No. 10 [2009] QBCCMCmr 390 (12 October 2009)

Last Updated: 13 November 2009

REFERENCE: 0224-2009

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

Dean Das & Christine Connell on behalf of Imogene Connell, the Owner of lot 1

I hereby order that the application for the following order: That Motion 6 “Adoption of Sinking Fund and Fixing Contributions” and Motion 11 “Sinking Fund Forecast – J. Conen” be overturned and the independent sinking fund forecast prepared by registered quantity surveyors, Leary and Partners, commissioned under agreement with the Chairperson, Mr. Jeff Conen and paid for by Connell/ Das be adopted by the body corporate in place of the J. Conen Sinking Fund forecast. Is dismissed.

STATEMENT OF ADJUDICATOR’S REASONS FOR DECISION - REF 0224-2009

“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.

APPLICATION

Pursuant to the Body Corporate and Community Management Act 1997 (Act), this application was made on behalf of Imogene Connell, Owner of Lot 1 (applicant) on 18 December 2007. The applicant seeks the following order against the body corporate:

That Motion 6 “Adoption of Sinking Fund and Fixing Contributions”

and

Motion 11 “Sinking Fund Forecast – J. Conen”

be overturned and the independent sinking fund forecast prepared by registered quantity surveyors, Leary and Partners, commissioned under agreement with the Chairperson, Mr. Jeff Conen and paid for by Connell/ Das be adopted by the body corporate in place of the J. Conen Sinking Fund forecast.

BACKGROUND

The application is made on behalf of the owner of lot 1, Mrs. Connell who is of advanced years and has appointed Ms. Christine Connell & Mr. Dean Das as her attorney pursuant to an eduring power of attorney. (For the purposes of this order I have referred to Ms. Christine Connell & Mr. Dean Das as the applicants. Lots 3 & 4 in this scheme are owned by a Mr. Conen and lot 2 is owned by a Ms. Mary Cooper who is the sister of Mr. Conen.

On the 17th March 2008, a Notice of Adjudicator’s Order was issued following finalisation of a dispute resolution application. The adjudicator’s orders were as follows:

• That Carol Robinson of Strata and Body Corporate Services be appointed as administrator to call, hold and chair an annual general meeting (“the meeting”) of the Body Corporate for No. 10; and
• That the administrator would hold the appointment for the period beginning from the date of the order until of the close of the meeting ordered.
  

Subsequently, on 5 May 2008, Mr Conen produced a “General Power of Attorney” form signed by his sister, Mary Cooper authorising a Mr. Gordon Shadforth (a tenant of lot 4 owned by Mr Conen) “to act in all matters in relation to lot 2, No. 10 First Avenue Broadbeach, between lot 2 and the body corporate”.

On 12 June 2008 an AGM was held and chaired by Kyla Smith of Statewide Strata and it was resolved that Body Corporate Services be appointed as the Body Corporate Manager.
It was also resolved (3 –1) “that the body corporate adopt the 10 year Sinking Fund Forecast shown on page 4A of the pages numbered 3 to 7 as prepared by Mr. J Conens a Quantity Surveyor at no cost.”

The applicants state that although Mr. Conen purports to be a Quantity Surveyor, they arranged for a motion to the effect that “the body corporate appoint an independent Quantity surveyor, Leary & Partners, to inspect the property to determine and prioritise necessary work in order to establish a Sinking Fund Forecast”. However the vote upon this motion was lost.

Another motion titled “Adoption of Sinking Fund and Fixing of Contributions” based upon J. Conen’s sinking fund forecast “ was carried. This motion read as follows:
That the sinking fund budget for the Financial Year ending 31 May 2009 totalling $40,217 be adopted at the rate of $10,054.25 per lot entitlement with contributions levied by 4 instalments as follows:

Levy Period	$ Per lot entitlement	Due Date
1/6/08 to 31/8/08	2,513.57	1/8/08
1/9/08 to 30/11/08	2,513.56	1/10/08
1/12/08 to 28/2/09	2,513.56	1/12/09
1/3/09 to 31/05/09	2,513.56	1/3/09
	$10,054.25

And further that the Treasurer issue the first levy of the new financial year as follows:

1/6/09 to 30/8/09

1/6/09 to 30/08/09

$335.50

1/6/09

The applicants were of the view that; (1) the sinking fund forecast by Mr. Conen was not a true and accurate estimate of work to be done in the future; (2) that Mr. Conen’s forecast was motivated by self interest; (4) that there was a conflict of interest because the estimate was not prepared by an independent body and (5) that it did not comply with “professional accredited standards”. The applicants therefore persisted with their request to have Leary & Partners appointed as independent quantity surveyors.

