Coral Horizons [2006] QBCCMCmr 76 (17 February 2006)

Last Updated: 19 December 2006

REFERENCE: 0721-2005

ORDER OF AN ADJUDICATOR

MADE UNDER PART 9 OF CHAPTER 6

BODY CORPORATE AND COMMUNITY MANAGEMENT ACT 1997

Number of Scheme:	25286
Name of Scheme:	Coral Horizons
Address of Scheme:	137 Williams Esplanade PALM COVE QLD 4879

TAKE NOTICE that pursuant to an application made under the abovementioned Act by Katrina Turkington, the Executrix of the Estate of Alexander William Turkington and beneficiary of lot 4 in the scheme

I hereby order that the application by Katrina Turkington, the Executrix of the Estate of Alexander William Turkington and beneficiary of Lot 4 in the scheme, for an order of an adjudicator against the body corporate for Coral Horizons CTS 25286 that motion 9 headed Entry into Lease, purportedly carried at the Annual General Meeting of 20th July 2005, be ruled invalid, is dismissed.

STATEMENT OF ADJUDICATOR’S REASONS FOR DECISION - REF 0721-2005

"Coral Horizons" CTS 25286

The application

The applicant, Katrina Turkington, the Executrix of the Estate of Alexander William Turkington and beneficiary of Lot 4 in the scheme, has sought an order of an adjudicator under the Body Corporate and Community Management Act 1997 (the Act), against the body corporate for Coral Horizons CTS 25286 (the body corporate) that a motion purportedly carried at the Annual General Meeting of 20^th July 2005, (the AGM of 2005) being Motion 9, be ruled invalid.

The applicant also sought an interim order that pending final determination of the dispute that the construction of any improvements on common property as a consequence of the passing of Motion 9 (Motion 9) be suspended. The requested interim order was dismissed.

Motion 9 of the AGM stated as follows-

"Entry into Lease (ordinary resolution).

Moved that in accordance with section 154 of the Body Corporate and Community Management Act 1997 and section 110 of the Body Corporate and Community Management (Accommodation Module) Regulation 1997, the body corporate resolves by special resolution that:

1)	subject to the approval of Cairns City Council, execute a Lease of part of the

common property to 2020 Management Pty Ltd ACN 080 492 486 in the form
attached, with the essential elements set out in the reference data, being page 2 of
the Lease, and

2) two members of the Committee arte specifically authorised to executer the Lease and affix the seal of the Body Corporate to such Lease in accordance with section 138 of the Body Corporate and Community Management (Accommodation Module) Regulation 1997."

The resolution was carried 6 -1.

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)).

"Coral Horizons" Community Titles Scheme 25286 is a community title scheme to which the Body Corporate and Community Management Act 1997 (the Act) and the Body Corporate and Community Management (Standard Module) Regulation 1997 (the Standard Module) applies. There are 7 lots in the scheme.

The adjudicator in the reasons for the interim order set out in detail the essence of the applicant’s case, and also the submissions in response by the body corporate committee. Since the making of the interim order, submissions were then sought from the body corporate committee, all owners excepting the applicant and finally, the lessee, 2020 Management Pty Ltd. Submissions opposing the application were received from all these parties, excepting the owner of lot 5. The applicant, through solicitors, has replied to submissions received.

The material before me is considerable, with numerous miscellaneous points being made by all parties. Whilst I have read and considered all the material before me, I intend to refer only to those aspects I consider relevant for my determination of this application. Should submissions or points made by any party not be specifically referred to in this determination, then parties should assume that the submission did not warrant specific consideration in my view, and in the context of the application, would not have impacted upon my determination. Parties should remember this is a high volume, low cost, paper based dispute resolution system.

The applicant’s arguments for invalidation of motion 9 are twofold. Firstly, that there was non-compliance with certain statutory requirements in the preliminary steps leading to, and the actual convening of the meeting at which motion 9 was considered. Secondly, the applicant argues that the body corporate, in granting the lease to the lessee, has not administered the common property reasonably and for the benefit of owners. I intend to deal with these two arguments in turn.

Alleged non-compliance with statutory requirements

In the District Court applicant of a previous adjudicator’s order (Wei-Xin Chen v. Body Corporate for Wishart Village) his Honour, Judge Boulton stated (at 27):

The very details provision of the standard module regulation to which I have referred above make it almost inevitable that from time to time there will be non-compliance. Equally though the provisions of the Act make it clear that non-compliance of an insubstantial nature will not be allowed to imperil the actions of bodies corporate or their committees, particularly in the instances of committees where actions are taken bona fide.

