Stanton Crest II [2005] QBCCMCmr 649 (22 November 2005)

Last Updated: 16 January 2006

Office of the Commissioner for Body Corporate and Community Management SPECIALIST ADJUDICATION (Adjustment of Lot Entitlements) Number: 0486-2005 Applicant: N & P M LOCKE and OTHERS Respondent: BODY CORPORATE FOR STANTON CREST STAGE 2 COMMUNITY TITLES SCHEME 989

ORDER
Body Corporate and Community Management Act 1997
(Section 48)
22 November 2005

ORDER that the contribution lot entitlement schedule in community titles scheme 989 be adjusted to be consistent with the following new schedule: Lot No Entitlement Lot No Entitlement Lot No Entitlement 1 20 17 21 33 21 2 20 18 21 34 21 3 20 19 21 35 21 4 20 20 21 36 20 5 20 21 22 37 20 6 21 22 21 38 20 7 21 23 21 39 20 8 21 24 21 40 23 9 21 25 20 41 22 10 21 26 20 42 22 11 21 27 20 43 23 12 21 28 20 44 20 13 21 29 21 45 20 14 21 30 21 46 20 15 21 31 21 47 20 16 21 32 22 Aggregate 978

G F Bugden
Specialist Adjudicator

Office of the Commissioner for Body Corporate and
Community Management

SPECIALIST ADJUDICATION
(Adjustment of Lot Entitlements)

Number: 0486-2005

Applicant: N & P M LOCKE and OTHERS



Respondent: BODY CORPORATE FOR STANTON CREST STAGE 2

COMMUNITY TITLES SCHEME 989

DETERMINATION
22 November 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 Stanton Crest 2 community titles scheme 989 ("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. However, the body corporate has not responded to the application and, from the Commissioner’s file, it appears that it has decided to adopt a neutral position in relation to the application.
3. Owners of lots in the Scheme may elect to become joined as a respondent, but no elections have been received.
The Scheme
4. The Scheme is situated at 7 Hale Street, North Ward, Townsville and is based on a low rise single use residential building comprising 47 two bedroom units. All of the units are 2 bedroom units and are housed in 3 separate buildings. Some units have one car space while others have 2 car spaces. Most of the car spaces are located in a basement situated either under a relevant building or under a landscaped podium and the remainder is in a solid carport structure. All of the car spaces are on common property and occupancy rights are conferred by exclusive use by-law.
5. Common property facilities include a swimming pool, pergola, barbecue, sauna, gymnasium, landscaping, roads, paving, fences and extensive retaining walls. Some of these facilities (e.g. the barbecue and pool) are in a more convenient location for some lots than others. However, all these facilities are available for use of all lots.
6. Some of these facilities are shared with the owners of units in stage 1 of the development known as Stanton Crest Stage 1 (which is a separate but adjoining community titles scheme). In return, the owners of Stanton Crest Stage 2 have the right to use the main driveway and a tennis court located on the common property in Stanton Crest Stage 1. This has been achieved by a combination of an easement and a special facilities agreement. Under those arrangements costs are shared between the 2 schemes in direct proportion to the number of lots in each scheme. The proportion of costs carried by Stanton Crest Stage 2 is taken up in the scheme’s budget.
Evidence
7. The applicants provided a report from Leary & Partners Pty Ltd dated 13 April 2005 authored by Ms Kaylene Arkcoll. Ms Arkcoll is particularly experienced in undertaking the type of analysis that is usually undertaken to determine the extent to which particular lots in a scheme enjoy the facilities and services provided by a body corporate.
8. In addition, some 12 submissions were received from individual lot owners, 2 of which were extensive and particularly well reasoned.
9. In their report Leary & Partners analyzed the cost impact of the individual lots on the body corporate’s expenditure. This was done across both the administrative fund and sinking fund and the report sets out in some detail the methodology adopted and the reason why that methodology was adopted. Calculations were based primarily on the proposed budget for the year to 30 June 2005, but to ensure those costs were representative there is a comparison with actual expenditure for the previous 2 years. For some items average historical cost rather than 2005 budgeted costs were used to achieve a more accurate result. One-off a-typical items were disregarded.
10. Sinking fund expenses were updated to reflect current cost levels and then converted to an annualized figure by dividing the current costs of carrying out each item of work by the relevant "overall replacement life". Painting was treated as a "lump sum" item to avoid distortion by the fact that it is currently the subject of a progressive maintenance contract.
11. The report did not adopt an un-equal cost allocation for car spaces based on where they were located. Leahy & Partners did not consider that this was warranted. However, they did adjust the cost allocation to take account of the number of car spaces attaching to the particular lots. This approach was justified by the fact that under the terms of the exclusive use by-law the body corporate (not the lot owners) is responsible for repairs and maintenance of the common property the subject of the car spaces.
12. Expenses were eventually apportioned against the lot on one of the following basis:

• Equal – where all lots drew equal benefit from the particular item
• Quantity per lot – where actual contribution to costs could be mathematically calculated
• Lot area – where that was the fairest way to share costs (e.g. costs associated with the roof of a building)
• Car spaces – where particular lots had 2 spaces instead of 1.

