No. 10 [2008] QBCCMCmr 97 (14 March 2008)

Last Updated: 21 April 2008

REFERENCE: 1005-2007

ORDER OF AN ADJUDICATOR

MADE UNDER PART 9 OF CHAPTER 6

BODY CORPORATE AND COMMUNITY MANAGEMENT ACT 1997

Number of Scheme:	13941
Name of Scheme:	No. 10
Address of Scheme:	10 First Avenue BROADBEACH QLD 4218

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

Imogene Connell, the Owner of Lot 1

I hereby order that - (1) Carol Robinson of Strata and Body Corporate Services (PO Box 6365, Gold Coast Mail Centre, Qld 9726) is appointed as administrator to call, hold and chair an annual general meeting (“the meeting”) of the Body Corporate for No. 10 within three (3) months of the date of this order. (2) The administrator shall hold the appointment for the period beginning from the date of this order until of the close of the meeting ordered. I further order that the meeting shall be deemed to be the annual general meeting of the scheme for 2008 and, unless otherwise provided for in this order, shall be called and held in accordance with the Body Corporate and Community Management Act 1997and the Body Corporate and Community Management (Standard Module) Regulation 1997 (‘Standard Module’). I further order that – (1) For the purpose of calling, holding and chairing the meeting, the administrator shall have all the powers of the chairperson, secretary and treasurer of the body corporate, and of the committee, with the exception of the following powers - to further delegate any of those powers to another person; or to incur any expenditure apart from that necessary for the calling and holding of the meeting, except in regard to expenses that must necessarily be met and are capable of being authorised and incurred by a committee under the legislation. (2) The administrator must give at least fourteen (14) days written notice inviting owners to submit motions for inclusion on the agenda of the meeting and nominations for committee. (3) The administrator must not give the notice of meeting to owners earlier than twenty-one (21) days from the date of this order. (4) The purpose of the meeting shall be the consideration of motions included on the agenda, including those motions required by section 45(3) of the Standard Module, any other motion validly submitted, and the election of a Committee. I further order that the administrator’s fees and outgoings for this appointment are to be paid by the Body Corporate for No. 10. I further order that for the purposes of determining the future financial year of the Body Corporate for No. 10, the end of the month preceding the month in which the meeting is held shall be deemed to be the end of the financial year.

STATEMENT OF ADJUDICATOR’S REASONS FOR DECISION - REF 1005-2007

“No. 10” CTS 13941

The No. 10 community titles scheme (No. 10) consists of four lots and common property. The community management statement (CMS) for No. 10 indicates that the Body Corporate and Community Management (Standard Module) Regulation 1997 (Standard Module) applies to the scheme. Department of Natural Resources and Water records show the scheme is registered as Building Units Plan 1162.

APPLICATION

Pursuant to the Body Corporate and Community Management Act 1997 (Act), this application was made by Imogene Connell, Owner of Lot 1 (applicant) on 18 December 2007. The applicant sought orders against Jeff Conen, Owner of Lots 3 and 4 (respondent) in the following terms:

To seek an order that an administrator be appointed to call and hold a general meeting of 10 First Avenue Broadbeach Body Corporate.

We would like to nominate Carol Robinson of Strata and Body Corporate Services to the role of administrator to call and convene the first Annual General meeting of 10 First Avenue for the period of time necessary to contact all owners with the notice of an AGM and items to be included on the agenda and to preside over the first AGM at their offices.

PROCEDURAL MATTERS

Under section 243 of the Act, a copy of the application was provided to the respondent and the owner of Lot 2 (the respondent’s sister, Mary Cooper), with an invitation to respond to the matters raised by the application. A submission was made by the respondent and his sister. The applicant inspected the submissions received and made a written reply.[1]

A dispute resolution recommendation was made referring the dispute to departmental adjudication.

MATTERS IN DISPUTE

The application relates to the administration of the Body Corporate and the appointment of an administrator to convene an Annual General Meeting (AGM). The facts of the dispute, as outlined in the application, submission and reply to submissions, can be summarised as follows.

