Palm Springs Residences [2007] QBCCMCmr 155 (15 March 2007)

Number of Scheme:	29467
Name of Scheme:	Palm Springs Residences
Address of Scheme:	1 Twenty First Avenue PALM BEACH QLD 4221

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

I hereby order that the application for an order

"the community management statement for Palm Springs Residences CTS 29467 be changed from the existing Accommodation Module to the Standard Module reflecting the correct regulation module for the scheme in accordance with BCCM Act 1997 section 21"

is dismissed.

STATEMENT OF ADJUDICATOR’S REASONS FOR DECISION - REF 0946-2006

"Palm Springs Residences" CTS 29467

APPLICATION

This is an application dated 16^th November 2006 and amended on 30^th November 2006 by Gregory Carroll (the Applicant) owner of Lot 701, against the body corporate for Palm Springs Residences (the body corporate) for an order that "the community management statement for Palm Springs Residences CTS 29467 be changed from the existing Accommodation Module to the Standard Module reflecting the correct regulation module for the scheme in accordance with BCCM Act 1997 section 21."

JURISDICTION

Palm Springs Residences Community Titles Scheme 29467 is a community tile scheme governed by the Body Corporate and Community Management Act 1997 (the Act) and the Body Corporate and Community Management (Accommodation Module) Regulation 1997 (Accommodation Module). There are 48 lots in the scheme created under a Building Format Plan of subdivision.

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

(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)).

SUBMISSIONS

The Applicant says that the outcome sought relates to Motion 17 of the annual general meeting (AGM) held on 15th September 2006. The motion, which was a motion from the committee, stated as follows –

Form BCCM 19 version 1 explaining the effect of the change in the regulation module was attached to the motion as required by the legislation.

The voting was 8 in favour, 6 against and 7 abstentions, and the motion was recorded as lost as the requirements of a special resolution had not been met.

The Applicant says that the committee’s submission was to the effect that the Accommodation Module should only apply to buildings where the lots are predominately accommodation lots. In the scheme, only 17 out of the 48 lots are "accommodation lots". The Applicant refers to a previously adjudicated matter reference 0527-2005 and states that "predominantly means 75% of the lots."

The Applicant refers to decision 0527-2005 which he supports. Section 3 Accommodation Module sets out the criteria for the Accommodation Module and he says that Palm Springs Residences do not meet that criteria.

Furthermore, the scheme was established, built and certified as a Class 2 building for use as long term or permanent residential accommodation. He refers to the Building Code of Australia which allows an exemption for provisions for people with disabilities in a Class 2 building because it is for private residential use and " not considered ‘general public’ applications." The scheme buildings have no access for persons with disabilities and the fire safety provisions are also those of a Class 2 building as required for permanent residential and not as for class 3 which is for "accommodation buildings." The building also fails to comply with the Disability Discrimination Act Premises Standards guidelines which require the common areas of a Class 2 building to be accessible to disabled persons if they are made available to the public for short-term rent.

He says, historically, when the original owner sold there were 15 "accommodation lots" in the scheme, and the Applicant contends that the sales literature promotes the scheme for residential use, by alluding to the facilities and amenities available to "residents." Despite this, the original owner registered the scheme under the Accommodation Module. He says –

This enabled the developer to maximise the return by selling a 25 year service contract.

His argument is that in a scheme where a minority of lots are "accommodation lots", the Accommodation Module should not be applied.

Following the AGM, the local authority, in answer to a query from the Applicant, advised him that the types of occupancy currently recorded by Council for the scheme were 17 as " tourist rental", 5 as "permanent rental", and that 26 lots were recorded as owner-occupied. This equates to accommodation lots taking up only 45.83% of the scheme. Neither at the time of registration, or now, can the scheme be described as being "predominantly" accommodation lots. He relies on section 21(3) Act which states -

"(3) A regulation module does not apply to a community titles scheme (scheme A), despite anything in the community management statement, if--

He concludes that the scheme should never have been registered as being governed by the Accommodation Module, and that the correct module would be the Body Corporate and Community Management (Standard Module) Regulation 1997.

Cheryl Finlayson of lot 703 supports the application, saying that the original registration "‘slipped through the government legislation radar’ and was therefore incorrect." She points out in addition to the Applicant’s argument that even the name "Palm Springs Residences" indicates that the building is a residential building.
The internal layout also supports ‘the intent of residential living’ since there is substantial storage capacity and lock up storage cages in the basement car-park areas.

