Royal Albert Apartments [2005] QBCCMCmr 80 (11 February 2005)

Last Updated: 5 July 2005

REFERENCE: 0341-2004

ORDER OF AN ADJUDICATOR

MADE UNDER PART 9 OF CHAPTER 6

BODY CORPORATE AND COMMUNITY MANAGEMENT ACT 1997

Number of Scheme:	16406
Name of Scheme:	Royal Albert Apartments
Address of Scheme:	Cnr Albert & Elizabeth Streets BRISBANE 4000

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

Ian Richard Mortess and Jessica Ann Mortess, the co-owners of lot 56

I hereby order that the application by Ian Richard Mortess and Jessica Ann Mortess, the co-owners of lot 56, for an order that the body corporate rules be changed so that the income from, and cost of maintenance, repairs and if necessary replacement of the car stackers be solely the responsibility of the 39 "owners" and not the body corporate as a whole, is dismissed.

STATEMENT OF ADJUDICATOR’S REASONS FOR DECISION - REF 0341-2004

"Royal Albert Apartments" CTS 16406

The applicants, Ian Richard Mortess and Jessica Ann Mortess, the co-owners of lot 56, have sought the following order of an adjudicator under the Body Corporate and Community Management Act 1997 (the Act) quote -

We request that the body corporate rules be changed so that the income from, and cost of maintenance, repairs and if necessary replacement of the car stackers be solely the responsibility of the 39 "owners" and not the body corporate as a whole.

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)).

The scheme is a subdivision of 94 lots recorded under a building unit plan (now a building format plan) of subdivision. The regulation module applying to the scheme is the standard module. The scheme has a number of commercial lots, and a number of the residential units are operated as a hotel. The remaining residential lots are either owner occupied or (presumably) privately leased.

This is complex dispute regarding the reasonableness of an exclusive use by-law. The recorded by-laws contain an exclusive use by-law (numbered 12) allocating 39 common property car parking spaces to 36 owners within the scheme (three owners each have 2 allocated spaces, whether through original allocation of subsequent purchase). Car parking is by way of a stacker system, the maintenance and repair of which has been ongoing, is expensive, and it appears, is set to become more so with anticipated "extensive repairs to cost approximately $135,000". I don’t consider it necessary to describe or outline these aspects in any detail, since they are not in dispute per se. What is in dispute is the provision in the relevant by-law which allocates responsibility for the stacker system to the body corporate. By-law 12.4 provides:

The body corporate shall be responsible for:
The regular and periodic repair and maintenance of the hoists and all costs associated with such repair and maintenance;
The replacement of any hoist from time to time.

The essence of the applicants’ submission is that the provision of the by-law is unreasonable in allocating responsibility for maintenance (including all costs) of the stacker system to the body corporate (thereby all owners) and not instead to the 36 owners who have the benefit of the 39 car parking spaces. To highlight the apparent inequity of this, the applicants state that owners of the car parks who choose to make these spaces available to the hotel parking pool "each receives $2000 to $2500 p.a. but both stacker owners and non-owners pay for the maintenance, repairs and if necessary replacements thereof via the fees paid to the body corporate".

This office sought submissions from all owners in the scheme regarding the application. Not surprisingly, responses where divided into two camps, the determining factor being "ownership" of one of the car parking spaces. There were several consistent arguments included in submissions including that no dispute had been evidenced. I conclude that there is certainly a "dispute" within the contemplation of the Act, and that the application is within jurisdiction. Another argument is that all buyers were aware, or should have been aware, of the situation at the time of their purchase, and that the terms of the by-law should prevail. This is sometimes expressed as "caveat emptor". More generally, it is stated that the legislature allowed bodies corporate to create their operational rules, and that the rules created for this body corporate should not now be interfered with. Alternatively, that the process for changing the rules is set out in the Act, that this process has been followed in respect of the relevant rule, and the outcome (by way of the vote of owners in respect of the resolution) was that the proposal to change the rule, was defeated; the implication being that this determination should now not be interfered with. Whilst I acknowledge the persuasive weight of such arguments, the fact is there can be no doubt that an adjudicator has power to review the reasonableness or otherwise of a by-law, and if considered unreasonable, to order the removal of that by-law. Schedule 5 of the Act, number 20 of the examples of orders an adjudicator might make includes:

20. If satisfied a by-law is, having regard to the interests of all owners and occupiers of lots included in the scheme, oppressive or unreasonable--an order requiring the body corporate to lodge a request to record a new community management statement--
(a) to remove the by-law; and
(b) if it is appropriate to restore an earlier by-law, to restore the earlier by-law.

I conclude that I have power to investigate the reasonableness or otherwise of the relevant by-law.

