Lake Hills [2006] QBCCMCmr 450 (15 August 2006)

Last Updated: 19 December 2006

Office of the Commissioner for Body Corporate and Community Management SPECIALIST ADJUDICATION (Adjustment of Lot Entitlements) Number: 0272A-2006

Applicant: NEEDHAM and OTHERS



Respondent: BODY CORPORATE FOR LAKE HILLS

COMMUNITY TITLES SCHEME 26051 and ANOTHER

O R D E R
15 August 2006

ORDER that the contribution schedule lot entitlements in community titles scheme 26051 be adjusted so that an allocation of one (1) is made to each lot, with an aggregate of 96.

G F Bugden OAM
Specialist Adjudicator

Office of the Commissioner for Body Corporate and
Community Management

SPECIALIST ADJUDICATION
(Adjustment of Lot Entitlements)

Number: 0272A-2006

Applicant: NEEDHAM and OTHERS



Respondent: BODY CORPORATE FOR LAKE HILLS

COMMUNITY TITLES SCHEME 26051 and ANOTHER

DETERMINATION
15 August 2006

The application

1. This is an application under section 48(1)(b) of the Body Corporate and Community Management Act 1997 ("Act") seeking an order of a specialist adjudicator adjusting the contribution schedule lot entitlements in Lake Hills community titles scheme 26051 ("Scheme").
2. The applicants are Mr Patrick Francis Jack Needham, owner of lot 54, Mr Bruce George Grayson, the owner of lot 40 and Mr Robert Owen Christie, the owner of lot 56.
3. The body corporate is the respondent to the application because of section 48(2)(a) of the Act. Under section 48(2)(b) of the Act another owner of a lot in the Scheme can elect to be joined as a respondent for the application. While numerous owners have made submissions to the Commissioner on the application, only one, Mr Paul Gavin, the owner of lot 19, formally elected to be joined as a respondent.
4. Although the application is regulated by section 48 of the Act, as well as certain other sections in Chapter 2 Part 5 of the Act, it is actually made and dealt with under Chapter 6 of the Act (i.e. the dispute resolution provisions of the Act). It must be dealt with by a specialist adjudicator who has the normal powers of an adjudicator under that Chapter.

The scheme

5. The Scheme is situated at 117-139 Palm Meadows Drive, Carrara and comprises 96 lots. It is regulated by the Body Corporate and Community Management (Accommodation Module) Regulation 1997 ("Accommodation Module"). The Scheme is described in an expert’s report from Leary & Partners Pty Ltd dated 4 April 2006 ("Leary Report"). That description appears to have been accepted by all persons who made submissions to the Commissioner, so for current purposes it is the best available description of the Scheme. It states:

"Lake Hills is a townhouse development containing 96 residential lots. Twenty-eight of the townhouses are independent standing and completely surrounded by an on-title private yard. The remaining 68 are laid out in a duplex configuration and except where they share a party-wall, are also almost all completely surrounded by an on-title private yard. All the structures associated with the lots (except potentially some small lengths of fencing) are within the private lot boundaries.

The external facilities within Lake Hills include:

a) an automatic opening intercom security gate and extensive roadways,
b) a community building with meeting area, gym and toilets,
c) a swimming pool with deck area,
d) street lighting, and
e) extensive areas of lawn, landscaping and paving."

6. The current contribution schedule lot entitlements range from 50 to 100, with an aggregate of 7,415. These contribution schedule lot entitlements are the same as the interest schedule lot entitlements and given that the Scheme was registered under the Act and not an earlier Act, this in itself suggests that there is something wrong with the current allocations.
7. Shortly after the Scheme was established the developer encouraged lot owners to enter into an agreement with the body corporate under which the body corporate would:

(a)	maintain the external areas of their dwelling;
(b)	maintain (in the case of relevant lots) the area of land of lots from the top of the embankment to the edge of the lake (which included a revetment wall);
(c)	paint all external areas of the dwelling; and
(d)	use the administrative fund and/or sinking fund to cover all costs, without any additional payment being required from the lot owner.

8. Historically, the body corporate has honored that agreement and substantial sums of money have from time to time been disbursed from its funds to cover work and materials, sometimes in respect of some but not all lots. In May 2004 the body corporate received legal advice that these agreements are not in accordance with section 118 of the Accommodation Module (which regulates agreements of this nature) in that the costs must be recovered "to the greatest practical extent" from the lot owners benefited.
9. Despite that advice the body corporate continued to budget for those expenses and has raised levies on the basis of such budget. The applicants have been criticized because they were aware of that advice but, as committee members, permitted the budgeting process to continue in the way it did. Furthermore, because the proposed allocation of contribution schedule lot entitlements in the application does not take account of those agreements with lot owners, if the application is successful and the current practice of the body corporate with respect to those expenses continues, then some owners will be materially adversely affected.

The law

10. Section 48(4)(a) of the Act provides in respect of this type of application:

"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)	.........."

11. 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."

12. 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) for an interest schedule--if it is just and equitable in the circumstances for the individual lot entitlements to reflect other than the respective market values of the lots.

(3) However, the matters the court or specialist adjudicator may have regard to for deciding a matter mentioned in subsection (2) are not limited to the matters stated in this section.

(4) The court or specialist adjudicator may have regard to--

(a) how the community titles scheme is structured; and

(b) the nature, features and characteristics of the lots included in the scheme; and

(c) the purposes for which the lots are used.