This four lot scheme was built by the respondent and registered in 1974. The four lots are tenanted. Since 2000 the management of the applicant’s lot has been undertaken by her children, who lodged this application on their mother’s behalf. They claim that since then they have received no notification of any AGMs or committee meetings and have not received any appropriate financial reports or receipts for levies.

The application notes that:

• The respondent is their point of contact with the Body Corporate for various issues, which from the material provided has primarily been maintenance issues;
• Levy notices are issued by the secretary, Irene Marshall, who is paid by the Body Corporate;
• Requests for financial reports have resulted only in the provision of one bank statement covering the period 1-29 June 2001 and four photocopied pages apparently of a handwritten ledger with a summary of expenses for the 1999-2000 and 2000-2001 financial years.
  

The application also points to a comment of the respondent in a letter dated 8 December 2006 which says “You will be aware that as I control 78% of the unit entitlements the holdings of meetings and outcomes are merely a formality.” The applicant comments that this is not only incorrect but is not conducive to cordial meetings capable of resolving management issues.

The application includes a notice dated 12 September 2007 for an extraordinary general meeting (EGM), to be held on 3 October 2007. The applicant’s representatives wrote to the respondent on 25 September advising concerns with “...major constitutional and procedural anomalies in the management...” of the Body Corporate. In particular they noted that:

• There is no elected committee and so the calling of the EGM could not be authorised;
• The proposed EGM did not comply with the legislative requirements for notice, agenda setting, quorum, proxy voting, chairing, motions and voting requirements; and
• The requirements for administrative and sinking funds, budgets and statements of accounts have not been met.
  

It seems the EGM did not proceed. On 30 November 2007 the respondent’s solicitor wrote acknowledging that it was “strictly necessary” to apply to the Commissioner’s Office to appoint an administrator to call an AGM to “regularise body corporate issues” but seeking agreement to call an AGM without Commissioner’s Office involvement. That was declined and this application lodged. The applicant proposes the appointment of Carol Robinson of Strata and Body Corporate Services, at a cost of $120 per hour plus printing, postage and stationary, to convene an AGM.

The submission from the respondent and his sister (referring to themselves as the ‘de facto’ Body Corporate for 25 years) agrees to an administrator to call and hold a general meeting. They also agree to the appointment of Carol Robinson. They propose to include the motions from the proposed September 2007 EGM (covering garage repairs, use of units, water usage, other repairs, and contributions) on the AGM agenda.

The submission outlines some background, including information from the respondent’s solicitor indicating that the first AGM was held in June 1974, and so the scheme’s financial year ends on 30 June each year and AGMs must be held by 30 September each year. The submission also includes a range of concerns including:

• The original owners apparently agreed to have no sinking fund but to meet costs as they arose, but since 2001 their proposals for a sinking fund have been ignored or frustrated by the applicant’s representatives.
• By-law 1 requires each unit to be used for residential purposes, which means permanently or for a considerable time. While Lots 2, 3 and 4 have long term tenants, the occupiers of Lot 1 have changed on a monthly or even weekly basis.
• The occupiers of Lot 1 have blocked driveways, parked on the garden, left unregistered cars and rubbish on common property, damaged common property, and run a business on common property. Complaints have been ignored by the Lot 1 property manager and owner and met with abuse from the occupants of Lot 1.
• Water usage is assessed and charged by the local council on unit entitlements, with Lot 1 paying 22% of water used. Given that the four occupants of Lots 2-4 are regularly absent, there are up to eight occupants of Lot 1 who use some 66% of water, and that gardens are watered from a spear pump, this is considered ‘intolerable’.
• The applicant is chronically late in paying levies.
• Irene Marshall is not the scheme secretary and has no management involvement, but is responsible only for the collection of levies, banking and payment of insurance.
• Financial information is “...only a phone call away.”
  