13. Based on the calculations and methodology I have just described in summary form, Leary & Partners concluded that the current contribution schedule lot entitlements "cannot be justified". They recommended the following allocations as being "a just and equitable reflection of the cost impact of each of the lots on the body corporate".

Lot No Entitlement Lot No Entitlement Lot No Entitlement

1 20 17 21 33 21

2 20 18 21 34 21

3 20 19 21 35 21

4 20 20 21 36 20

5 20 21 22 37 20

6 21 22 21 38 20

7 21 23 21 39 20

8 21 24 21 40 23

9 21 25 20 41 22

10 21 26 20 42 22

11 21 27 20 43 23

12 21 28 20 44 20

13 21 29 21 45 20

14 21 30 21 46 20

15 21 31 21 47 20

16 21 32 22 Aggregate 978

14. Leary & Partners in their report considered whether it was appropriate to recommend an equal allocation of contribution schedule lot entitlements. On balance, that option was discarded, although they did acknowledge that it would be open to me to adopt an equal allocation in this matter.
15. The submissions from lot owners raised a number of points, the substance of some of which was:

• Owners were aware of their lot entitlement when they purchased their units and it is now inequitable to retrospectively adjust those lot entitlements.
• An increase in the outgoings attached to a unit adversely impact on the value of that unit and this is a matter that should be taken into account when considering the equities.
• Some units have difficult access to body corporate facilities and this is likely to result in less intensive use of those facilities – this being a matter that should be factored into the any assessment of cost impact.
• Some units are larger than others and despite the fact that they all have 2 bedrooms, potentially more people could live in the larger units.
• The applicant parties have used their voting power to prevent the body corporate from obtaining legal advice, obtaining its own export report or making a submission on the application. (This was a matter of concern to many of the unit owners who made a submission.)
• The proposed new allocations will result in significant cost increases to some of the "smaller" units.
• Floor area of units is the fairest way to allocate contribution schedule lot entitlements.
• Insurance costs should only be allocated on the basis of value.

16. A number of lot owner submissions disputed various assumptions in Leary & Partners report. To illustrate, one lot owner submitted that it was not correct to assume that all lots benefited equally from the services provided by the caretaker and provided the following example:

"If the caretaker was to sweep the driveway that allows access to units 6-47 it would take him at least seven times as long as to sweep the driveway that allows access to units 1-5."

The law

17. Section 48(4)(a) of the Act provides:

"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); or
(b)	........."

18. Section 48 (5) of the Act then provides:

"(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."

19. Section 49 of the Act then sets out the criteria for deciding just and equitable. It provides:

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

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

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

(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."

20. There are other provisions of the Act which serve as a guide to what is just and equitable in the circumstances. Sub-section 46(7) and (8) are such provisions. They say:

"(7) 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 circumstances for them not to be equal.

Examples for subsection (7) of circumstances in which it may be just and equitable for lot entitlements not to be equal--

1. A layered arrangement of community titles schemes, the lots of which have different uses (including, for example, car parking, commercial, hotel and residential uses) and different requirements for public access, maintenance or insurance.

2. A commercial community titles scheme in which the owner of 1 lot uses a larger volume of water or conducts a more dangerous or a higher risk industry than the owners of the other lots.

(8) In deciding the contribution schedule lot entitlements and interest schedule lot entitlements for a scheme mentioned in subsection (7), regard must be had to--

(a) how the 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."

21. Those sub-sections were inserted by the Body Corporate and Community Management and Other Legislation Amendment Act 2003 ("Amending Act") which commenced on 4 March 2003, so they had no application to the Scheme. However, they do give further indication of what might be "just and equitable in the circumstances" for interest schedule lot entitlements not to be equal. One effect of these provisions is to make it clear that the legislature had a strong bias in favour of equality of contribution schedule lot entitlements unless justice and equity demanded otherwise.

22. As regards section 46(8) of the Act:

(c)	there is nothing special about the way the Scheme is structured that would be relevant to this application;
(d)	all of the lots in the Scheme are used for the same purpose, namely for a residential purpose; and
(e)	there are differences in the "nature, features and characteristics" of the lots in the Scheme and it needs to be determined whether these differences warrant special consideration in relation to the adjustment of the contribution schedule lot entitlements.

23. A change to the contribution schedule lot entitlements will affect the voting rights of the respective lot owners (vide section 47(2)(b) of the Act) but in the case of this particular scheme I do not regard that as a significant factor.
24. The leading case on the application of sections 48 and 49 of the Act, so far as they relate to contribution schedule lot entitlements, is the decision of the Court of Appeal in Fischer & Ors v. Body corporate for Centrepoint community titles scheme 7779 [2004] QCA 214. That case followed a number of decisions of adjudicators and the District Court in which a range of factors were considered in relation to the "nature, features and characteristics" of lots in various schemes. In Fischer’s case Chesterman J (with whom McPherson JA and Atkinson J agreed) said [at paras. 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."

