Raintrees Townhouses [2006] QBCCMCmr 77 (20 February 2006)

Last Updated: 19 December 2006

Office of the Commissioner for Body Corporate and Community Management SPECIALIST ADJUDICATION (Adjustment of Lot Entitlements) Number: 0860-2005

Applicants: GREGORY CAULFIELD



Respondent: BODY CORPORATE FOR RAINTREES TOWNHOUSES

COMMUNITY TITLES SCHEME 9802

O R D E R
20 February 2006

ORDER that the contribution schedule lot entitlements in community title scheme 9802 be adjusted so that they are equal, with an aggregate of 39.

G F Bugden
Specialist Adjudicator

Office of the Commissioner for Body Corporate and
Community Management

SPECIALIST ADJUDICATION
(Adjustment of Lot Entitlements)

Number: 0860-2005

Applicants: GREGORY CAULFIELD



Respondent: BODY CORPORATE FOR RAINTREES TOWNHOUSES

COMMUNITY TITLES SCHEME 9802

DETERMINATION
20 February 2006

The Application

1. This is an application under section 48 of the Body Corporate and Community Management Act 1997 ("Act") for adjustment of the contribution schedule lot entitlements in community titles scheme 9802 ("Scheme"). The body corporate is automatically the respondent as a consequence of the operation of section 48(2)(a) of the Act. No lot owners have elected to be joined as respondents.
2. The application has been referred to me for specialist adjudication as required by section 265 of the Act.

The Scheme

3. The Scheme is situated at 1 Bryce Street, Moffat Beach and was originally registered under the Building Units and Group Titles Act 1980 and then transitioned to the Act. The current interest schedule lot entitlements and contribution schedule lot entitlements were taken from the lot entitlements allocated at the time of registration under the 1980 Act.
4. The Scheme building has been constructed over 6 levels, with some lots being all on one level while others are located over 2 levels. The bottom level is a basement that contains exclusive use car parking for all lots, other than lot 1. Lot 1 has exclusive use rights over a stand alone car port on the second level. A number of lots have exclusive use rights over adjoining courtyards. The terms of the grants of exclusive use over the car port, parking spaces and courtyards make the benefiting lot owners responsible for repairs and maintenance. Because the car port is an original structure, aspects of its maintenance remain the responsibility of the body corporate despite the terms of its exclusive use by-law.
5. There are 39 lots in the Scheme and they are either townhouses or units and vary from 2 to 3 bedrooms. Twelve lots have contribution schedule lot entitlements of 2 and the remaining 27 have contribution schedule lot entitlements of 3, the aggregate being 105. The common property includes 2 swimming pools, spa and barbecue areas including pool facilities, all of which are landscaped and illuminated with electric lighting.

The law

6. In previous determinations I have set out the relevant law in detail (see for example Wainwright & Anor v. Body corporate for Noosa Quays community titles scheme 5468 (No 0789-2005) decided by me earlier on 20 February 2006). In summary, section 48(4)(a) of the Act requires my decision to be consistent with the principle in section 48(5). That principle is that the respective contribution schedule 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. Section 49 of the Act then sets out the criteria for deciding what is just and equitable.
7. Upon a reading of section 48(5) one may get the impression that a whole range of matters may be taken into account by a specialist adjudicator or the District Court when deciding what is just and equitable. However, 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 range of matters that can 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."

8. 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.

Evidence

9. I have before me a report from Leary & Partners Pty Ltd with an amended date of 29 November 2005 ("Leary Report"). The author of the Leary Report has undertaken a thorough analysis of the administrative and sinking fund expenses of the body corporate on a "line by line" basis and allocated those expenses among the lots in proportion to the extent that those lots draw on the respective expenses. The various methods of allocation are:

• Equally (which accounts for the vast majority of the items)
• A calculated quantity per lot (e.g. the actual length of balcony railing that is located within a particular lot)
• Area of the unit (e.g. to allocate roof related expenses).

10. In a summary table in the Leary Report these allocated costs are totaled for each lot and then expressed as a percentage of the total expenditure. That percentage is then rounded to arrive at a proposed new contribution schedule lot entitlement. The result is a proposed contribution schedule lot entitlement ranging from 25 to 27 per lot and an aggregate of 999. This approach is in conformity with current practice for these types of applications and it is necessary to undertake this exercise to determine the "ultimate" fair application of contribution schedule lot entitlements. Furthermore, I have no difficulty with the methodology adopted in that report.
11. However, as I have said in prior applications, I do not accept that any adjustment of contribution schedule lot entitlements should always follow the allocations arrived at as a result of that type of analysis.
12. 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. To my mind that is the key question that has to be determined in respect of this application.
13. In Deltaline Properties Pty Ltd v. Body corporate for Surfers Hawaiian community titles scheme 5682 (No 0296/2003) decided by me on 27 November 2003 I said at paragraphs 42-44 of my determination:

"42. I expect that in the case of virtually every community titles scheme an argument can be mounted that it is fair and equitable for the contribution schedule lot entitlements not to be equal. For example, in the case of a 4 unit walk-up building with 2 units on the ground floor and 2 units on the first floor:

• The carpet on the stairs is not used by the 2 ground floor units
• The 2 ground floor units do not dirty the walls of the stairwell above the ground floor
• The external walls of the top floor units are more expensive to paint than the walls of the ground floor units because of the need for scaffolding.