In reply the applicant makes the following comments:

• Claims of Lot 1 occupancy are disputed. They say tenants have always signed a residential lease of at least six months through a registered real estate agent. They say the current lease, which began in October 2006, allows only three tenants as there are three bedrooms.
• Lot 1’s levies are up to date. They have never received a receipt for levies paid.
• They did not ignore any sinking fund proposal. The respondent’s correspondence merely mentioned the need to commence a sinking fund “...in the not too distant future”. They expected that a general meeting would be called when professional estimates for proposed work would be tabled for discussion. Rather, in December 2006 the respondent sent a letter saying the sinking fund would be $50,000.
• Water usage is assessed and charged according to the local council regulations.
• They understood from the 2001 bank statement that Irene Marshall was the secretary.
• They want the Body Corporate to be administered in accordance with the legislation, with an elected committee and a body corporate manager, so that AGMs are held with proper notice and an administrative and sinking fund with a 10 year plan for anticipated works.
  

JURISDICTION

I am satisfied that this is a matter which falls within the legislative dispute resolution provisions.[2]

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 claimed or anticipated contravention of the Act or the CMS; or the exercise of rights or powers, or the performance of duties, under the Act or the CMS; or a claimed or anticipated contractual matter about the engagement of a person as a body corporate manager or service contractor; or the authorisation of a person as a letting agent.

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

The sole issue to determine in this application is the appointment of an administrator. However various other matters have been raised in the material and to assist the owners in moving forward in the management of the scheme I will provide some information and comment on those matters.

Appointment of an administrator

The Body Corporate legislation includes detailed (and at times complex) requirements for the operation of community titles schemes, to protect the rights and interests of all owners. The legislative requirements are not optional and cannot be adopted only if and when they are convenient to owners. Regardless of expectations of the likely result of a meeting, AGMs must be held annually and legislative procedures for those meetings must be followed. Minor procedural failings that do not have any adverse impact on the outcome of a meeting will not usually invalidate a meeting. But in this case it seems clear that the Body Corporate is operating without a validly elected Committee and so there is no one who is legally authorised to call a meeting.

Having said this, I have no evidence that the failure to comply with legislative requirements was necessarily intentional. It may well be that the respondent acted in good faith and in a genuine effort to operate the scheme. Notwithstanding that, the legislative requirements must be followed.

In the circumstances I consider it is appropriate to appoint an independent professional to get the scheme back on a proper legal footing. All owners agree on the need for this and to the identity of the administrator. The meeting will be the AGM for 2008 and will include a new Committee election. The meeting will include all those statutory motions required for an AGM, along with any other motions that any owner wishes to submit. If the applicant wishes to propose the appointment of a body corporate manager on a longer term basis to assist with the administration of the scheme she should submit a motion with quotes to the AGM to that effect.

Financial management

Pursuant to section 100 of the Standard Module, the Body Corporate is required to have an administrative fund and a sinking fund. Under section 94 of the Standard Module, budgets for these funds must be adopted by ordinary resolution for each financial year. Section 94A allows for these budgets to be adjusted at the AGM, if the change is not more than 10% more or less that the proposed budget. Under section 95 the Body Corporate must, by ordinary resolution, set contributions based on the agreed budgets.

There is no scope for owners to set budgets or contributions outside a general meeting. While the respondent may have raised the issue of a sinking fund, there is no evidence that he or any other owner made any attempt to submit a proper sinking fund budget to a general meeting for approval.

The administrative fund budget must comprise estimates of the ‘necessary and reasonable’ spending to cover general maintenance, insurance and recurrent spending. The sinking fund budget is required to raise a reasonable amount to cover capital or non-recurrent expenditure for the current financial year and a proportionate amount of the following nine years, having taken into consideration anticipated expenditure and the periodic replacement of major capital items.

