.;
• It was resolved that an Operations Management Contract be entered into between the Body Corporate and Jodaway Management Pty. Ltd. (the operator) for a period of 25 years under which the operator is responsible for cleaning, maintenance, repairing, refurbishing and replacing common property and other property as set out in the agreement for a fee of $90,000 plus GST per annum;
• It was resolved that until the holding of the First Annual General Meeting ,

- Michael Issakidis be appointed as Chairperson;

- Peter Meade of Body Corporate Services Pty. Ltd. Be appointed as Secretary and treasurer of the Body Corporate.
- Donrecka Issakidis be appointed as an ordinary committee member.

At the first AGM, held on 30 January 2004, it was resolved as follows:

•	That an auditor, Panell Kerr Forster, be appointed;
•	That a new community management statement be recorded;
•	That exclusive use of common property areas be given to the proprietors of certain lots (31,32,66 & 67) and that the owners of these lots be given permission to erect structures on the exclusive use areas; and
•	Title to certain lots was either combined or extended.

SUBMISSIONS

While the applicant’s main concern is the entitlement to funds received for the sale of
"management rights", she has also raised a number of more general queries and in her most recent submission asks that the final order include some information to assist all owners and residents in understanding the interaction between the Body Corporate and Community Management Act 1997 and the Retirement Villages Act 1999.

Submissions were received from 5 other residents who raised the following concerns:

• The inability of lease-holders to vote at body corporate meetings;
• Uncertainty as to who actually owns the "management rights";
• Alleged "stacking" of body corporate meetings and the possibility of "fraud on the minority";
• Alleged misrepresentation prior to purchase; and
• Entry into the management contract with Jodaway Management Pty. Ltd.

The applicant’s queries can be summarised as follows:

1. Was it intended that those owners who previously held a leasehold interest would not have a right to vote?
2. Can the directors of Jodaway Pty. Ltd.
(i) be members of the Body Corporate Committee?
(ii) vote at body corporate meetings?
3. Were charges validly struck?

4. As of February 2005, all committee members were non-residents – is this permitted?

5. Was the sale of the management rights (allegedly valued at between $250,000 and $300,000), valid?
6. Does the obligation to pay management fees amount to an encumbrance?
7. How are body corporate fees calculated ?
8/9. Is the Scheme operator obliged to pay body corporate fees on units which it owns?

10. Is there "associated party status" between Mr & Mrs Issakidis, the "secretariat" and the insurance broker?
11. Is it compulsory for vendors to utilise a particular legal firm to handle the sale of their unit?

12. Is it compulsory for owners to utilise a particular legal firm to record their name on the body corporate roll?

13. The Operations Management Contract provides that the whole of the $90,000 fee, and not parts of it are subject to increase in accordance with increases in the CPI ;

14. Alleged collusion between the scheme operator and the body corporate regarding the transfer of sections of common property.
15. Is Mr Fleming entitled to control the residents committee?
16. Are the resident caretakers entitled to a particular car parking space?

17. Is the resident manager entitled to exempt some residents from smoking in their rooms and to permit incontinent persons to reside on the premises.

18. If the sale of the management rights is invalid, is it possible to exclude Mr. Fleming from future involvement in management of the scheme?
19. From what date is the applicant responsible for payment of rates and body corporate fees?
20. Use of the term "manager" for the on-site operators.

21. What services should residents receive in return for their body corporate fee of $35 per week and the $5 per week paid to the "Recreation Club"?
22. Does the scheme operator have multiple votes in respect of multiple units which it owns.
23. Is it lawful to dispense with an audit of the body corporate accounts?

In reply, the respondents have made the following submissions:

1. Owners of leasehold interests were given $15,000 on registration of the units on a Standard format plan of subdivision and the owner of the freehold continues to pay rates. Lessees pay a service charge.

2. Jodaway Management Pty. Ltd. is not a member of the body corporate committee.

3. Levies were calculated on the basis explained in the public information document and in accordance with the provisions of the Retirement Villages Act requiring a quantity surveyor to calculate the required maintenance over a 10 year period.

4. This allegation is incorrect as 5 members as nominees of Jodaway Pty. Ltd. were appointed to the committee as well as 2 residents – Meg Mack and Clare Peacock.

5. It was resolved that an Operations Management Contract be entered into between the Body Corporate and Jodaway Management Pty. Ltd. (the operator) for a period of 25 years under which the operator is responsible for cleaning, maintenance, repairing, refurbishing and replacing common property and other property. This function was sub-contracted to a Mr Andrew Fleming.