In the interim order, the adjudicator stated as follows:-

I have not at this stage considered the technical non-compliance of Motion 9 with the legislation, but generally speaking, for such an argument to be successful, some detriment to the applicant or other lot owners should be shown to have occurred or been suffered as a result of the non-compliance.

In her reply, the applicant summarises her allegations, quote:

... the non-compliance by the committee and body corporate in, inter alia, making a development application for the construction of the office without her knowledge, not adhering to the time frames and procedures in calling a body corporate meeting; and not providing the lot owners with a copy of the lease described in motion 9 until the motion was submitted, has denied the applicant access to the documents and / or the time required to make an informed decision regarding motion 9, and ultimately, has denied the applicant the opportunity to raise her concerns with the body corporate.

Are the alleged acts on non-compliance "of an insubstantial nature"? I conclude that the act of applying for the development application was an act preliminary to consideration of approval of the lease in general meeting. Conversely, the approval of the body corporate in general meeting might have been made subject to the body corporate obtaining development approval for the building, and wrapped up in the same motion. I consider that the applicant has suffered no detriment in this approval having been obtained at a preliminary stage, and without her knowledge, on the basis that the construction could not have proceeded in any event, but for the subsequent passing of motion 9.

I am unconcerned by the fact of the meeting being held out of the time period stipulated in the legislation. The time stipulation is there to create a time period in which bodies corporate should convene their AGM each year. In relative terms, and what is of greater importance in my view, and to be encouraged, is that the meeting was in fact held. What is the consequence of invalidating a meeting because of it having been held out of time. It would mean in effect that a body corporate is then unable to transaction further business without perhaps an order from this office authorising the same. This office is not sufficiently resourced to consider an application every time a body corporate (some 30000 in Queensland and increasing) misses a time frame. In the circumstances, this office seeks to encourage the holding of meetings and the transaction of body corporate business, rather than discourage it based on a non-compliance with a relevant, but not indispensable, statutory time requirement.

Finally, I conclude that the applicant acknowledges that "this document was not made available to the body corporate until 7 June 2005". The meeting at which the lease was considered was not held for a further 6 or so weeks after this date. Is the applicant suggesting that 6 weeks was an insufficient time for her and other owners to consider the terms of the lease. The usual period of notice of a meeting is 3 weeks or 21 days. I conclude that the applicant was in possession of a copy of the lease in sufficient time to fully inform herself of its contents and to make representations to the body corporate regarding it.

The applicant claims that she was denied "the opportunity to raise her views and give an informed vote in respect of motion 9". The evidence suggests that the applicant’s "no" vote to motion 9 was always going to happen. Nothing in the applicant’s material suggests that the applicant was disposed to a favourable view in respect of the issue of the lease. I conclude the applicant always intended to vote no to the motion and did so. I further consider that the applicant was fully able to inform herself regarding the lease in the time provided.

The applicant further contends that not only was she denied the right to fully inform her vote on the motion (which I do not accept) but that further, she was denied the ability of "perhaps influencing the ultimate decision to pass the motion". I suggest that, based on the contents of submissions of most owners, the possibility of the applicant influencing them to vote against the motion was remote. I suggest that other owners were as certain in their approval of the motion, and the lease, was the applicant was in her opposition to it. I deny the applicant was disadvantaged by the non-compliance as alleged. I am certain the outcome of the motion would have been exactly the same had all requirements of the legislation in relation to the meeting been fully complied with. In the circumstances, I refuse to invalidation the motion as requested on the basis of non-compliance.

That the approval of the lease by the body corporate was not a reasonable exercise of its duty to administer, manage and control the common property

The applicant raised in correspondence to Alison Flaws of 19 July 2005 concerns regarding the reasonableness of the body corporate having entered into the lease. The applicant stated:

As I do not use 2020 Management for the letting of my unit, I am deprived of receiving a share of a proper commercial rental and if the lease does go ahead, I understand I am entitled to be compensated accordingly. A one-seventh share of $12 discriminates against me and there are laws to protect people who are affected this way.

The applicant fails to elaborate, either in her correspondence or in the grounds to the application, the basis of either her alleged entitlement to compensation, or the "laws" which she alleges protect her rights. Given the assertions made, one might reasonably have expected some elaboration of these alleged rights and entitlements in the grounds to her application. In her email of 19 July 2005, the applicant did outline a number of other alleged failings in the lease.