The sinking fund budget reflects an estimate of when it is likely that work will be required during the ten year period to ensure that funds are set aside to cover those works. The inclusion of an item of work in the sinking fund budget does not automatically approve expenditure on that work and, when it falls due, quotes and approval for the work should be obtained as necessary. Moreover, owners may agree that work, although scheduled on the forecast, is not yet necessary.[3] Alternatively, if expenditure requirements are later identified that were not included in the list of budgeted works, a special levy would need to be raised for that additional work.[4]

Often schemes will obtain a sinking fund forecast prepared by a quantity surveyor or other appropriate expert. While this is not mandatory, there must regardless be a clear basis for the amounts proposed in the sinking fund budget. Rather than simply nominating a total ballpark figure to be collected, each item of work must be clearly itemised with some reasonable basis for the estimated cost of the item and when over the following 10 years it is expected to fall due. Once the budget has been determined, contributions must be set so that the necessary funds to complete the following 10 years worth of work are accumulated over the intervening years.

The Body Corporate must keep proper accounting records and prepare a statement of accounts for each financial year (on either a cash or accrual basis), showing the income and expenditure of the Body Corporate for that year. The statement of account must accompany the notice of the AGM held after the financial year for which the accounts are prepared.[5] These statements and all other financial records can be accessed by any owner within seven days of them making a written request and paying the prescribed fee.[6]

Maintenance responsibilities

I note that Motion 1 on the proposed 2007 EGM suggests that the costs of repairs to garages are to be borne “...by each space on a quantum basis.” It is unclear whether these garages are part of the car spaces which have been granted to each lot under the exclusive use By-law 42.

It would not be appropriate for me to make any determination in regard to this issue, and so I have not investigated the circumstances further. But owners should consider whether this work is part of the Body Corporate’s responsibilities or not. Under section 120 of the Standard Module a lot owner must maintain their lot in good condition, except those parts of the lot that are the body corporate’s responsibility. Section 109 requires the Body Corporate to maintain common property, with additional responsibilities in a BUP as follows:

109 Duties of body corporate about common property—Act, s 152

(1) The body corporate must maintain common property in good condition, including, to the extent that common property is structural in nature, in a structurally sound condition.

(2) To the extent that lots included in the scheme are created under a building format plan of subdivision, the body corporate must—

(a) maintain in good condition—

(i) railings, parapets and balustrades on (whether precisely, or for all practical purposes) the boundary of a lot and common property; and

(ii) doors, windows and associated fittings situated in a boundary wall separating a lot from common property; and

(iii) roofing membranes that are not common property but that provide protection for lots or common property; and

(b) maintain the following elements of scheme land that are not common property in a structurally sound condition—

(i) foundation structures;

(ii) roofing structures providing protection;

(iii) essential supporting framework, including load-bearing walls.

(3) Despite anything in subsections (1) and (2)—

(a) the body corporate is not responsible for maintaining fixtures or fittings installed by the occupier of a lot if they were installed for the occupier’s own benefit; and

(b) the owner of the lot is responsible for maintaining utility infrastructure, including utility infrastructure situated on common property, in good order and condition, to the extent that the utility infrastructure—

(i) relates only to supplying utility services to a particular lot; and

(ii) is 1 of the following types—

• hot-water systems

• washing machines

• clothes dryers

• another device providing a utility service to a lot.

Examples for subsection (3)(b)—

1. An airconditioning plant is installed on the common property, but relates only to supplying utility services to a particular lot. The owner of the lot would be responsible for maintaining the airconditioning equipment.

2. A hot-water system is installed on the common property, but supplies water only to a particular lot. The owner of the lot would be responsible for maintaining the hot-water system and the associated pipes and wiring.

(c) the owner of the lot is responsible for maintaining the tray of a shower that services the lot, whether or not the tray forms part of the lot.

(4) To avoid doubt, it is declared that, despite an obligation the body corporate may have under subsection (2) to maintain a part of a lot in good condition or in a structurally sound condition, the body corporate may recover the prescribed costs, as a debt, from a person (whether or not the owner of the lot) whose actions cause or contribute to damage or deterioration of the part of the lot.

(5) In this section – “prescribed costs” means the proportion of the reasonable cost to the body corporate of carrying out the maintenance that can, in the body corporate’s reasonably opinion, be fairly attributed to the person’s action.