Another argument put by owners supporting the status quo (the car space owners so to speak) is that the availability of the spaces in the parking pool benefits all owners in that it makes the residential lots which are let more attractive to potential guests. That is, the availability of car parking is an added feature attracting hotel guests. The argument goes that in turn this benefits all owners as it increases occupancy rates. I conclude that whilst this argument is possible, I consider it a marginal one at best. Firstly, this fact would not benefit owner occupiers, who receive no benefit from increased occupancy rates in those lots which are let. Secondly, many if not most hotels offer parking. Even if parking was not available, I suggest that it would be in the interests of the hotel to have some arrangement with a nearby parking provider. In this regard, I note that there is a huge public car parking facility immediately adjacent to the scheme. I suggest the advantage of being able to offer parking facilities to hotel guests is a limited one.

In their grounds, the applicants make the following statement:

Stacker "ownership" did not attract any extra lot entitlements. However, one bedroom (S1) unit buyers who were not allotted a car space received a downgrade of lot entitlements from 5 to 4 (see appendix). ...

Another owner (the owner) has picked up on this point, stating in a submission:

The application also states that the stackers did not attract any extra lot entitlements, but units without stackers received a downgrade of 1 lot entitlement from 5 to 4. It is difficult to understand the subtlety of this argument – units without a stacker have a lot entitlement of 4, and identical units with a stacker have a lot entitlement of 5, costing an additional $1000 approx. per year in body corporate fees.

The appendix referred to by the applicants is interesting. It does appear to confirm the owners’ point. Between units where there is no other basis of distinction, the allocation of a car parking space appears to attract a 25% higher contributions lot entitlement (ie. 4 to 5).

When considering lot entitlements for this scheme, it is necessary in my view for the purposes of the current enquiry to exclude the 21 commercial lots, thus restricting my enquiry to the variations in lot entitlements for the residential lots. In respect of the residential lots, certain observations can be made. The allocated lot entitlements for the residential lots range from 4, through 5 to 6. The variations in lot entitlements can briefly be explained as follows:
Description parking space lot entitlement No. of units in type
Studio unit No 4 28
One bedroom unit No 4 6
One bedroom unit Yes 5 16
Two bedroom unit Yes 6 8
Apartment Yes 6 15

(There appears to be one anomaly in the allocation of lot entitlements for the scheme. I note that lot 78 has a lot entitlement of 5 but does not have an allocated parking space. However subject to this, the above chart is accurate I believe.)

One conclusion can be drawn with certainty from the chart: in the case of the one bedroom units, the allocation of a car parking space means a 25% increase in that lot’s contribution schedule lot entitlement (that is, the amount that lot contributions to the body corporate’s expenses). I consider that it can be extrapolated from this that at least half of the increased lot entitlement for the two bedroom units and the apartments can be attributed to the fact of having an allocated car parking space. This would be consistent with the difference in lot entitlements in the one bedroom units.

More generally on the aspect of lot entitlements, it was formerly the case that lot entitlements most often reflected the size of lots within a scheme. To some extent this is consistent with the distribution of lot entitlements within this scheme. The lot entitlement scheme for this scheme would have been produced under the former legislation, the Building Units and Group Titles Act 1980. This legislation has now been repealed, and the vast majority of schemes are now under the Body Corporate and Community Management Act 1997 which commenced operation in 1997. That Act bought about some significant changes in relation to lot entitlements. In particular, it introduced the ability, for the first time, for an owner to apply to either the district court or a specialist adjudicator for a change in the contributions schedule lot entitlement. Moreover, for the first time, the legislation prescribed the basis or principle on which contributions schedule lot entitlements should be determined (see 48(5) below).

48 Adjustment of lot entitlement schedule
(1) The owner of a lot in a community titles scheme may apply--
(a) to the District Court for an order for the adjustment of a lot entitlement schedule; or
(b) under chapter 6, for an order of a specialist adjudicator for the adjustment of a lot entitlement schedule.
(2) Despite any other law or statutory instrument--
(a) the respondent for an application mentioned in subsection (1) is the body corporate; and
(b) at the election of another owner of a lot in the scheme, the other owner may be joined as a respondent for the application; and
(c) each party to the application is responsible for the party’s own costs of the application.
(3) An owner who elects, under subsection (2)(b), to become a respondent for the application must give written notice of the election to the body corporate.
(4) 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 subsection (5); or
(b) if the order is about the interest schedule--the principle stated in subsection (6).
(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.
(6) For the interest schedule, the respective lot entitlements should reflect the respective market values of the lots included in the scheme when the court or specialist adjudicator makes the order, except to the extent to which it is just and equitable in the circumstances for the individual lot
entitlements to reflect other than the respective market values of the lots.
(7) If a lot mentioned in subsection (6) is a subsidiary scheme, the market value of the lot is the market value of the scheme land for the subsidiary scheme.
(8) For establishing the market value of a lot created under a standard format plan of subdivision, buildings and improvements on the lot are to be disregarded.
(9) If the court or specialist adjudicator orders an adjustment of a lot entitlement schedule, the body corporate must, as quickly as practicable, lodge a request to record a new community management statement reflecting the adjustment ordered.
Maximum penalty for subsection (9)--100 penalty units.

Section 49 of the Act then is specifically relevant to determining "just and equitable circumstances". In particular, section 49(4) provides that:
(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.