It is submitted that this arrangement is no different to that existing in many unit developments including retirement village developments. As a lot owner Jodaway Pty. Ltd. Cannot be denied its right to vote because of the existence of common shareholdings and directorships.

6. The respondents have re-iterated that there was no transfer of the management rights and that Jodaway Management Pty. Ltd. continues to be contractually bound to the body corporate.

7. The respondent advises that levies are calculated in accordance with the annual budget and as disclosed in the public information statement.

8/9 As a lot owner the Scheme operator is obliged to pay body corporate fees on units which it owns

10. The respondent advises that as Scheme Operator Jodaway Management Pty. Ltd. maintains overall control of management functions but has sub-contracted secretarial functions to Body Corporate Services Pty. Ltd. which is a specialist body corporate management firm. It also advises that there is no relationship with the insurance broker.

11. In purchasing a unit in the village, purchasers are provided with a copy of the public information document which discloses the details of the contractual obligations including specific procedures to be followed on sale of the unit. Such arrangements are common in retirement village schemes to ensure that there is some control over who buys a unit in the scheme.

12.The respondent advises that the applicant attended to the purchase of her unit and failed to promptly advise the body corporate of the change of ownership of her unit in the prescribed form. This is why the roll was not updated. (The relevant form, a form 8 under the BCCM Act is available from stationers or from the Departmental website.)

13. The respondent advises that this clause of the Operations Management Contract repeats the provisions of the Retirement Villages Act which restrict increases in levies to increases in the CPI annum unless otherwise approved by a resolution of the owners. In fact, fee increases have been below increases in the CPI and expenses are verified by the annual audit.

14. Exclusive use to certain common property areas was granted during the "original owner period".

15. As advised by the respondent, social club meetings are not regulated under the BCCM Act and there is no provision requiring Mr Fleming to control the residents committee although residents may invite Mr Fleming to assist.

16. As further advised by the respondent, no-one is entitled to use a specific car parking space and entitlement to car parking spaces is on a "first to park basis".

17. Owners of leasehold interests have never had a right to vote under the BCCM Act as their rights are protected by the lease and Retirement Villages Act.

18. It is lawful to dispense with an audit of the body corporate accounts.


DETERMINATION

The principal relief sought by the applicant is Recovery of funds for sale of service providers rights which is based on the applicant’s belief that the sale of management rights amounts to a fraud on the body corporate.


Operations Management Contract

I am unable to see anything unusual or unlawful about the Operations Management Contract entered into between the Body Corporate when under the control of Jodaway Pty. Ltd. and Jodaway Management Pty. Ltd. Under this agreement Jodaway Management Pty. Ltd has been engaged for a period of 25 years and is responsible for cleaning, maintenance, repairing, refurbishing and replacing common property and other property as set out in the agreement for a fee of $90,000 plus GST per annum.

This type of arrangement, where the original owner of the freehold interests in a scheme sells the "management rights" is almost universal in new developments of any size and is expressly recognised in section 112 of the Body Corporate and Community Management Act 1997.
This situation needs to be differentiated from the situation where a person seeks to use their voting power to impose an onerous obligation upon a minority of existing unit owners.

Section 112 of the Body Corporate and Community Management Act 1997 provides as follows:

112 Original owner’s obligations about engagements and authorisations
(1) This section applies if--
(a) the body corporate for a community titles scheme intends to--
(i) engage a person as the body corporate manager or a service contractor; or
(ii) authorise a person to conduct a letting agent business (also the contracted party); and
(b) the engagement or authorisation is to be made or given in the original owner control period.
(2) The original owner must exercise reasonable skill, care and diligence and act in the best interests of the body corporate, as constituted after the original owner control period ends, in
ensuring each of the following--

(a) the terms of the engagement or authorisation achieve a fair and reasonable balance between the interests of--

(i) the contracted party; and

(ii) the body corporate as constituted after the original owner control period ends;

(b) the terms are appropriate for the scheme;

(c) the powers able to be exercised, and functions required to be performed, by the contracted party under the engagement or authorisation--

(i) are appropriate for the scheme; and

(ii) do not adversely affect the body corporate’s ability to carry out its functions.

I reviewed all documentation and submissions provided for the purposes of resolving this dispute and am unable to see anything intrinsically improper regarding the entry into the caretaking or operations management contract.