In the interim order the adjudicator noted:

As submitted by the lessee, it may be "perfectly reasonable for the body corporate to lease part of the common property to the tenant of the majority of lots so tenant can enjoy its rights in respect of the lots" but I am concerned that if it is the wish of the body corporate to do so, it must do so at a commercial rent and that the benefits of doing so must be equal to all lot owners. The fact that some lot owners will clearly receive a greater benefit than others because this is not an "arms length transaction", and that the lessee is receiving a substantial benefit in that the lease of common property is only $12 per annum, does not prima facie demonstrate that the body corporate is acting reasonably.

Sections 94 and 152 of the Act provide relevantly that:

94 Body corporate’s general functions
(1) The body corporate for a community titles scheme must--
(a) administer the common property and body corporate assets for the benefit of the owners of the lots included in the scheme; ...
(2) The body corporate must act reasonably in anything it does under subsection (1).

152 Body corporate’s duties about common property etc.
(1) The body corporate for a community titles scheme must--
(a) administer, manage and control the common property and body corporate assets reasonably and for the benefit of lot owners; ...

I am not aware of any specific basis of compensation for the alleged failure of the body corporate to obtain a proper commercial rental which the applicant alleged she was entitled to. Further, the extent to which the law protects is that if a decision or resolution of the body corporate or its committee is determined not to be reasonable and for the benefit of lot owners, then such decision is liable to be invalidated and set aside.

Whether a determination is reasonable and for the benefit of lot owners is a issue on which there have been many instances of adjudication. It is certainly not as simple as alleging that an owner or minority of owners do not agree with a majority determination, or that a determination is of no benefit to a particular owner or group of owners. There are numerous and obvious examples of determinations made by a body corporate on a day to day basis where a determination made might be alleged not to be for the benefit of an owner, for example:

• A decision to allocation exclusive use of common property to an owner;
• A decision to allow an individual owner to make an improvement to common property for the benefit of that owners’ individual lot;
• A decision to impose a special contribution for the making of an improvement, where an owner intends to sell, or perceives the improvement to be of no particular use or benefit to them;
• A decision to engage a letting agent where an owner is an occupier and does not let their lot.

In fact, the instances of situations where determinations might be alleged not to be reasonable and for the benefit of owners are numerous, and if the requirement were a simple one to satisfy, then I suggest that a body corporate could all but be prevented from functioning effectively. Consequently, the test must of necessity be a far more rigorous one, and in my view requires evidence of real detriment or manifest unreasonableness, rather than simply lack of benefit.

The body corporate has referred to me a previous determination of my own. In 555 of 1998, I stated:

... Next the applicant refers to the reasonableness of the body corporate granting the occupation authority to the manager / letting agent on the terms which are proposed in the authority, in particular the agreed rental for the area granted. In my view, the jurisdiction of this office does not extend to protecting owners from themselves. By this, I mean that it is open to any body corporate, via a vote of owners, to enter into any agreement provided it satisfies the requirements of the Act and applicable Module. Whilst this office might contemplate the invalidation of a resolution of the body corporate where it considers there is discrimination or unreasonableness to an owner implicit in the resolution, this will not include the invalidation of an agreement for the reason that an owner considers that an insufficient rent is provided for in the agreement. If this were the case, then this office would be inundated with applications, as there is almost invariably a minority of owners who do not consider the terms of an agreement to be fair, for whatever reason.

The above statement was made in 1998 in the early days of Adjudicators interpreting what was then completely new legislation. The Act and regulatory modules commenced in 1997, the year previous to the determination. I do not resile from the above statement. However, I do consider that it is perhaps somewhat too general in its application. I still maintain that the role of this office is not to protect owners from themselves, against a third party. The body corporate is an entity capable of incurring liabilities and obligations in the form of contracts and the like. It remains my view that is not the role of Adjudicators to invalidate resolutions which subsequently might prove onerous or less advantageous then expected for a body corporate. To this extent, a body corporate is an entity responsible for the consequences of its actions.

However, where there is evidence of discrimination or unreasonableness to an owner implicit in the resolution then this office might contemplate the invalidation of a resolution of the body corporate.
In the previous decision I went on to state:

this will not include the invalidation of an agreement for the reason that an owner considers that an insufficient rent is provided for in the agreement.

I now consider that there might well be circumstances where an insufficient rent, without mitigating or other factors, might be reason alone for invalidation of an agreement. For example, where a valuable parcel of common property in a scheme is leased for a commercial purpose (eg the foyer of a building leased for a restaurant or coffee shop) for a rental evidenced to be less then might ordinarily be achievable for the area. It will require a consideration of all the circumstances pertaining to the lease. The issue of the rent alone will not necessarily be determinative of the issue. Aside from the question of rent, one must also consider potential or real benefits (if any) which accrue to the body corporate from the granting of the lease.