I think it could hardly be said that the legislature intended that the contribution schedule lot entitlements should not be equal in the case of such a scheme. If it did intend that, then it would not have started with the proposition that the respective contribution schedule lot entitlements should be equal. It would have most likely started with a proposition along the lines that the entitlements should be allocated in accordance with certain principles unless it is fair and equitable that they should be equal. Furthermore, the explanatory notes to the Bill for the Amending Act would not have been worded in the way they were.

43. At one end of the spectrum we have the 4 unit walk-up scheme of the type I have just described and towards the other end we have much more complex schemes, such as the Scheme the subject of this application. The question is where does the legislature intend the line to be drawn, below which the entitlements should be left equal and above which they should depart from the equality principle?

44. In my opinion, that line is likely to be higher rather than lower. To be otherwise would mean that a large number of community title schemes in Queensland would be faced with the prospect of having their contribution lot entitlement schedules adjusted at substantial expense to the schemes and the community generally. I think this view is supported by:

(a) the changes to the Act introduced by the Amending Act and as explained in the Explanatory Notes to the Bill for that Act; and
(b) the wording of section 48(5)."

14. In the case of this Scheme the highest total expense allocated in the Leary Report to a lot was $4,352.33 while the lowest total expense allocated was $3,900.35, a difference of $451.98. Expressed as a percentage, the highest allocation was 2.73% while the lowest was 2.45%, a difference of 0.28%. That means, assuming the body corporate expenses track exactly as projected in the various tables of the Leary report and ignoring some of the assumptions made in the report which may or may not be correct, in the most extreme case one lot will pay $451.98 more in a year than another lot, or 0.28% more. For many lots the difference is much smaller.
15. The question is where you draw the line. It seems clear to me that, having regard to the legislature’s clear bias in favor of equality, the line must be drawn above the 0.28% mark unless there are other factors that lead to a different conclusion.
16. That now brings me to this question of "other factors". These are essentially:

• How the Scheme is structured
• The nature, features and characteristics of the lots included in the Scheme
• The purposes for which the lots are used
• The desirability or otherwise of having equal voting entitlements on a poll (which are fixed with reference to the contribution schedule lot entitlements).

To my mind, none of these factors are relevant to the Scheme.
17. All this leads me to the conclusion that the Scheme should have equal contribution schedule lot entitlements. Relevantly, this would be consistent with the intention of the legislature as is apparent from the explanatory notes to amendments made to the Act by the Body Corporate and Community Management and Other Legislation Amendment Act 2003 (being amendments to reinforce the concept of equality of contribution schedule lot entitlements).
18. In dealing with amendments to the current section 46 (i.e. the old section 44 before the sections were re-numbered) the notes 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 recognize 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.
For example it is not uncommon for a developer to assign a high contribution schedule lot entitlement to a small lot in comparison to that for a larger lot in the scheme. The contribution should not be based on lot size or value. The developer must consider all the factors included in section 44."

19. Example 3 is particularly relevant. It suggests:

•	In the absence of significant difference (e.g. a private swimming pool and private lift) the entitlement for a penthouse would generally be the same as the entitlements for the other residential units in the building, even small ones. In other words, size of the unit in itself is not the deciding factor. (This is confirmed by the two last sentences in the above quotation.)
•	Even if the entitlement for a penthouse is different, the entitlements for the other lots would be expected to be equal, notwithstanding they are of different size and value

Findings

20. My finding are that:

(a) the applicant is the registered owner of lot 16 in the Scheme and, as such, is entitled to bring this application;
(b) the contribution schedule lot entitlements in the Scheme are not equal and are not just and equitable within the meaning of the Act;
(c) in considering the allocation of contribution schedule lot entitlements in the Scheme, there are no special matters that need to be taken into account in relation to voting rights attaching to the lots in the Scheme;
(d) there is nothing about the structure of the Scheme, the way lots are used or the nature, features and characteristics of the lots that should be taken into account when allocating the contribution schedule lot entitlements for this particular Scheme; and
(e) in the case of the Scheme the contribution schedule lot entitlements should be equal.

21. I propose to make an order accordingly. No order will be made as to costs.

G F Bugden

Specialist Adjudicator