Under a BUP the lot boundaries are defined on the survey plan by the structural elements of a building, including the floors, walls and ceilings. Where a lot is separated from another lot or common property by a floor, wall or ceiling, the boundary is the centre of the floor, wall or ceiling.[7]

The Body Corporate’s responsibility for common property can be displaced by an exclusive use by-law. Section 123 of the Standard Module provides that, unless the exclusive use by-law provides to the contrary, the lot owner who has exclusive use rights is responsible for the maintenance of that part of the common property. However section 123(3) requires the Body Corporate in a BUP to retain responsibility for keeping roofing membranes in good condition and keeping foundation and roofing structures and essential supporting framework in structurally sound condition.

Where work is the responsibility for maintenance, the Body Corporate must pay for the repairs. Accordingly, owners will contribute to the cost of those repairs, as part of their levies, on the basis of their contribution schedule lot entitlements.

To the extent that any work is the Body Corporate’s responsibilities it must be paid for by the Body Corporate and the cost will be met through levies. However if the work is the responsibility of owners, owners are entitled to be given the opportunity pursue the work themselves. If an owner does not carry out its obligation to undertake necessary maintenance work, the Body Corporate may carry out the work and recover the ‘reasonable cost of carrying out the work’ from the owner as a debt.[8] Alternatively, if owners would like the Body Corporate to organise or engage contractors to undertake maintenance on its behalf, the Body Corporate may do so but only by agreement with each owner who benefits from the supply of the service and on the basis that each owner is charges the costs reasonably necessary to reimburse the Body Corporate for the service.

Use of lots

The respondent has suggested that the duration of tenancies in the applicant’s lot is contrary to By-law 1 which states that each unit shall be used for residential purposes only. Because the history of the by-law applying to the scheme is confusing I will clarify the current by-laws.

No. 10 was originally registered on 25 February 1974 under the Building Units Titles Act 1965 (BUTA), which has since been repealed. Following the commencement of the current Act, a CMS for the scheme was registered on 15 July 2000. While this recording of a CMS was ‘automatic’ for pre-1997 schemes, the previous by-laws remained in place as they were not specifically changed.

Pursuant to section 13 of BUTA, the former by-laws applying to this scheme were those contained in the First and Second Schedule of BUTA. When the now superseded Building Units and Group Titles Act 1980 (BUGTA) commenced, section 5(10) of the transitional provisions provided that the former by-laws of a body corporate continued together with any of the default by-laws in BUGTA’s Schedule 3 that were not inconsistent with the former by-laws.

Under section 180(1) of the current Act, a by-law is invalid to the extent that it is inconsistent with the provisions of the Act or the relevant regulation module. Accordingly, the BUTA First Schedule is largely superseded by the provisions of the current Act and regulations. The Second Schedule provides by-laws that a proprietor shall not use his unit for any purpose which may be illegal or injurious to the reputation of the building; make undue noise in or about any unit or common property; or keep any animals on his unit or the common property after notice from the council.

In addition, in September 1974 the Body Corporate recorded a further by-law, being By-law 42 which established designated car parking exclusive use car spaces for the lots.

In summary, to the extent that they are not inconsistent with the current Act, Standard Module or any other legislation, the by-laws currently applying to No. 10 are:

(1) The First and Second Schedules of BUTA;
(2) By-law 42; and
(3) Any BUGTA Schedule 3 by-laws that are not inconsistent with 1 and 2 above.

Across these three sources of by-laws I can find no reference to the by-law referred to by the respondent. Moreover, even if such a by-law did exist (and I cannot find that it does) I am of the view that it would not act to restrict the duration of tenancies in lots.

Section 180(3) of the Act prevents restrictions on the type of residential use of a lot that can be used for residential purposes, and section 180(4) prevents restrictions on dealings with lots, which includes leasing. To the extent that lots in a scheme can be lawfully used for residential purposes, the legislation does not qualify the term ‘residential purposes’ in section 180(3) and so I am satisfied that it encompasses any residential use including short term letting. Several previous have overturned attempts to restrict the type of use of residential lots[9], and some have specifically determined that restrictions on short term letting or leases of less than a specific duration are contrary to section 180 of the Act.[10]

If the respondent has any valid concerns regarding the conduct of tenants in Lot 1 I would suggest he raise them with the applicant’s representatives first. If they are unable to be resolved, the legislation sets out formal processes for pursuing alleged breaches of the Body Corporate by-laws. The Commissioner’s Office produces a fact sheet on by-laws which explains this process.