John Reid (Mr Reid) of Unit 404 supports the application and says that the Act should be adhered to, and that order 0527-2005 supports the same viewpoint. He relies particularly on section 3(2)(b)(ii) Accommodation Module, and the intention of the original developer as borne out by the name of the scheme - "Palm Springs Residences."

Mavie Pearce (Mrs Pearce) of Lot 605 opposes the application. She says that this motion has been voted on at the AGM and that the Applicant and committee should accept the body corporate’s decision. She says the ratio of holiday rentals and permanent residents changes continually, and that they are not required to change the module. She believes that it would result in unnecessary expense. She points out that the AGM was held "in the proper manner and the votes correctly recorded."

Gwenyth Miles of lot 603 does not support the application. She says that the developer did not do anything unlawful in registering the scheme. The sales material does not warrant the view that the original owner of Palms Springs Residences intended that the use of the building was to be "predominantly residential." The existing module works perfectly well.

Phillip and Keran Metz of lot 602 state that they think the classification "Accommodation Module" was an error in the first instance which should be changed to" Standard Module."

The Applicant exercised his right of Reply. He points out that Mrs Pearce is selling her unit and therefore has scant interest in the outcome of this dispute. He also points out that at the time of the AGM he was not on the committee, but accepted a nomination from the floor to be chairperson at the end of the meeting.

DETERMINATION

In this matter, the argument is that the scheme should never have been registered under the Accommodation Module, since it does not now, nor did at the time when the original owner sold the lots, have a predominant number of lots as "accommodation lots." The Applicant wants the relevant regulating module changed to the Body Corporate and Community Management (Standard Regulation) Module 1997 since the Accommodation Module is not applicable.

An "Accommodation lot" is defined at section 3(3) Accommodation Module as follows -

Section 3(2) Accommodation Module is also referred to in detail by the Applicant, and I set it out below -

3(2) For this regulation to apply to a community titles scheme--
(a) the lots included in the scheme must be predominantly accommodation lots; or

The Applicant relies on an adjudicator’s decision 0527-2005 in which matter the adjudicator found that for the lots included in the scheme to be " predominantly accommodation lots" and satisfy section 3(2)(a) Accommodation Module, the "minimum number.... must be 75%... " The adjudicator’s reasoning in that matter was that because a special resolution is required to pass a motion to change a module, (a special resolution requiring that two thirds of those voting are in favour, but not more than 25% of all lot owners to be against the motion), it is only when 75% accommodation lots are in existence that a motion proposing a change from the Standard Module to the Accommodation Module, could be presented with any chance of success. This would best achieve the purpose of the Act in looking for a meaning to the word "predominately."

In that case, the adjudicator found that two elements must be satisfied before a scheme can be governed by the Accommodation Module, and that is that the scheme must satisfy the criteria of section 3 above, and secondly that the body corporate must decide to adopt the Accommodation Module. He emphasised -

(3) A regulation module does not apply to a community titles scheme (scheme A), despite anything in the community management statement, if--

(a) the regulation module states circumstances that must exist for a community titles scheme if the regulation module is to apply to the scheme; and

(a) the regulation module states that it is the regulation module that applies to a community titles scheme if no other regulation module applies to it; and

(b) no other regulation module applies to the scheme including, for example, because the community management statement for the scheme--

(i) fails to identify a regulation module as the regulation module applying to the scheme; or

(ii) identifies as the regulation module applying to the scheme a regulation module that, under subsection (3), does not apply to the scheme."

Adjudicators decisions do not create precedents and the 75% as a yardstick by which to demonstrate a "predominance" of lots is not an invariable rule. Whilst 75% certainly would demonstrate a predominance, in matter 0467-2006, another adjudicator explored other meanings of "predominantly".

".... One defines predominant at no less than 85% while the other provides that predominantly means over 50%. Within Australia, the Goods and Services Tax Act indicated that predominantly was in the vicinity of at least 70%.

My investigations of various applications of the term "predominantly" have also led me to appreciate the importance of considering predominance in terms of a span of time, rather than just a snap shot in time."

In this matter I do not have to decide the meaning of the word "predominantly" since by any interpretation, 45.83% (22 out of 48) of lots being "accommodation lots" is not a predominance of accommodation lots. There are no submissions to the effect that the scheme is in fact made up predominantly of "accommodation lots," and the Applicant’s figures are not disputed.

