M1 [2007] QBCCMCmr 245 (30 April 2007)

Last Updated: 22 May 2007

REFERENCE: 1081-2006

ORDER OF AN ADJUDICATOR

MADE UNDER PART 9 OF CHAPTER 6

BODY CORPORATE AND COMMUNITY MANAGEMENT ACT 1997

Number of Scheme:	34814
Name of Scheme:	M1
Address of Scheme:	1-7 Durporth Avenue MAROOCHYDORE QLD 4558

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

Metro Resorts Management

I hereby order that the application for declaratory orders that: 1. Mr Davis has conducted a letting agent business for the Scheme while a member of the Committee in contravention of section 11(2) of the Module. 2. Mr Davis is ineligible to be on the Committee while he conducts a letting agent business for the scheme due to section 11(2) of the Module. Is dismissed.

STATEMENT OF ADJUDICATOR’S REASONS FOR DECISION - REF 1081-2006

"M1" CTS 34814

APPLICATION

By application dated 21 December 2006 the applicant sought both Interim and Final Orders.

The Final Order sought is a declaration that:

1. Mr Davis has conducted a letting agent business for the Scheme while a member of the Committee in contravention of section 11(2) of the Module.
2. Mr Davis is ineligible to be on the Committee while he conducts a letting agent business for the scheme due to section 11(2) of the Module.

Previously an Interim Order sought was that Pending the final determination of this matter, Mr. Davis stand down as a member of the Committee. On 6 February I declined to make such an Interim Order having regard to the balance of convenience to the parties and the need to conduct more detailed investigations including consideration of submissions by lot owners.

The applicant, who is the Caretaking Service Contractor and Letting Agent for the scheme pursuant to a Caretaking and Letting Agreements dated 23 December 2005, believes the Chairman of the Body Corporate Committee, Mr. Grant Davis, is conducting a letting business as defined in section 16(2) of the Act and is therefore not eligible to be a member of the committee having regard to section 11(2) of the Body Corporate and Community Management (Accommodation Module) Regulation 1997.

THE SCHEME

M1 is a 77 lot scheme located at 1-7 Duporth Ave. Maroochydore and operating under the Body Corporate and Community Management (Accommodation Module) Regulation 1997.

BACKGROUND
The applicant states that on 4 December 2006 she informed a committee meeting that Mr. Davis was conducting a letting business as defined in section 16(2) of the Act and was therefore ineligible for committee membership. This allegation was denied by Mr. Davis and the position of the body corporate was confirmed in a letter from the body corporate manager for the scheme dated 5 December 2006 which states

You will be aware that Mr. Davis denied the allegation and subsequently the Body Corporate committee resolved to accept Mr. Davis’s denial of the allegation and explanation of the issues involved. Accordingly the committee further resolved not to declare Mr. Davis ineligible for committee membership as would be required under section 11(2)(c ) of the Body Corporate and Community Management (Accommodation Module) Regulation 1997.

It is submitted that the difference of opinion as to whether Mr. Davis is conducting a letting agent business, and is therefore ineligible to be a member of the committee, evidences a dispute for the purposes of the Dispute Resolution provisions contained in Chapter 6 of the Act.






The relevant statutory provisions are set out below.

Section 11 of the Body Corporate and Community Management (Accommodation Module) Regulation 1997 provides as follows:
(1) A person is eligible to be a voting member of the committee if the person is an individual nominated for membership of the committee by a member of the body corporate (the
nominating entity) and is also--
(a) a member of the body corporate; or
(b) a person of a following category--
(i) if the nominating entity is an individual--
(A) a member of the individual’s family; or
(B) a person acting under the authority of a power of attorney given by the individual;
(ii) if the nominating entity is a corporation a director, secretary or other nominee;
(iii) if the nominating entity is the body corporate for a subsidiary scheme in a layered arrangement of community titles schemes--a representative of the subsidiary scheme.
(2) However, a person who is otherwise eligible under subsection
(1) to be a voting member of the committee is not eligible to be a voting member of the committee if the person is--
(a) a body corporate manager, service contractor or letting agent; or
(b) an associate of a body corporate manager, service contractor or letting agent, other than a lot owner who is the associate of a letting agent only because the letting agent, in conducting the agent’s letting agent business, acts for the lot owner; or
(c) a person, other than a letting agent for the scheme, who conducts a letting agent business for the scheme.