In reply, Mr Conen stated that he would agree to the appointment of an independent quantity surveyor, but subject to the following 2 conditions:

• The chosen quantity surveyor must measure and price to the exact specification on which Mr Conen based the sinking fund forecast;
• Pricing is based on the best materials and best practice.
  

Subsequently, the applicants engaged Leary and Partners to prepare a sinking fund forecast and the report, dated 29/1/09 was forwarded to Ms. Kyla Smith of Statewide Strata.

The applicants are seeking an order that the Leary & Partners sinking fund forecast be accepted by the body corporate. They state that they do not have confidence in Mr. Conen’s accountability and that there is a “conflict of interest” because Mr Conen is the legal owner of 2 lots and the de-facto owner of a third lot. They believe that previously, Mr Conen has mismanaged funds, not employing registered tradesmen to carry out work and of paid himself to carry out body corporate work.

Further, the applicants point out that there is a considerable discrepancy regarding the level of contributions per lot per annum, between the sinking fund forecast as estimated by J Conen and that of Leary & Partners, which gives weight to their contention that the sinking fund forecast prepared by Mr. Conen is neither reasonable nor valid. The applicants believe that the sinking fund forecast prepared by J. Conen, involving contributions amounting to $10,054.28 per lot in the first year is excessive and the “estimates” for work to be done are not accurate due to calculations not being arrived at through “accepted professional

standards”. The applicants further state that Mr Conen is aware that Mrs. Connell, the owner of lot 1, is a 92 year old pensioner who cannot afford considerable outlays of monies over such a short period of time. They maintain that they have been active over a considerable period of time in attempting to ensure that the management of No. 10 First Avenue Broadbeach complies with the
Body Corporate and Community Management Act 1997. They believe that it is the best interests of all parties to adopt a professional and unbiased “Sinking Fund Forecast” from an independent Quantity Surveyor, rather than a “sinking fund forecast” from an “interested party” with whom they have been in conflict regarding the financial management of the property. They do not believe that the sinking fund forecast prepared by Mr Conen is an accurate and correct estimate and therefore the yearly contributions per lot, and the total financial outlay per lot, are unreasonable.

SUBMISSIONS

Pursuant to section 243 of the Act, a copy of the application was provided to the respondent body corporate and the owners of lots 2, 3 and 4 with an invitation to respond to the matters raised in the application. Submissions made on behalf of Messrs Conen and Shadforth included the following:

• Six broad allegations have been made which can be summarised as follows:
  1. the body corporate scheme has been mismanaged by Mr Conen;
  2. Mr Conen has a conflict of interest in regarding his participation in the management of the scheme;
  3. Mr Conen has been unaccountable in the manner that the scheme has been conducted;
  4. Mr Conen has been misappropriated body corporate monies;
  5. Mr Conen’s conduct has been predatory; and
  6. that an adjudicator’s order was needed in relation to the appointment of Ms Kyla Smith as the body corporate manager.
• However the key matter for consideration is whether the sinking fund forecast as established by the body corporate is inadequate in all the circumstances;
• Mr Conen holds a Bachelor of Building (Hons) degree from University of NSW, has been engaged in the building industry for in excess of 50 years and constructed the building some 35 years ago. As the building is 35 years old and located close to a beach, the natural ageing of the building has been hastened by the effects of atmospheric salt and corrosive forces. Mr Conen’s primary concerns in relation to the integrity of the building are:
  • (i) the degradation of a brick lintel over the east window of the lounge room to unit 4 which supports the widest roof span of the building; and
  • (ii) degradation of the trusses and aluminium roof to the building.
• Mr Conen has obtained an Engineer’s report from Laurie Oar & Associates which confirms that the brick lintel supporting the widest roof span of the building is starting to disintegrate, most likely due to corrosion expansion of the cavity reinforcement. It is considered that this presents a “high danger of bricks falling from the lintel”. The engineer recommends that the lintel be reconstructed using hot dip galvanized reinforcement. The engineer also recommends that the corroded aluminium roof cladding be replaced and that any degraded roof trusses be replaced. The applicant has not sought to reply to the matters of remediation that are of concern;
• The applicant has been aware of these matters since at least 26 July 2001 but the report from Leary & Partners does not address either of these matters directly or indirectly. Although the respondent has raised this matte with Leary & Partners, no reply has been received. The Leary report is based on a regular wear and tear basis for a building of this kind. As it does not address matters of remediation it is of limited or no value in determining a dispute in relation to establishing a sinking fund. Given the absence of particularisation and the assumptions upon which the report is based, it is submitted that the Leary report is of no utility to assist in determining the dispute;
• The dispute can only be properly determined when there is a response received from them in relation to whether these items of remediation are necessary and this would require a report from another engineer. The adjudicator is therefore in the untenable position of being requested to make a determination where the applicant has not set out her position on the key matters in dispute;
• The allegation of mismanagement is rejected by Mr Conen who states that he has issued only 4 invoices for maintenance of the building in the last 35 years. These invoices have been fully itemised and no receipts have ever been requested by the body corporate. The total amount of these 4 invoices, issued between 1999 and 2006 was $11,727.10 which it is submitted, is a meagre amount given the amount of work that he has provided over the last 35 years free of charge. The work referred to in the above invoices involved a total of 200 hours work but less than 25% of the time spent has been charged by Mr. Conen who has therefore foregone $7,900 in remuneration on the above invoices alone based on a modest rate of $50 per hour;
• In relation to the allegation that Mr Conen has not employed registered tradesmen, he states that only 6 people have undertaken work on the building since its construction, namely Mr Conen who holds a Bachelor of Building degree, Mr. Marshall a qualified consulting engineer; Mr. Gwalter, a licensed plumber; Mr Scott, a licensed painter; Mr Quast, a qualified horticulturalist; and Mr. Faux, a licensed electrician;
• While the applicants refer to a “conflict of interest” no “conflict” is actually identified. If the allegation is maintained it needs to be particularised and proved. There is no actual conflict between Mr Conen’s duties as a committee member and generally to the body corporate itself and his own personal interests. Rather, Mr Conen has acted in the best interests of the body corporate by ensuring that the building is properly maintained and ensuring that gardens and surrounds are neat and well kept so as to maximise the aesthetic virtues of the property;
• From 2001 until when the body corporate manager was appointed, the applicants have refused to countenance the creation of a sinking fund, and even though a sinking fund has now been created, they have refused to make contributions to the sinking fund. Further, the sinking fund forecast provided by the applicants does not address the fundamental issues of concern that confront the body corporate in the immediate future as far as remediation work to the building is concerned;
• Mr Conen has undertaken extensive uncompensated work in relation to maintenance and landscaping upkeep in and around the property since its construction 35 years ago but has only ever charged $1,680 over this entire time. This is 42 hours at $40 an hour, far below the market value of his labour, of which he and Mrs. Cooper paid 75%.
• The claim that Mr Conen has a long history of unaccountability is a bare allegation without substantiation and is denied. Previously all financial matters in relation to the body corporate were administered by a retired District Court Judge, Judge Amsberg until he passed away. The financial affairs were then administered by Mr. E Conen, a Chartered Accountant until he passed away. After that time, Ms Irene Marshall administered the financial affairs of the body corporate until the appointment of Ms. Smith as administrator in 2008. He has never handled or held body corporate funds at any time & until the appointment of Ms Smith, was unaware that the body corporate held an account with the Commonwealth Bank until the appointment of Ms Smith;
• Mr Conen was unaware of the age of the owner of lot 1 or the fact that she cannot afford payment of sinking fund levies within such a short period of time. In any event, Mr Conen will bear the burden of paying 50% of the contributions to the sinking fund and the owner of lot 1 will pay only 25%. It is therefore submitted that his actions are neither predatory nor manipulative but directed toward ensuring that the building is maintained to appropriate standards in the interests of all members of the body corporate. The applicants were alerted to the roof and lintel issues, and the probable cost of the work, since 26 July 2001, as evidenced by Mr Conen’s letter dated 26 July 2001. Therefore it is submitted that the allegation of a truncated demand on short notice is disingenuous and must be rejected.
• Prior to the preparation of his report on 28 November 2008, Mr. Conen had agreed to the appointment of an independent quantity surveyor on two occasions. However, the quantity surveyor retained by the applicants undertook a superficial and generalised external examination of the building and did not enter the building. The basis for the forecast in section 4.00 on page 3 is “in line with the standard requirements for a building of this nature and assumes a typical level of usage and maintenance” it further states that “The recommendations in this report are based on a visual inspection of the development undertaken from the ground level and accessible building areas. No physically destructive or intrusive testing was carried out”. The report contains inaccuracies including, for example in paragraph 13.08, a reference to replacing concrete roof tiles although there are no concrete roof tiles as the roof is constructed with aluminium on timber trusses. Further, the Leary report does not address the two vital remediation works that need to be undertaken in the immediate future or a number of other impending maintenance items including the following:

Replacement of main roof, box gutters and flashings (indicative cost $47,300);

Split RC & brick lintel (indicative cost $5,000)

Repair to ceiling of unit 3 damaged by roof water penetration (indicative cost $2,557);

External painting half completed when administrator appointed (indicative cost $4,960

Replace fire hose reel (indicative cost $478);

• Having regard to the above, the sinking fund has been under budgeted in the Leary & Partners. report to a total amount of $66,302
• There is a danger to the occupants of the building and those in the immediate surrounds in the event of any collapse of the brick lintel. A failure of the structural elements of the building will involve higher costs to lot owners than the remediation work. The need to replace the roof and brick lintel were raised with the applicant some 8 years ago but the applicants continue to avoid dealing with these matters
  

The applicants made the following submissions in reply:

• They applied for appointment of an administrator owing to “a broad range of mismanagement issues” primarily concerning compliance with the BCCM Act.There were certain discrepancies in the receipts for work done by Mr. Conen which were handwritten, not on business letterhead and were mostly issued by Mr. Conen;
• Mr Conen has acknowledged that he charged the body corporate for his labour and while Mr Conen may have carried out some garden maintenance, much of the work was conducted by professional gardeners. It also appears that Mr Conen has charged the body corporate for work which is not the responsibility of the body corporate e.g. “to reroute hot and cold water lines and install shower over bath”;
• While it is technically true that Mr Conen did not handle monies, Mr Conen directed the distribution of BC funds without consulting other owners, they rarely received receipts from Irene Marshall for monies paid to the body corporate;
• They request that the adjudicator accept the sinking fund forecast prepared by the independent registered quantity surveyors, Leary & Partners Pty. Ltd. to replace the sinking fund forecast prepared by Mr. Conen. Leary & Partners has advised that “it is standard industry practice that investigation of these (structural defects) does not form a part of the preparation of a sinking fund forecast. It is therefore submitted that as structural defects do not form a part of the preparation of a sinking fund forecast under standard industry practice, Mr Conen’s assertion that “the fund has been under budgeted on the Leary & Partners report to the total of $66,302 is incorrect and redundant;
• They wish for the process toward arriving at a sinking fund forecast to be reasonable, fair transparent for all parties and that an “independently arrived-at sinking fund forecast, as per Leary & Partners, meets that specific criteria more than does Mr. Conen’s sinking fund forecast estimates;
• They have sought to include the following two motions on the agenda for the next AGM:

Motion 1 – To engage a registered roofing contractor to inspect, access and provide a written report on the work necessary to repair the roof; and

Motion 2 – To seek a minimum of 2 independent quotes from appropriately qualified professionals for remedial work to be done to the brick lintel.