Section 3 Accommodation Module however, is an enabling provision for schemes who wish to take advantage of being governed by the Accommodation Module. For the Accommodation Module to be applicable to a scheme, the scheme must either consist predominately of accommodation lots; or have a first community management statement identifying the Accommodation Module as the governing module, because the lots in the scheme were " intended to be predominately accommodation lots"; or the lots used to be predominately accommodation lots but are no longer so, and the scheme has retained a community management statement identifying the scheme as governed by the Accommodation Module. The section enables a scheme to be governed by the Accommodation Module, and saves a scheme which no longer has a predominance of accommodation lots, from being required to change its governing module.

The Applicant’s argument requires that the negative case is put. He says that a scheme which has never and does not now, fit the criteria for being governed by the Accommodation Module, should now be registered under a different module, or "de-registered" under the Accommodation Module. This is to use Section 3 not as an enabling provision, but as a prohibitive section. That is, a scheme may not be registered under the Accommodation Module unless any of the provisions of section 3(2) apply. The Accommodation Module will not apply to this scheme despite anything in the community management statement, if the circumstances that must exist for the Accommodation Module do not exist. (Section 21 Act)

I need therefore to look at the criteria of section 3(2) to see if any of the circumstances exist.

Section 3(2)(a): It seems to be accepted and common knowledge that the lots are not, currently, predominantly "accommodation lots."

Section 3(2)(b)(ii): When the first community management statement was recorded under the Accommodation Module, were the lots in the scheme "intended to be predominantly accommodation lots"?

The Applicant relies in part on the name of the scheme "Palm Springs Residences." I am not persuaded that the word "residences" suggests any more than that the lots were to be living areas, as opposed to commercial areas. The word "residences" does not show an intention that the lots were to be used largely for owner-occupation or kept as vacant seaside homes. The words "resort" or "holiday apartments" might have had some weight for the opposite argument, but "residences" in my view, neither assists nor contradicts the Applicant’s point of view.

The Applicant next supplies an ‘executive summary’ showing that the lots were marketed with a "residential" focus, by which he means, "permanent residential" although nowhere in the executive summary is this mentioned. The summary refers to the concept of "privileged beachfront living" but says that the lots are "an astute purchase which will fulfil every expectation for a wide range of intending owners." The high quality of appliances and inclusions lend weight to the Applicant’s argument as does the facility of a residents’ hobby room. Both lend themselves more to owner –occupation than letting accommodation. The investment potential by letting is certainly not a prominent part of the promotional material.

The original owner was Palm Springs (Palm Beach) Pty Ltd who registered the scheme through its lawyers, specifying the Accommodation Module on the first community management statement, on 17^th July 2001. I cannot surmise what was in the mind of the developer but I must suppose that he intended to choose the Accommodation Module. It is not submitted that the module was chosen or entered by mistake. Indeed, the Applicant says that the developer was free to do so, so that he could seek a higher price for the sale of the management rights under a 25 year contract. Submitter Mrs Pearce agrees that the developer did nothing wrong in this, although the Applicant and Mr Read believe that there should have been some government watchdog enquiring into the owner’s bona fides or documents evidencing his intentions at the time.

What I must decide is whether the original owner intended that the lots were to be "predominantly accommodation lots" as defined, that is the lots were intended to be the subject of leases or letting for accommodation for long or short term residential purposes, or to be immediately available to be the subject of a lease or letting for accommodation for long or short term residential purposes.

Subjectively, the section is unhelpful in that surely whoever is lodging a community management statement bearing the words "Accommodation Module" is demonstrating his or her intention, at that time, that the lots in the scheme will be used as predominately accommodation lots, bar some error, error of judgment, carelessness or fraud. Looked at objectively however, would the ordinary right-minded person looking at the new lots, the advertising material, and the name of the scheme, conclude that "the lots in the scheme were intended to be predominantly accommodation lots"?

The Applicant also argues that the building has a Class 2 classification which is "for use as long term or permanent residential accommodation." In fact, a Class 2 building is simply described in the Building Code of Australia as "a building containing 2 or more sole occupancy units each being a separate dwelling." Class 3 is "a resident building, other than a class 1 or 2, which is common place of long term or transient living for a number of unrelated persons." Class 2 commonly covers "apartments, units and flats." Class 3 covers large boarding houses, guest houses, hostels, lodging houses, backpackers accommodation, a residential part of a hotel, a residential part of a school, a health care building or a care "home" for the aged, children, or persons with disabilities. It is the Class 3 buildings which were subject to changes in the Building Code of Australia to incorporate changes to the Disability Discrimination Act 1992 as amended.