Section 16(2) of the Act defines "letting agent business" and "letting agent" as follows:
(1) A person is a letting agent for a community titles scheme if the person is authorised by the body corporate to conduct a letting agent business for the scheme.
(2) A person conducts a letting agent business for a community titles scheme if the person conducts, subject to the Property Agents and Motor Dealers Act 2000, the business of acting as
the agent of owners of lots included in the scheme who choose to use the person’s services for securing, negotiating or enforcing (including collecting rents or tariffs for) leases or other occupancies of lots included in the scheme.

In support of the allegation that Mr. Davis is conducting a letting business as defined above, and therefore disqualified from committee membership under section 11(2) of the accommodation Module regulation, the following evidentiary material has been submitted:

• An application for a residential tenancy dated 21 July 2006 noting that the lessor is Graavis Property Solutions (GPS);
• ASIC search showing Graavis Property Solutions is owned by Graavis Marketing Pty. Ltd. of which Mr. Davis is the sole shareholder and director;
• Email communications which indicate that Mr. Davis, was acting on behalf of GPS;
• An advertisement for lot 1007/ 1-7 Duporth Ave. Maroochydore listed by GPS;
• The tenants of units 703 and 705 have advised the applicant that their tenancies were arranged by Mr. Davis after they responded to internet advertisements which referred to Mr Davis from GPS as the contact person;
• A search of the GPS website confirmed that a unit in the building was being let by Mr Davis of GPS.

The applicant submits that the above material demonstrates that Mr Davis is retained as an agent to secure occupancies for lot owners and is therefore not eligible to be a voting member of the committee.




SUBMISSIONS
Pursuant to section 243 of the Act, this office sought further submissions in respect of the application for Final Orders.

The committee again stated that it did not wish to make a formal submission, but confirmed its strong support for Mr. Davis.

The owner of lot 308 made the following submissions which contained an explanation of his dealings with Mr. Davies:

• he listed his property for sale with Mr. Davis in December 2005 and subsequently had little success in letting the unit. However in about September he took the property off the Market and Mr Davis suggested he would find a permanent tenant for the unit rather than having to rely on holiday lettings;
• Mr Davis advertised the property on his website free of charge and the tenant pays her rent directly to the lot owner without making any payment to Mr. Davis;
• He subsequently acted as solicitor for Mr. Davis when he purchased lot 301 and when he negotiated the purchase there was discussion as to whether he would run a real estate sales business from lot 301 which has an office attached to it;
• It was agreed that Mr Davis would be permitted to sell units in the scheme but would not be entitled to rent for commission any units in M1;
• Although Mr Davis has assisted clients who purchased units in M1, he has not charged commission for arranging rental of units

Mr. Davis made the following submissions:

-	Graavis Property Solutions (GPS) does not conduct property management services but only conducts property sales;
-	GPS has not received any property management fees and there are no tenancy agreements in place to support the applicant’s case;
-	When M1 was first occupied in December 2005, there were 35 apartments for sale with 13 owners planning to move in and around 20 apartments available for rental;
-	he assisted the original manager, Jenny Roberts with advertising apartments for lease and in cases where he sold apartments that the owners preferred to manage themselves, he assisted the owners via enquiries directed to him;
-	Ms Roberts was subsequently replaced be Ms Jan Morton of the applicant who showed little interest in assisting purchasers to find tenants and therefore Mr Davis assisted his purchasers to find tenants but without taking commission;
-	the application dated 21 July 2006, which referred to GPS as the "lessor" was filled in by the tenants and faxed to GPS for forwarding to the new owners to whom he had recently sold the unit. The new owners manage the unit themselves but the application was sent via GPS as the new owners did not have a fax machine. In support of the submission, Mr. Davis has forwarded Email communications with the lot owner;
-	lot 308 is listed for sale by a friend who manages the rental himself but has provided him with a key. He showed the unit to a prospective tenant as he lives in the complex while the owner lives some 30 minutes away;
-	In relation to lots 1007 and 703, he is the listing agent for the sale of the properties but also assisted the applicant by advertising that the property was available for rent and forwarding any replies to the applicant;
-	He is the listing agent for the sale of lot 703 and still has the key to the premises. He sourced a tenant for the premises but due to Ms Morton’s failure to prepare lease documents within a reasonable time, the prospective tenant elsewhere much to the annoyance of the purchaser;
-	He has never dealt with the owner or tenants of lot 705;
-	He has never dealt with the tenant of lot 1007 which was let by Ms Morton;
-	The advert for lot 1002 relates to his own investment unit.

In response, solicitors for the applicants made the following comments:

-	Mr Davis was acting on behalf of the owners by organising tenants, completing paperwork and acting as a contact for tenants;
-	Although Mr Davis submits that he does not receive any property management fees and acts altruistically by assisting persons who purchase units through GPS to obtain tenants, it is submitted that Mr Davis is receiving a non-financial gain or reward as a result of letting apartments;
-	it is submitted that the definition of the words "reward" or "gain" are therefore not restricted to a financial payment or advantage and could be future gain or reward, the promise of additional patronage or generating goodwill. The Chairman is accruing credit with scheme owners as a result of the free letting service and also gaining access to potential buyers;
-	The purpose of section 11 (2) of the Standard Module Regulation is to ensure that a body corporate manager, service contractor or letting agent are not voting members of the committee as impartiality would be difficult to maintain if there was any sort of business interest at stake;
-	Reference is made to ATO Taxation Ruling 93/D26 which states that the scope of profit and gain is very broadly defined and reference is made to Re Arthur Average Assoc. (1875) 10 Ch App in which Jessell MR stated "gain is something to be obtained or acquired. It is not limited to pecuniary gain. Commercial profits, no doubt are gain, but I cannot find anything limiting gain to simply a commercial profit".
-	The Chairman operates a real estate sales business from his lot and it is evident, particularly in respect of lots 402 and 203, that he provides letting and administrative services. It is submitted that by providing letting and associated administrative services from lot 301 in the scheme;
-	The Chairman is also in breach of by-law 4.2 which provides:

Subject to town planning requirements each lot owner other than lot 201 must not be used for operating a business which involves or includes provision of letting or administration services to other lots in the scheme.

JURISDICTION

As this is a dispute between a lot owner and the body corporate, it is a dispute which may be resolved under the dispute resolution provisions of the Act. 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)).
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)).





DETERMINATION

It is appropriate to begin this determination with a consideration of the relevant statutory positions
including Subsection 11(2) of the Body Corporate and Community Management (Accommodation Module) Regulation 1997 which provides as follows :

(2) However, a person who is otherwise eligible under subsection
(1) to be a voting member of the committee is not eligible to be a voting member of the committee if the person is--
(a) a body corporate manager, service contractor or letting agent; or
(b) an associate of a body corporate manager, service contractor or letting agent, other than a lot owner who is the associate of a letting agent only because the letting agent, in conducting the agent’s letting agent business, acts for the lot owner; or
(c) a person, other than a letting agent for the scheme, who conducts a letting agent business for the scheme.

Section 16(2) of the Act defines "letting agent" and "letting agent business" as follows:
(1) A person is a letting agent for a community titles scheme if the person is authorised by the body corporate to conduct a letting agent business for the scheme.
(2) A person conducts a letting agent business for a community titles scheme if the person conducts, subject to the Property Agents and Motor Dealers Act 2000, the business of acting as
the agent of owners of lots included in the scheme who choose to use the person’s services for securing, negotiating or enforcing (including collecting rents or tariffs for) leases or other occupancies of lots included in the scheme.