The solicitors for the lessee have stated:

We submit that the current situation is no different from the granting of an occupation authority to an on-site caretaker or letting agent.

The solicitor then makes the point that the granting of the occupation authority might be "for no consideration whatsoever". This is correct; caretakers and letting agents for a building are often provided with an area of commmon property, usually on the ground floor of the building adjacent to their lot, for the purposes of conducting their contracted functions. Rental is not usually paid for such area.

The solicitor then argues other benefits accruing from the granting of the lease including:

1. The area in question does not provide an obstruction;
2. The lessee has been responsible for all costs of construction of the improvements, and for that matter will be for removal;
3. The solicitor alleges that "all of the lots are used for temporary accommodation" and given this, the location of an office on the premises is "reasonable and appropriate";
4. The lessee is also engage by the body corporate "to caretake the property".

The body corporate committee, via its solicitors, has also made submission on the application for final orders. The solicitor makes the point that the leased area is "only a very small part of the common property" namely 10-11m2 out of a total common property area of 1093m2. With respect, the second figure is not correct. The area of 1093m2 is the "area of base parcel". This includes lot 1 and the 7 garages located on the ground floor. When these are deducted, the remaining common property area is approximately 813m2. Notwithstanding this however, the leased area remains only some 1.35% of common property.

On the issue of discrimination, the body corporate committee’s submission states that the demountable building is available for use by all owners and occupiers in the scheme and that, "whether they choose to do so is a matter entirely from them".

In her reply to submissions, the applicant states:

... the body corproate has allowed the lessee to lease the part of the common area for $12 per year. Not only is this uncommercial but it also means that any lot owner who does not engage the lessee as its letting agent does not receive any benefit from the lease.

I consider that the applicant’s submission on this aspect fails to acknowledge certain facts. Increasingly these days, most buildings offer some form of on-site letting service. I understand that in the current scheme, all lots are held for investment and currently are leased. Presumably the office has been erected in its location as there was no suitable area of common property available on the ground floor of the scheme for such an office to be located. The plan certainly suggest that the ground floor contains no common property within the building envelope and is given over totally to lot 1 and 7 garages. This being so, any office of this nature would presumably need to be external to the building envelope.

The applicant alleges that the body corporate does not receive a commercial rent. However, nor did the body corporate contribution any amount to the construction cost of the office. What would the applicant’s attitude have been if the body corporate resolved itself to fund the construction of improvements on the common property in the nature of the office in fact erected. That is, rather than grant the lease, and have the lessee responsible for construction costs, the body corporate might have resolved to construct the improvements, at its cost. On the figures provided, this would have resulted in a liability to each owner of approximately $10000. Whilst this is not how the body corporate chose to proceed in this instance, technically, there was nothing preventing them from have done so. A body corporate is entitled to make improvements to the common property.

In my view, the applicant does receive benefits from the location of the office on common property. These benefits include the caretaking of common property, and a potential of a letting agent service for her lot. The fact that the applicant does not use the lessee as her letting agent denies certain facts. The applicant might at any time sell her lot, the potential buyer might be attracted by the fact of an "on-site" letting agent, and choose to use the services of the same. I further agree that the applicant is similarly able to avail herself of the letting agent service offered at any time.

The applicant further alleges that the body corporate has engaged in a business activity that extends beyond that necessary for the carrying out of its functions. I do not consider the leasing of part of the common property a business activity. Moreover, the fact that a business activity is conducted from premises leased by the body corporate does not render the body corporate in breach of section 96. If it were so, then any body corporate which leased premises to a business operator would be in breach of the legislation.
Section 96 was not intended to conternance this situation. Rather, the legislation contemplates explicitly the lease or licence of part of the common property.

Finally, the applicant alleges "the aesthetic appeal of the premises has been reduced and the attractiveness of the units as places to let and buy has been severely lessened". As evidence of this the applicant refers to alleged statements "heard from tourists and locals in the area". Excepting heresay, the applicant provides no actual evidence in support of her statement. For example, statutory declarations of the "tourists and locals" or expert evidence of valuers or even real estate agents to support her contention of lessened value. What is clear however is that 6 of 7 owners do not perceive these detriments to have occurred. In fact, their evidence is to the contrary. That the erection of the office and the granting of the lease has improved or enhanced the value of their lots.

In all the circumstances, and for the above reasons, I consider this application to be without merit. The application is dismissed.