That Palms Springs Residences is a Class 2 building does not advance the argument of the Applicant, as to whether the scheme meets the criteria in section 3 of the Accommodation Module, by evidencing the intention of the original owner, or objectively looking at the intention of the buildings. The Applicant has not demonstrated that buildings governed by the Accommodation Module must be, or are more likely to be, Class 3 buildings, or that they cannot be or are unlikely to be, Class 2 buildings.

I have looked also at material available to a lot owner on that day when the first community management statement was recorded. Schedule C to the first community management statement contained the by-laws. The by-laws were in existence at that time although not exercisable until recorded. By-Law 34 made provision for Lot 106 to be used "both for residential purposes and for the purposes of management/caretaking of the community title scheme and/or for the letting of lots in the Community Titles Scheme on behalf of the owners....." That by-law and also By-law 14.3 allowed the manager/caretaker to display lease or "for letting" signs within the Community Titles Scheme without the consent of the committee.

Such provisions show that a caretaker/letting agent was envisaged for the scheme, and it would be perhaps unusual if the caretaker/letting agent was not to be able to enjoy a decent-sized letting pool. Whether that demonstrates a ‘predominance’ of accommodation lots, however, is certainly arguable. Looking at the by-laws does not assist me in whether objectively it can be said, that the intention for the scheme was or was not to have a predominance of accommodation lots.

I have also looked at the Land Titles Registry in respect of sales in 2001. The scheme was registered by the Registrar at the request of the original owner on 17^th July 2001. On that date, there were of course no sales concluded although some lots were obviously under contract. The first settlements were on 26^th July 2001 (Lot 702) 27^th July 2001 (Lot 502) and 30^th July 2001 (Lot 603) and the next in August 2001 being Lots 102, 407, 602, 701 and 703.

Of the 28 sales concluded in 2001, only 12 of them appear to have paid stamp duty at the non-concessionary rate ie. the lot would not be a principal place of residence. (Lots 101, 203, 207, 401, 403, 407, 501, 503, 702, 704, 705 and 706.) This lends weight to the Applicant’s argument that objectively, more lot owners than not, viewed the lots as homes, although the sales are of course subsequent to the date "when the first community management statement (identifying the Accommodation Module) was recorded." However, prospective purchasers would have had access to the proposed community management statement, bearing the proposed regulation module, in the contractual paperwork, and made that choice.

Section 3(2)(c): There is no evidence that the lots have previously been, but are no longer, predominantly accommodation lots. I find that this section does not apply.

I conclude that there is no reason why this scheme should remain governed by the Accommodation Module but there is no lawful impediment to it remaining so until changed by the body corporate. It does not meet the criteria of section 3(2)(a) Accommodation Module, but I have no satisfactory evidence that supports that the intention of the original owner was misguided or plainly wrong in law at the time of the recording of the first community management statement, or that objectively viewed, the lots were not intended to be predominantly accommodation lots in July 2001, as required by section 3(b)(ii) Accommodation Module.

I have found this a difficult matter. The Applicant has put his case well and the conclusion he draws is sensible and fitting, that is, that the Standard Module would better reflect the way in which the scheme is currently operating. However, that conclusion is not supported by the legislation to the extent that the current circumstances are wrong in law and require interference by this Office, which would also have the effect of overturning a decision of the body corporate, a decision which has not been demonstrated as improper in any way.

I note that 7 owners abstained from voting and that only two more votes would have allowed the motion to be carried. Whilst it was the majority view, a special resolution requires that two thirds of those actually casting a vote, (an abstention not being a vote) vote "yes" and that there are less than 25% of all lots in the scheme (12) voting against. I also note that one of the owners, submitter Mrs Pearce who is against changing the module, is said to have recently sold her lot.

The Applicant and/or the committee might like to re-submit the motion to a general meeting in the subsequent financial year following 15^th September 2006. (Section 39(4) (a) Accommodation Module.)

^[1] For example, although the lots were offered for sale as accommodation lots, the buyers might have chosen not to use them as accommodation lots.

Queensland Body Corporate and Community Management Commissioner - Adjudicators Orders

Palm Springs Residences [2007] QBCCMCmr 155 (15 March 2007)