(5) The court or specialist adjudicator may not have regard to any knowledge or understanding the applicant had, or any lack of knowledge or misunderstanding on the part of the applicant, at the relevant time, about--

(a) the lot entitlement for the subject lot or other lots included in the community titles scheme; or

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

(6) In this section--

"relevant time" means the time the applicant entered into a contract to buy the subject lot.

"subject lot" means the lot owned by the applicant."

13. Sub-sections (3) and (4) of section 49 do not allow an adjudicator or the District Court to take a wide range of matters into consideration when determining these applications. The decision of the Court of Appeal in Fischer & Ors v. Body corporate for Centrepoint community titles scheme 7779 [2004] QCA 214 has substantially restricted the matters that may be taken into account. In that 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."

14. Other factors can be relevant, but 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.
15. In the case of this Scheme, there does not appear to be any other factors that are relevant. In particular "the nature, features and characteristics of the lots included in the scheme" and "the purposes for which the lots are used" do not give rise to any special circumstances.

The evidence

16. The Leary Report is the only expert evidence that I have before me. The Respondent has substantially accepted it, as have those lot owners who made submissions on the application.
17. The Leary Report analyses the expenses of the body corporate as budgeted for the year to 31 August 2006, but making adjustments from actual expenditure for the previous 3 years where that was necessary to ensure costs were representative. It then allocated those expenses among the various lots based on estimates of the extent to which those lots draw on the finances of the body corporate. Only 2 basis of allocation were used – equal allocation and allocation based on "quantity".
18. The quantity-based allocation was only used for replacement of roofing (including insulation), gutters and down pipes. All other expenses were allocated on an equal basis because this was considered the most appropriate. Although the roofs of the townhouses are within the lots, the Leary Report cites section 108(2)(b) of the Accommodation Module as authority for the body corporate being responsible for their maintenance. That provision reads as follows:

"(2) To the extent that lots included in the scheme are created under a building format plan of subdivision, the body corporate must –

(a)	.....
(b)	maintain the following elements of scheme land that are not common property in a structurally sound condition –
(i)	foundation structures;
(ii)	roofing structures providing protection; and
(iii)	essential supporting framework, including load-bearing walls."

19. Section 108(2)(b) probably does not produce the best result for the Scheme, but I agree with Leary Report – that is the law and we must work within it. I am satisfied that the Leary Report appropriately deals with that provision.
20. The Leary Report goes on in its schedules to allocate costs to the various lots on a percentage basis and then extract from the various percentages two possible contribution schedules. One schedule involves allocations of 10 or 11 entitlements out of an aggregate of 996 while the other involves an equal allocation of 1 entitlement per lot with an aggregate of 96.
21. In percentage terms the highest percentage allocation was 1.12% while the lowest was 0.99% - a difference of only 0.13. In dollar terms the highest annual allocation was $2,349.10 while the lowest was $2,090.49 – a difference of only $258.61.
22. In Deltaline Properties Pty Ltd v. Body corporate for Surfers Hawaiian community titles scheme 5682 (No 0296/2003) I dealt with the question of the degree of fairness and equity that the legislature intended before a court or specialist adjudicator should intervene to depart from the principle of equality. In that matter I considered where the legislature intended the line to be drawn, below which the entitlements should be left equal and above which they should depart from the equality principle. I took the view, for the reasons given in that case, that the line is likely to be higher rather than lower.
23. In Caulfield v. Body corporate for Raintrees Townhouses community titles scheme 9802 (No 0860/2005) the highest allocation to a lot was 2.73% while the lowest allocation was 2.45% - a difference of 0.28. In that case I held that the line should be drawn above 0.28 and that equality was to be preferred. Nothing has happened in the meantime that would persuade me to depart from the reasoning in that decision and there is nothing about the Scheme, the way the lots are used or the nature, features or characteristics of the lots that touch upon this question. In this matter I am therefore inclined toward the equality option which the Leary Report clearly agrees is open to me.
24. Finally, I should say something about the agreements between lot owners and the body corporate under which the body corporate agrees to do certain maintenance work without recovering the costs as required by section 118 of the Accommodation Module. In this matter I cannot take those agreements into account because I must assume that the law will, in future, be complied with. As regards the future, I would expect that the body corporate will revisit those agreements and bring them within section 118 if they are not already within that section, or alternatively, abandon them. As regards the past, there may be implications for the body corporate in its past practices in relation to those agreements and remedies may be available to individual owners. These are matters on which the parties and lot owners generally may wish to obtain further advice.

Findings

25. Under the circumstances, my findings are:

(a)	there is a dispute between the Applicant and the Respondent;
(b)	the Applicant is entitled to bring this application;
(c)	the contribution schedule lot entitlements in the Scheme are not equal;
(d)	the contribution schedule lot entitlements in the Scheme are not just and equitable within the meaning of section 49 of the Act;
(e)	the equal contribution schedule lot entitlements proposed in the application are just and equitable within the meaning of section 49 of the Act;
(f)	there is nothing about the Scheme or the way the lots are used that needs to be taken into account in respect of this application, other than matters relating to demand on services and resources provided by the body corporate, being matters already taken into account in the Leary Report; and
(g)	there is nothing about voting entitlements that otherwise impact on the equal contribution schedule lot entitlements proposed by the application.

26. I propose to make an order that the contribution schedule lot entitlements be adjusted so that each lot has an entitlement of 1 and that the aggregate be 96.

G F Bugden OAM
Specialist Adjudicator