Raffles Royale [2007] QBCCMCmr 160 (16 March 2007)

Last Updated: 21 March 2007

REFERENCE: 1008-2006

ORDER OF AN ADJUDICATOR

MADE UNDER PART 9 OF CHAPTER 6

BODY CORPORATE AND COMMUNITY MANAGEMENT ACT 1997

Number of Scheme:	2046
Name of Scheme:	Raffles Royale
Address of Scheme:	69 Ferny Avenue SURFERS PARADISE QLD 4217

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

John Molier, the Owner(s) of lot 2

I hereby order that the body corporate must not add any claimed recovery costs to amounts payable by the owner of lot 2 pursuant to contribution notices under section 94 of the Body Corporate and Community Management (Accommodation Module) Regulation. This does not, however, prevent the body corporate seeking a court order for payment of recovery costs where it can establish to the court’s satisfaction that those costs are reasonable. I further order that the application is otherwise dismissed.

STATEMENT OF ADJUDICATOR’S REASONS FOR DECISION - REF 1008-2006

"Raffles Royale" CTS 2046

Application

Raffles Royale Community Titles Scheme (Raffles) is a 53 lot scheme under the Body Corporate and Community Management Act 1997 (Act) and the Act’s Accommodation Module Regulation (Accommodation Module).

This application is by John Molier, owner of lot 2 (applicant) seeking orders against the body corporate for Raffles (respondent). The applicant disputes the amounts claimed in the body corporate’s levy contribution notices.

Submissions

The applicant’s main submissions were to the effect that:

• On purchasing the lot the applicant’s solicitor failed to obtain a body corporate information certificate so the applicant was unaware that the seller was $5,836.40 in arrears;
• The body corporate had not taken any action to recover levies arrears from the previous owners of his lot for at least two years but unreasonably started aggressively taking action against the applicant to recover these arrears, interest and recovery costs;
• The applicant is taking action against his former solicitor to recover the costs but the body corporate has refused to wait and has taken action against the applicant. The applicant had been faithfully making monthly levy payments but the cost of defending this action will make it harder to pay the levy

The body corporate’s main submissions were to the effect that:

• The applicant has admitted that neither he nor his solicitor performed a search of the body corporate records or obtained a section 206 disclosure statement before settlement. If this was done the applicant would have known there was an outstanding debt on the property of $5,812.20 at the time of purchase;
• A liability to pay the body corporate debt in relation to a lot is enforceable jointly and severally against the owner when the debt becomes payable and a person who becomes an owner before the debt is paid. The body corporate had taken action against the previous owner but without result at the time the applicant purchased the property; and
• The applicant has failed even to pay levies that have been struck since the applicant purchased the lot. The offer to pay $50 per month was rejected because this amount was not even sufficient to cover levies currently accruing in respect of the lot.

Other owners have also provided submissions. All submissions are available for the parties to inspect upon request and it is unnecessary for me to summarise these submissions here.

Decision

Applicable law

The legislation includes provisions to the effect that:

• If a contribution is not paid by the due date the body corporate may recover, as a debt, the contribution, any applicable penalty and any recovery costs reasonably incurred by the body corporate (Accommodation Module, 97(1));
• If a contribution has been outstanding for two years the body corporate must start proceedings to recover the amount (Accommodation Module, 97(2));
• A body corporate debt is a contribution, penalty, and other amounts related to ownership of a lot such as amounts agreed to be paid under an exclusive use by-law or for provision of services to the lot (Accommodation Module, definition "body corporate debt" );
• A liability to pay a body corporate debt is enforceable jointly and severally against the owner who accrued the debt and any subsequent owner (Accommodation Module, 97(3));
• The seller of a lot in a community titles scheme must give the buyer a statement and information sheet including details of the amount of annual contributions currently fixed for the lot (Act, 206);
• Within 7 days of a written request by an interested person the body corporate must allow a person to inspect the records and provide a body corporate information certificate in the approved form. This information certificate will contain details of any overdue contributions for the lot (Act, 205).

Recovery of unpaid contributions of previous owner

The applicant appears to concede that he is liable to pay any outstanding contributions of the previous owner (Accommodation Module, 97(3)). However, he disputes the amount claimed including interest and particularly the appropriateness of recovery costs.

Based on the definition of "body corporate debt" the applicant may well have an argument that he is not responsible for recovery costs accrued by the body corporate in respect of action taken against the previous owners and the body corporate may need to continue to pursue the previous owners if such amounts are to be recovered. However, this is a matter for the Magistrates Court to determine if the matter proceeds that far. I do not consider it appropriate to make any order in this respect as part of the present application.

Dispute of amount showed on current notice of contributions

While it is for the Magistrates Court to determine the amount of recovery costs properly payable by the applicant, the applicant has satisfied me that it is appropriate to make an order that any costs claimed by the body corporate must not be included in any future notices of contributions payable by the applicant. The body corporate may wish to separately inform an owner that it will be claiming a certain amount of recovery costs but cannot add these amounts to the notice of contributions or offset contributions paid by an owner against these claimed expenses.

The reason for making this order is that the costs of recovering unpaid contributions are recoverable by the body corporate in court only if the court is satisfied the costs were reasonably incurred (Accommodation Module, 97(1)). The committee cannot simply decide itself what costs should be payable and add those costs to the contribution statement of an owner. In particular, the by-law purporting to allow recovery of all costs or expenses (including legal costs calculated on a solicitor and own client basis) is not valid. The legislation specifically provides that a by-law is invalid if it is inconsistent with the Act or a regulation module (Act, 180(1)). Further, by-laws cannot impose a monetary liability on an owner or occupier except in respect of amounts payable under an exclusive use by-law (Act, 180(6)).

I will therefore order that the body corporate must not add any claimed recovery costs to any contribution notices. If the applicant does not owe any payments related to his exclusive use area or for specially contracted services and the body corporate has not resolved to fix penalties on late contributions then the notice of contributions should only include entries for the contributions themselves (Accommodation Module, 94).

This of course does not prevent the body corporate continuing to seek interest and any reasonable recovery costs pursuant to its debt recovery action before the Magistrates Court. However, the body corporate committee would be mistaken if they consider that this provision allows them to simply turn over debt recovery to a body corporate manager, a lawyer or another party and expect to be able to ultimately recover any debt recovery fees from the debtor. Rather, the committee needs to closely monitor all costs associated with recovering contributions from lot owners to ensure that the costs are reasonably incurred. The body corporate must then be able to satisfy the court that the costs were reasonably incurred. It may therefore be prudent to ensure any owner has received warning of the possible incurring of debt recovery costs before those costs start to accrue and that any accrued costs are proportional to amounts outstanding.

Order

For the reasons above, I will order that the body corporate must not add any claimed recovery costs to amounts claimed from the applicant in the notice of contributions.

Ultimately the question of what recovery costs are reasonably incurred and what interest is payable is a question for the Magistrates Court. However, I would encourage the parties to consider the provisions of the legislation outlined above and to endeavour to come to some reasonable settlement to avoid additional costs being incurred.

Finally, I accept that the applicant has provided justification for his claim that he is an innocent party in that his solicitor should have requested information that would have shown the contributions of the previous owners were in arrears. However, even if the applicant’s financial circumstances are dire it does not appear reasonable to expect the body corporate to accept an offer to pay only $50 a month when new levies are presently accruing faster than that rate. If the applicant cannot afford to at least pay contributions that have accrued since settlement and endeavour to make at least some small ongoing payment towards the contributions that were already in arrears then the applicant may wish to seriously consider whether his personal circumstances would improve if he sold the lot.