I response to the above reply to submissions, Messrs Conen & Shadforth made further submissions which included the following:

• The applicants have now accepted that there are remediation issues in relation to the main roof of the building and repairs to the brick lintel as they are seeking to engage a contractors to inspect the building and to provide quotations regarding the remediation work. ;
• The Leary & Partners sinking fund forecast does not make reference to either the repair work to the roof or the repair work required on the brick lintel;
• The applicants therefore sought a report from quantity surveyors for the purpose of preparing a sinking fund forecast where fundamentally important aspects of the work to be undertaken are expressly withheld from the experts from whom the forecast is to be obtained;
• It is unclear what effect motions 1 & 2 will have apart from containing admissions regarding required maintenance work because a complete and detailed engineering specification must be obtained before a meaningful quotation can be given;
• The building is currently in an unstable and parlous state. The defects are visible to the naked eye, the degradation of the lintel is clear and the corrosion of the roof is wevident from visible water damage to the lot 4 ceiling. and As a result, the body corporate has recently propped the ceiling of lot 4 to support the roof load should the lintel brickwork fail and cordoned off the area immediately below the lintel to ensure as best as possible the safety of those in the surrounds;
  

JURISDICTION

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

Under section 159 of the Standard Module the Body Corporate must maintain common property in good condition with additional responsibilities in a scheme registered on a Building Format Plan (previously known as a Building Unit Plan) as follows:

159 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.
....................

For a scheme registered on a Building Format Plan, the lot boundaries are defined by the structural elements of the 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.[1] Where maintenance work is required upon the common property, 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.

Pursuant to section 146 of the Standard Module, the Body Corporate is required to have an administrative fund and a sinking fund. Under section 139 of the Standard Module, budgets for these funds must be adopted by ordinary resolution for each financial year. Under section 141 the Body Corporate must, by ordinary resolution, set contributions based on the agreed budgets.

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. While it has become commonplace to have a sinking fund forecast prepared by a quantity surveyor or other appropriate expert, there is no statutory requirement for such a report. Rather, it is necessary to prepare a sinking fund budget which reflects an estimate of when it is likely that work will be required during a ten year period to ensure that funds are available to cover the cost of such works. 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 inclusion of an item of work in the sinking fund budget does not automatically approve expenditure on that work and, when it falls due, owners may agree that work, although scheduled on the forecast, is not yet necessary. More importantly, however, it should be noted that where maintenance work is necessary, and where such maintenance work is the responsibility of the Body Corporate, owners cannot defer such an obligation and choose not to undertake the work simply because the item of work is not referred to in a “Sinking Fund Forecast” or in a sinking fund budget. Irrespective of whether of not an item of maintenance is referred to in a sinking fund forecast, the body corporate is required to meet its statutory obligations and if such work is not provided for in the budget, a special levy would need to be raised for that work.[2]

The respondents, Messrs Conen and Shadforth believe that there are two major items of repair work which currently, need to be undertaken by the body corporate for this scheme, namely:

(i) the degradation of a brick lintel over the east window of the lounge room to unit 4 which supports the widest roof span of the building; and
(ii) degradation of the aluminium roof sheeting and wooden trusses supporting the roofing material.

I note that a professional Structural and Civil Engineer, Laurie Oar & Associates, has provided a written report which confirms the necessity for the above work in the following terms:

• the brick lintel supporting the widest roof span of the building is starting to disintegrate,
• this is most likely due to corrosion expansion of the cavity reinforcement;
• this presents a “high danger of bricks falling from the lintel”;
• it is recommended that the lintel be reconstructed using hot dip galvanized reinforcement;
• the aluminium roofing material is showing significant signs of corrosion, allowing water to leak through and onto the timber roofing trusses underneath; and
• that the corroded roofing material should be replaced and any water-damaged timber roofing trusses should be repaired.
  

Under section 159 of the Standard Module Regulation the body corporate is responsible for the maintenance of roofing structures providing protection and essential supporting framework
The applicants do not dispute that brick lintel and roof require attention. Nor have they provided any evidence to rebut the contents of the Engineer’s report. Clearly, the body corporate is responsible for undertaking work of this nature and cannot evade responsibility for undertaking such work merely because it is not referred to in a “sinking fund forecast” document. For the above reasons, I believe that the application should be dismissed.

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[1] Sections 48C and 49C(4) of the Land Title Act 1994

[2] Under section 141(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”.