It is clear that the respondent is not a "letting agent" as defined above because a "letting agent" is a person authorised by the body corporate to conduct a letting agent business for the scheme.

Accordingly, the next matter for consideration is whether Mr Davis is a person, other than a letting agent for the scheme, who conducts a letting agent business for the scheme.

I note that paragraph 11(2)(c ) above, was inserted by section 10 of the Body Corporate and Community Management Legislation Amendment Regulation (No.1) 2003 (SL No.263 of 2003).

The explanatory notes accompanying the Regulation state "In some schemes it occurs that there is a person who is a member of the body corporate and, having a full real estate licence, conducts a letting business for a number of lots in the scheme without the need for a letting authorisation from the body corporate. Such persons are also not eligible to be elected to the committee"

Section 128 of the Property Agents and Motor Dealers Act 2000 refers to what a real estate agent’s licence authorises and provides as follows:
(1) A real estate agent’s licence authorises the holder of the licence (real estate agent) to perform the following activities as an agent for others for reward--
(a) to buy, sell, exchange, or let places of residence or land or interests in places of residence or land;
(b) to buy, sell, exchange, or let businesses or interests in businesses;
(c) to collect rents;
(d) to buy, sell or exchange livestock or an interest in livestock;
(e) to negotiate for the buying, selling, exchanging, or letting of something mentioned in paragraph (a) or (b);
(f) to negotiate for the buying, selling or exchanging of something mentioned in paragraph (d).

Relevantly, Schedule 2 of the Property Agents and Motor Dealers Act 2000 includes the following definitions:

"reward" includes remuneration of any kind including, for example, any fee, commission or gain.
In my view the purpose of paragraph 11(2)(c ) of the Body Corporate and Community Management (Accommodation Module) Regulation 1997 the Act is to disqualify a person from being a voting member of the committee where that person is engaged in the business of letting regulated by the Property Agents and Motor Dealers Act 2000 i.e. they let places of residence for reward. While I note the applicant’s argument that the terms "reward" or "gain" are not necessarily restricted to a financial payment or advantage, in this instance the term "reward" is specifically defined in the legislation as remuneration of any kind including, for example, any fee, commission or gain. As a matter of statutory interpretation I believe this means pecuniary gain only.

This is in contrast to the position at common law where there is authority, including
Re Arthur Average Association for British, Foreign and Colonial Ships. (1875) 10 Ch App, for the proposition that that the terms profit and gain can encompass more than pecuniary gain. The Arthur Average Association was an unincorporated association which operated as a marine insurer. Under the rules of the association, shipowners paid an annual premium into the common fund from which any members’ claims would be paid i.e. payments would only be paid to individual members in the event of loss of damage to their ship. For the purposes of that case, it was decided that members obtained a benefit even though it did not involve a direct pecuniary gain but rather a benefit paid on the happening of a certain contingency. Similarly in ATO Taxation Ruling 93/D26 it was considered that payment of education expenses by a friendly society on behalf of a member or their nominee, could be regarded as a benefit or gain by an individual member.

However, having regard to the statutory provisions outlined above, I believe paragraph 11(2)(c ) is restricted in its application to situations where a person lets units for pecuniary gain.

A final matter for consideration is the effect of by-law 4.2 which provides:

Subject to town planning requirements each lot owner other than lot 201 must not be used for operating a business which involves or includes provision of letting or administration services to other lots in the scheme

In my view the scope of the prohibition in this by-law is wider than the prohibition contained in section 11(2) of the Accommodation Module regulation and may provide a basis upon which action could be taken against Mr Davis. However, such action must be taken in accordance with section 185 of the Act before bringing the matter before an adjudicator and accordingly I do not propose to make any order in this regard.