The question of the proper basis for adjustment of lot entitlements has recently been the subject of a decision of the Court of Appeal in Fisher & Ors v Body Corporate for Centrepoint Community Title Scheme 7779 [2004] QCA 214. I intend to quote relevantly from that decision:


[24] The point in issue is a narrow one. It is 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 is at large (save for the matter described in s 49(5)) or whether it is limited to matters which show how apartments differently affect the cost of running and maintaining a community titles scheme. ...
[25] 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.
[26] 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. ...
[27] There are a number of reasons for this conclusion. ...
[30] These materials make it tolerably plain that the Act is intended to produce a contribution lot entitlement schedule which divides body corporate expenses equally except to the extent that the apartments disproportionately give rise to those expenses, or disproportionately consume services. That determination can only be made by reference to factors which have a financial impact or consequence on the body corporate. It cannot be affected by factors which go to an apartment’s value or amenity.
[31] Secondly, the nature of a contribution lot entitlement schedule itself suggests that the allocation of lot entitlements is to be made on the basis of the impact that individual apartments make upon the costs of operating and running a community titles scheme. Contribution lot entitlements determine the apartment’s share of the outgoings. The starting point is that the entitlements should be equal. A departure from that principle is allowable only where it is just, or fair, to recognise inequality. The departure must take as its reference point the proposition, from which it departs, that apartment owners should contribute equally to the costs of the building. The focus of the inquiry is the extent to which an apartment unequally causes costs to the body corporate.
[32] The third consideration is that if this principle not be the applicable one then there is no basis on which applications for adjustment of contribution lot entitlement schedules can consistently be made. As the evidence in this application shows, if the inquiry is limited to the extent to which an apartment creates costs, or consumes services, above or below the average, one can readily determine what the contribution lot entitlement should be. The high degree of similarity in the reports of Mr Sheehan and Mr Linkhorn demonstrates this. If the inquiry be wider and include such nebulous criteria as the structure of the scheme, or the nature, features and characteristics of the apartments in the scheme, and the purposes for which they are used, there is no intelligible basis on which there could be a consistent and coherent determination of applications for adjustment of lot entitlements. Each case would be determined idiosyncratically and a vast variety of circumstances might be relied upon to depart from, and therefore erode, the principle said to be paramount, that there should be an equality of entitlements.
[33] Accordingly I would construe s 49 of the Act, and in particular subsection (4), as meaning 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 titles scheme.

In relation to the scheme, there are many statements in the above Court of Appeal decision of particular interest. Specifically though, it is clear that in relation to the one bedroom lots with allocated car parks, these lots pay 25% greater contributions to body corporate expenses than those one bedroom lots without allocated car parks. Similarly, this appears to be the case for the two bedroom lots and apartments. Whilst parties might wish to argue that the larger lot entitlement of 6 reflects the larger living spaces of these units, in light of the comments of the Court of Appeal set out above, I surmise that there may be a strong argument for an equalisation of lot entitlements on the basis that simply having a larger living area does not proportionally increase the cost of operating the scheme. However, this is not what I am enquiring into: this would be a matter for the District Court or a Specialist Adjudicator.

I do consider that the variation which currently exists in lot entitlements is a factor relevant in assessing the merits of the current application. The first point to note is that the variations in lot entitlements between the residential lots are significant; they are not minor. Using the lot entitlement of 4 as a base, then the lot entitlement of 5 represents a 25% increase in contributions, and a lot entitlement of 6 represents a 50% increase on the base. If each unit of lot entitlement was equal to say $1000 (a not unrealistic figure in my view) then owners with a lot entitlement of 5 would contribute $1000 more per annum, and those with a lot entitlement of 6 would contribute $2000 more than those on the base allocation of 4. These are significant recurring amounts in my view.

I have done some calculations of contributions towards body corporate expenses and conclude as follows:

• The 73 residential lots have an aggregate lot entitlement of 354;
• The lots with no car parking allocation have an aggregate lot entitlement of 141. Consequently those lots contribute all but 40% of the contribution of all residential lots to the body corporate expenses. It should be noted that this is so notwithstanding that the lots without car parks are numerically greater than those with car parks, though only marginally (52% v. 48%);
• In contrast, the lots with allocated car parks have an aggregate lot entitlement of 213. Consequently those lots contribute marginally over 60% of the contribution of all residential lots to the body corporate expenses.

The inescapable conclusion from this analysis is that the owners of the residential lots with car parking spaces are currently, and have for the life of the scheme, contributed significantly more towards body corporate expenses than those residential lots without car parking spaces, with the exception of lot 78.

In the circumstances, I conclude that whilst ever the lot entitlements for the scheme remain as they are at present, then the terms of the by-law requiring all owners to contribute to the costs of repairing and maintaining the car parking stacker system is not unreasonable. For this reason, and on the basis of the above analysis, the application is dismissed. It goes without saying however that if there were to be a significant revision of the contributions schedule lot entitlement for the scheme, then the reasonableness or otherwise of the by-law might again be in issue.