This is a retirement village scheme registered as such under the Retirement Villages Act 1999 and accordingly, there is an expectation that there will be a level of on-site support available to residents. The remuneration payable under the contract is $90,000 per annum and although this is not an insubstantial amount, from my observations it is not an excessive level of remuneration for management of an 80 unit complex on a 7 day a week basis. By way of example, I recently noted that the level of remuneration for a resident manager of a 60 unit complex was independently assessed at $90,000 per annum.

As I pointed out in my interim order, there has from time to time been some debate as to the desirability of the sale of management rights for lengthy periods of time. However the legal position is that such arrangements are lawful and only subject to challenge in specific circumstances such as where the "manager" or "caretaker" has failed to fulfil their contractual obligations. Prospective purchasers of lots in a managed complex are able to obtain all details of levies and outlays and are able to make a choice at that point in time as to whether they purchase a lot. Further, as this scheme is a retirement village, the scheme operator is obliged to make additional disclosures under the Retirement Villages Act 1999.

Accordingly it is not within my power to order the Recovery of funds for sale of service providers rights.

In addition to the applicant’s main concern regarding the sale of "management rights", the applicant has raised numerous other issues and asks that the final order include some information to assist all owners and residents in understanding the interaction between the Body Corporate and Community Management Act 1997 and the Retirement Villages Act 1999.

I have responded below to various matters raised by the applicant.

Service Contractor as Voting Member of the Body Corporate Committee

I note that an Operations Management Contract has been entered into between the Body Corporate and Jodaway Management Pty. Ltd. (the operator) for a period of 25 years under which the operator is responsible for cleaning, maintenance, repairing, refurbishing and replacing common property and other property. The scheme operator advises that although the functions under the Operations Management Contract have been sub-contracted to a Mr Andrew Fleming, Jodaway Management Pty. Ltd. remains responsible for the performance of these functions. Accordingly, as noted below, section 11 of the Body Corporate and Community Management (Accommodation Module) Regulation 1997, may apply to disqualify Mr. and Mrs. Issakidis from being voting members of the body corporate committee.

It is my understanding that at the AGM for the body corporate held on 22 February 2005, Mr. Issakidis was elected as Chairperson and Mrs. Donrecka Issakidis was elected as an ordinary member of the Committee. I also understand that Mr. and Mrs. Issakidis are also directors and shareholders of Jodaway Management Pty. Ltd. which is the "scheme manager" and scheme operator.

In my opinion, section 11 of the Body Corporate and Community Management (Accommodation Module) Regulation 1997, may apply to disqualify Mr. and Mrs. Issakidis from being voting members of the body corporate committee.

Section 11 relevantly provides as follows:

11 Eligibility for committee membership
(1) A person is eligible to be a voting member of the committee if the person is an individual nominated for membership of the committee by a member of the body corporate and is also--
(a) a member of the body corporate; or
(b) a person of a following category--
(i) if the nominating entity is an individual--
(A) a member of the individual’s family; or
(B) a person acting under the authority of a power of attorney given by the individual;
(ii) if the nominating entity is a corporation--a director, secretary or other nominee of the corporation;
(iii) if the nominating entity is the body corporate for a subsidiary scheme in a layered arrangement of
community titles schemes--a representative of the subsidiary scheme.

(2) However, a person who is otherwise eligible under subsection (1) to be a voting member of the committee is not eligible to be a voting member of the committee if the person is--
(a) a body corporate manager, service contractor or letting agent; or
(b) an associate of a body corporate manager, service contractor or letting agent, other than a lot owner who is the associate of a letting agent only because the letting agent, in conducting the agent’s letting agent business, acts for the lot owner; or
(c) a person, other than a letting agent for the scheme, who conducts a letting agent business for the scheme.

The term "associate" is defined in section 309 of the Act in the following terms:

309 Associates
(1) For this Act, a person is associated with someone else if--
(a) a relationship of a type to which this section applies exists between them; or
(b) a series of relationships of a type to which this section applies can be traced between them through another person or other persons.
(2) This section applies to relationships of the following types--
(a) marriage or de facto relationship;
(b) the relationship of ascendant and descendant (including the relationship of parent and child) or the relationship of persons who have a parent or grandparent in common;
(c) partnership;
(d) the relationship of employer and employee;
(e) a fiduciary relationship;
(f) the relationship of persons, 1 of whom is accustomed, or under an obligation (whether formal or informal), to act in accordance with the directions, instructions or wishes of the other;
(g) the relationship of a corporation and executive officer of the corporation;
(h) the relationship of a corporation and a person who is in a position to control or substantially influence the corporation’s conduct.

