Surfers Mayfair [2008] QBCCMCmr 20 (21 January 2008)

Last Updated: 1 March 2008

REFERENCE: 0798-2007

ORDER OF AN ADJUDICATOR

MADE UNDER PART 9 OF CHAPTER 6

BODY CORPORATE AND COMMUNITY MANAGEMENT ACT 1997

Number of Scheme:	5294
Name of Scheme:	Surfers Mayfair
Address of Scheme:	19 Riverview Parade SURFERS PARADISE QLD 4217

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

Jonathan & Kim Jeffrey & Jaynee Investments Pty Ltd, the former caretakers and former owners of lot 1

I hereby order that the application, for a declaration that the body corporate is not entitled to require the payment of a transfer fee on the sale of the applicants' management rights, is dismissed.

STATEMENT OF ADJUDICATOR’S REASONS FOR DECISION - REF 0798-2007

“Surfers Mayfair” CTS 5294

Application

Surfers Mayfair Community Titles Scheme (Surfers Mayfair) is a 50 lot scheme under the Body Corporate and Community Management Act 1997 (Act) and the Act’s Accommodation Module Regulation (Accommodation Module). This module is commonly adopted by schemes in which most owners rent out the units for holiday or other accommodation.

This application was lodged by Jonathan & Kim Jeffrey (first applicants) and Jaynee Investments Pty Ltd (second applicant). The application is against the body corporate (respondent) and challenges a decision of the body corporate to impose a transfer fee on the applicants' sale of their management rights to another party.

Decision

Jurisdiction

At the time the application was lodged the applicants were the owners of lot 1 and the holder of the management rights for Surfers Mayfair. The dispute was therefore within jurisdiction for determination by an adjudicator as being between the body corporate and an owner, and the body corporate and a caretaking service contractor about an alleged improper exercise of a right by the body corporate (Act 227, 228).

The applicants have sold their lot and management rights and no longer hold the requisite connection with Surfers Mayfair. However, the application was lodged prior to this sale and can therefore properly continue within this jurisdiction (Act, 239).

Investigation and Submissions

Submissions

The main grounds in support of the application, provided on behalf of the applicants, were to the effect that:

• Section 83 of the Accommodation Module only allows the body corporate to impose a transfer fee if the transfer is not more than three years after the date on which the engagement or authorisation was entered into or on which the term of the engagement or authorisation was extended;
• The transfer was more than three years after the engagement an authorisation was entered into;
• A Deed of Variation dated 17 July 2007 had granted the applicants an option to extend the term. However, this option may or may not be exercised and as such is not an extension of the term; and
• It is therefore unlawful in the circumstances for the body corporate to impose a transfer fee.
  

The body corporate manager provided submissions on behalf of the body corporate. The main submissions were to the effect that:

• The applicants acquired their management rights in or about February 2002. The relevant agreements had been granted to the previous managers on 16 May 2000 for a term of ten years with an option of ten years and a transfer fee had been applied to the outgoing managers at the time;
• The applicants had told the committee in 2007 that they had no intention of selling their business in the foreseeable future but had sought an extension of the term to meet their banker's requirements. This extension was granted by resolution on 22 May 2007. It is suspected that the applicants advertised their business for sale either before or soon after this date and the contract of sale was signed on 20 July 2007;
• On 18 September 2007 the applicants circulated a letter to committee members requesting the transfer fee be waived or reduced to 1% of the sale price on the basis the applicants had been good managers. There was no suggestion that the body corporate did not have a legal right to apply the transfer fee;
• The applicants' sole remaining contention is that the applicability of a transfer fee to a transfer shortly after "the term of the engagement or authorisation was extended" does not apply to the grant of an additional option but only when "that option is actually exercised". However, this is contrary to previous adjudications and the definition of "unexpired term" in the module. It would also result in an absurd conclusion that the body corporate would have the right, upon the exercise of an option perhaps many years into the future, to look to the former manager for the transfer fee.
  

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.

Further enquires

The above submissions dealt satisfactorily with the issues raised. It was therefore unnecessary for me to carry out any further investigation of the application.^[1]

Issues for determination

Applicable law

The legislation provides that the body corporate may only require payment of the legislated percentage of the sale price of management rights "if the date on which the body corporate approves the transfer is not more than 3 years after the date (the "contract date") on which the engagement or authorisation was entered into, or on which the term of the engagement or authorisation was extended." (Accommodation Module, 83(3)).

Summary of issues

The issues for determination can be summarised as follows:

1. Was the transfer within three years of the date of entry into the management rights?; or
2. Was the transfer within three years of an extension of the term of the management rights?

Time from date of entry into the management rights

There has been some controversy over whether the term "contract date" is intended to refer to the date the sellers of the management rights were first assigned the benefit of those agreements or to the date their predecessors originally entered into the first deeds of engagement and authorisation. In a recent decision the District Court has preferred the view that the term "contract date" refers to the date the original holder of the management rights entered into the management rights deeds rather than looking at when the actual seller first became involved, although it is not clear that the court was referred to any potential absurdity arising from section 83(6)(b) of the Accommodation Module in this respect.^[2]

In any event, it is common ground that both the date of creation of the original management rights and the date of assignment of those rights were more than three years before the transfer in question. Therefore, the body corporate has no right to impose a transfer fee based on the period between the entry into the management rights and the date the transfer was approved.