25. That is not to say that other factors are irrelevant, but rather, in the absence of other factors, the proper test is the demand the respective lots make on the services and amenities provided by the body corporate. In virtually every case there will be an argument that one or more lots draw on the body corporate funds to a greater extent than other lots. The question is whether the extent to which that occurs is material enough to make it just and equitable to depart from the principal of equality. This question must be decided on a case-by-case basis.
26. For completeness, I will deal with the lot owner submissions that I previously mentioned -

• Owners were aware of their lot entitlement when they purchased their units and it is now inequitable to retrospectively adjust those lot entitlements.
As sympathetic as I may be to this proposition, the fact is that the Parliament has enacted these provisions with the express purpose of allowing this type of adjustment. It is not open to me to ignore the clear intent of the legislation and the Parliament that enacted it. I therefore have no option but to reject this submission.
• An increase in the outgoings attached to a unit adversely impact on the value of that unit and this is a matter that should be taken into account when considering the equities.
This is still not a relevant factor for me to take into account. When Fischer’s case was decided in the first instance by Samios DCJ (see [2004] QDC 17 at [53]) His Honour took into account the potential for reduction in value of the lots for which contributions were increased. This proposition was expressly dealt with and discarded by the Court of Appeal at [23] to [26] of Chesterman J’s reasons. Therefore, I cannot take this submission into account.
• Some units have difficult access to body corporate facilities and this is likely to result in less intensive use of those facilities – this being a matter that should be factored into the any assessment of cost impact.
I have considered this matter because it is a relevant matter for my consideration. However, in my opinion, it is not of sufficient significance to influence the result that is otherwise appropriate.
• Some units are larger than others and despite the fact that they all have 2 bedrooms, potentially more people could live in the larger units.
To the extent that unit occupancy is relevant it should be related to the number of bedrooms. Because all units have 2 bedrooms, this is not in my view a relevant factor. This is consistent with the intention of Parliament, as is apparent from the explanatory notes to the Bill for the Amending Act. Those notes, in dealing with amendments to the current section 46 (i.e. the old section 44 before the sections were re-numbered) say:

"Clause 10 amends section 44 to change the requirements for the number that is allocated for the contribution schedule lot entitlement.

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

The need for difference is best shown by examples.

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

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

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

The clause also includes basic principles to be applied by the developer when first determining the lot entitlements for the community titles scheme.

Example 3 above is particularly relevant to the view that I have taken.
• The applicant parties have used their voting power to prevent the body corporate from obtaining legal advice, obtaining its own export report or making a submission on the application. (This was a matter of concern to many of the unit owners who made a submission.)
This is a matter of concern and I can understand the ill feeling that it has caused. In my view, in applications of this type it is best if the applicant’s evidence can be tested and compared with evidence brought forward by the body corporate or other interested parties. In the case of this application the only substantive evidence I have is that put forward by the applicants. Nevertheless, I am unable to take this alleged conduct into account in arriving at my decision in the matter.
• The proposed new allocations will result in significant cost increases to some of the "smaller" units.
This is correct, but once again, it is not a matter I can take into account. It is inevitable that the burden of costs is shifted if an adjustment is made to the contribution schedule lot entitlements. This can only be regarded as an intended consequence of the law.
• Floor area of units is the fairest way to allocate contribution schedule lot entitlements.
I cannot accept this in light of the decision in Fischer’s case and what is a clear intention to the contrary on the part of the Parliament.
• Insurance costs should only be allocated on the basis of value.
As regards building insurance, this is correct. Under section 130 of the Body Corporate and Community Management (Standard Module) Regulation 1997 the prima facie basis for allocating building insurance costs is based on the interest schedule lot entitlements and not the contribution schedule lot entitlements. This ensures that insurance costs are shared in relation to respective lot values, unless there are other relevant factors to be taken into account. It follows that I cannot take into account building insurance costs. So far as other insurances are concerned, I am satisfied that they should be borne equally in the case of this Scheme.

27. The comparison of the work involved in sweeping the driveway does not, in my view, discredit the assumptions made by Leary & Partners in their report.
Findings

28. In this matter I find:

(a) the applicants are entitled to make this application;
(b) the contribution schedule lot entitlements are not equal;
(c) the current contribution schedule lot entitlements are not just and equitable within the meaning of the Act; and
(d) the proposed new contribution schedule lot entitlements recommended by Leary & Partners are just and equitable within the meaning of the Act.

29. I therefore propose to make an order adjusting the contribution schedule lot entitlements in accordance with the recommendations of Leary & Partners. I do not propose to interfere with the presumption in the Act that the costs of the determination should be met by the applicants.



G F Bugden
Specialist Adjudicator