Accordingly, I believe that Mr. and Mrs. Issakidis are not eligible for election as voting members of the body corporate committee.

I propose to order that at the next annual general meeting, individuals are to be nominated for membership of the committee in accordance with sections 11, 14 and 14A of the Accommodation Module which deal with nominations for annual committee elections

Levies

Levies are calculated in accordance with the annual budget and as disclosed in the public information statement. As advised by the respondent, all lot owners are obliged to pay body corporate fees on units which they own.

Other Matters

• I do not believe that there is anything improper about the relationship between Jodaway Management Pty. Ltd., Body Corporate Services Pty. Ltd. and the insurance broker for the scheme.

• As advised by the respondent, purchasers are provided with a copy of the public information document which discloses the details of the contractual obligations including specific procedures to be followed on sale of the unit and such arrangements are common in retirement village schemes to ensure that there is some control over who buys a unit in the scheme.

• There is no requirement for a solicitor to attend to lodgement of the form notifying a change of ownership for the purposes of updating the body corporate roll. The relevant form, a form 8 under the BCCM Act is available from stationers or from the Departmental website.

• I note that resolutions to increase certain exclusive use areas of common property and to register a new Community Management Statement were passed at at time when the original owner either owned all of the lots in the scheme or held lots in the scheme and powers of attorney in respect of the remaining lots.

• Social club meetings are not regulated under the BCCM Act and there is no provision requiring Mr Fleming to control the residents committee although residents may invite Mr Fleming to assist.

• No-one is entitled to use a specific car parking space and entitlement to car parking spaces is on a "first to park basis".

• In my view there can be no objection under the BCCM Act to residents suffering from particular health problems (such as incontinence) or smoking in their unit unless they create a nuisance to other residents, or have breached by-laws for the scheme.

• Owners of leasehold interests have never had a right to vote under the BCCM Act as their rights are protected by the lease and Retirement Villages Act.

• The members of the body corporate may by ordinary resolution resolve to dispense with an audit of the body corporate accounts.

I would point out that this Office also provides a free information service on 1800 060 119 as well as providing access to information resources at the departmental website - www.dtftwid.qld.gov.au

In addition, the Unit Owners Association of Queensland produces numerous publications in plain English regarding the rights and obligations of unit owners and can be contacted at 32200959 or www.uoaq.org.au .

Retirement Villages Act 1999

The purpose of the Body Corporate and Community Management Act is primarily to regulate the legal relationship between lot owners and the body corporate and to establish administrative and management arrangements for Community Title schemes.sAs a retirement village registered under the above Act, residents also enjoy a number of additional rights and protections under that Retirement Villages Act 1999 (RVA).
Most importantly perhaps, that Act requires that all intending residents be given a copy of the public information document for the scheme which includes the following information:

• Ingoing contributions;
• Exit fees;
• Service charges;
• Contributions and
• How the general services charge is calculated.

The Retirement Villages Act 1999 also provides a dispute resolution process for residents and scheme operators in relation to a residence contract. This dispute resolution process applies to
disputes between residents and scheme operators other than disputes relating to the operation of a body corporate in a retirement village.

Further information regarding the Retirement Villages Act 1999 can be obtained on 1300 658 030 as well as at the departmental website - www.dtftwid.qld.gov.au

CONCLUSION

As pointed out above, I am unable to see anything unusual or unlawful about the Operations Management Contract entered into between the Body Corporate and Jodaway Management Pty. Ltd. when under the control of Jodaway Pty. Ltd.

Further, I note that in addition to being members of the body corporate committee, Mr. and Mrs. Issakidis are also directors and shareholders of Jodaway Management Pty. Ltd. which is a service contractor. In my opinion, Mr. and Mrs. Issakidis are disqualified from being voting members of the body corporate committee by section 11 of the Body Corporate and Community Management (Accommodation Module) Regulation 1997,.

Obviously at this point in time there is little point in making orders regarding the composition of the current committee as the financial year for this scheme ends in November and preparations should now be underway for the next AGM. However I will order that prior to the next annual general meeting, individuals are to be nominated for membership of the committee in accordance with sections 11, 14 and 14A of the Accommodation Module.

ORDERS

1. The application for recovery of funds for sale of service providers rights is dismissed.

2. Prior to the next annual general meeting for this scheme, individuals are to be nominated for membership of the committee in accordance with sections 11, 14 and 14A of the Accommodation Module which deal with nominations for annual committee elections