Time from extension of the term of the management rights

I have reviewed the parties' submissions and the Deed of Variation of the management rights dated 17 July 2007. I accept that, on 17 July 2007, the second applicant was given an option to extend the management rights for a further period of five years from 31 August 2020 to 30 August 2025. It is common ground that the body corporate's approval to the second applicant's transfer of its management rights occurred within a year of the grant of this option.

The body corporate contends that the date on which the body corporate granted the above option is a date "on which the term of the engagement or authorisation was extended" for the purposes of section 83(3) of the Accommodation Module. The applicants contend that there is no extension of the term unless or until the option is exercised and that the date at which the management rights are "extended" for the purposes of section 83(3) of the Accommodation Module is the date on which the option is exercised.

To determine which of the above arguments is correct, it is necessary for me determine the intention of the legislature by construing the words used in the section. Regard is to be had to the desirability of a provision being interpreted as having its ordinary meaning but regard can be made to explanatory notes and other relevant extrinsic material and an interpretation that will best achieve the purpose of the Act is to be preferred to any other interpretation (Acts Interpretation Act 14A, 14B).

Upon construing the words "the date on which the term ... was extended" according to their ordinary meaning, the arguments of the applicants and the body corporate both have some merit. If the "term" is construed narrowly as the present unexpired term then that term will not be extended unless both parties agree to an extension or one party exercises an option. However, if the "term" is construed broadly to include the period covered by any options then the term will be extended upon the grant of an additional option as occurred on 17 July 2007.

There are a number of reasons to prefer the broader interpretation of the word "term" to include the period covered by any options. Firstly, "unexpired term" is defined to include the term of any right or option of extension or renewal (Accommodation Module, 75B). It seems preferable to also give the word "term" in section 83 of the Accommodation Module this broader meaning even though the expression is not identical and is within a different division of the module (Acts Interpretation Act 32, 32AA). Secondly, imposing a fee on any transfer within three years of the grant of an additional option appears to better serve the purpose of the legislation with reference to statements in Parliament that "the concern that was expressed to me by unit owners was that in some cases in a very short period subsequent to the renewal of the management agreement, the unit manager has at times sold that asset—that is, the 10-year agreement or whatever period it is for—at a significant windfall profit and the body corporate, which renewed the agreement in good faith, is placed at a disadvantage. ... the intent is that, if an agreement is sold several times within short periods, perhaps in the first 12 months and then in the second to third years—and depending on the length of time the module allows for renewals, there may be additional extensions—and the manager receives a profit from that sale, the body corporate will be eligible to claim from the manager—the licensee—a return to go to the body corporate, and preferably to the sinking fund."^[3]. Including the option period as part of the "term" also avoids the absurdity referred to in the body corporate's submissions if the body corporate would have the right, upon the exercise of an option perhaps many years into the future, to look to the former manager for the transfer fee (especially where that former manager may well have been wound up or deceased).

Therefore, I conclude that the body corporate extended the term of the second applicant's management rights on the date the body corporate granted the second applicant an additional option. The second applicant sold within a year of this extension of their term. The body corporate is therefore authorised to impose a transfer fee at the maximum legislated rate.

Other matters

Submissions of the body corporate refer to a motion submitted by the first applicants shortly before they ceased being members of the body corporate seeking that the body corporate agree to refund the transfer fee to the applicants. It is submitted that it is just and equitable in the circumstances to order that the body corporate need not consider this motion at its next general meeting. However, as a matter of discretion, I do not see any need to interfere with the normal legislative processes in this respect. The matter can proceed to a vote by owners in the normal course. If even one existing owner supports the refund of the transfer fee to the former caretakers then that owner would have a legislative right to put the motion forward for consideration by all owners. However, whether the motion is passed or lost is a matter for the majority vote of owners.

Submissions of the body corporate also seek costs on the basis the application is frivolous, vexatious, misconceived or without substance (Act, 270(3)). However, the position of the applicants was at least arguable and I am not satisfied the application was so misconceived or without substance that it is appropriate to dismiss the application on the basis was is frivolous, vexatious, misconceived or without substance

Order

The application is dismissed due to the conclusion above that the grant to the holders of the management rights of an option amounted to an extension of the term of the management rights for the purposes of section 83 of the Accommodation Module.

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^[1] Hablethwaite & Anor v Andrijevic & Ors [2005] QCA 336, Jerrard JJA, Keane JJA, Cullinane J, 9 September 2005 at paragraphs 31 and 17.
^[2] Aqua Vista Management Pty Ltd v Whitsunday Waters Resort Community Titles Scheme 24733 D130/2006 District Court (Southport), Dearden DCJ, 13 April 2007.
^[3] Hansard, 9 May 1997, page 1816 (Mrs Cunningham).