Water charges

The legislation provides specific options for the measurement and charging of utility services such as water.[11] These are that:

• the water service provider (in this case the local council) may charge lot owners directly according to individual metered usage, where lots are individually metered and meet the requirements of the water service provider; or
• the body corporate may accept payment of total scheme usage and levy owners:
  • - according to individually measured usage; or
  • - if the supply cannot be measured, equally between lot owners or proportionately among the lot owners, according to the contribution schedule lot entitlement for each lot; or
• the water service provider may charge lot owners on the basis of the property values; or
• the water service provider may charge owners in proportion to the contribution schedule lot entitlements for their lot.
  

While the respondent may consider that the current apportionment of water charges is inequitable and does not reflect actual usage, the Body Corporate cannot simply create an alternative formula for calculating water charges based on estimates of the number of occupants of the lots or any other criteria not provided for in the Act. If the Body Corporate wishes to accurately charge each lot on the basis of usage it should consider passing a resolution to install individual water meters.

Moreover, if the Body Corporate were to pass a resolution to alter the apportionment of water charges to some other means provided for under the Act, my preliminary view is that it would not be reasonable to backdate those charges, as proposed in Motion 3 on the proposed EGM agenda.

Conclusion

The parties all agree with the appointment of an administrator to convene an AGM and the identity of that administrator. I agree that this appointment is necessary to get the body corporate back on a proper legal footing and to enable the concerns of all owners to be progressed.

To assist the Body Corporate in moving forward with its financial planning, I have also made an order setting the financial year for the scheme.

I would encourage all owners to utilise the resources of the Information Services of the Commissioner’s Office (including the published fact sheets, freecall telephone inquiry service, and the online training) to better inform themselves of their rights and responsibilities under the legislation, and the administrative procedures which the Body Corporate must follow.[12]

All owners should also be aware when considering motions at a general meeting that, pursuant to section 94(2) of the Act, the Body Corporate must act reasonably in anything that it does, including in making or not making a decision. This means that a majority could potentially be overturned by an adjudicator if it is determined that the passing of a resolution, or the failure to pass a resolution, was manifestly unreasonable in all the circumstances. Similarly, the Body Corporate cannot vote to avoid its obligations under the legislation.

---

[1] See sections 246 and 244 of the Act respectively
[2] See sections 227, 228, 276 and Schedule 5 of the Act

[3] Although it should be noted that if maintenance work is necessary, and is the responsibility of the Body Corporate, owners cannot defer its maintenance obligations and choose not to undertake the work because of competing financial obligations.

[4] Under section 95(2) of the Standard Module a special contribution can be levied “if a liability arises for which no provision, or inadequate provision, has been made in the budget”.
[5] Section 105 of the Standard Module

[6] Section 205 of the Act. Under section 151 of the Standard Module the prescribed fee is currently $11.40 to inspect the records and 50c a page for copies.
[7] Sections 48C and 49C(4) of the Land Title Act 1994
[8] Section 121 of the Standard Module

[9] See for example: The Anchorage Apartments [2006] QBCCMCmr 619 (24 November 2006), Holiday North [2005] QBCCMCmr 666 (29 November 2005), Trinity Circle [2005] QBCCMCmr 581 (20 October 2005), and San Remo [2003] QBCCMCmr 141 (30 September 2003)

[10] Bridgeport Apartments [2007] QBCCMCmr 520 (30 August 2007), Liberty [2007] QBCCMCmr 333 (1 June 2007), Kings Row South [2006] QBCCMCmr 12 (6 January 2006) and Sainte Maxime [2005] QBCCMCmr 631 (14 November 2005)

[11] See sections 194 to 196 of the Act
[12] See www.bccm.qld.gov.au or freecall 1800 060 118