Skygardens Caloundra [2009] QBCCMCmr 423 (28 October 2009)

Number of Scheme:	36015
Name of Scheme:	Skygardens Caloundra
Address of Scheme:	34 Saltair Street CALOUNDRA QLD 4551

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

I hereby order that the resolution of the body corporate on motion 2 of the Extraordinary General Meeting dated 6 March 2009 is invalid and of no effect.

I further declare that unless and until a subsequent motion has been passed by the body corporate regarding the sinking fund levy contributions, the sinking fund levy contributions for the 2008/2009 financial year of the body corporate shall be based on motion 8 of the Annual General Meeting dated 5 December 2008.

The Skygardens Caloundra community titles scheme (“Skygardens Caloundra”) consists of 20 lots and common property. The community management statement (”CMS”) for Skygardens Caloundra indicates that the Body Corporate and Community Management (Accommodation Module) Regulation 2008 (“Accommodation Module”) applies to the scheme. The Department of Environment and Resource Management records show the scheme is registered as Survey Plan 193046.

Pursuant to the Body Corporate and Community Management Act 1997 (“the Act”), this application was made by Paul and Sue Richardson, Owners of Lot 9 (“the applicants”) on 17 April 2009. The applicants sought orders against the Body Corporate for Skygardens Caloundra (“the respondent”) in the following terms:

The contributions to the sinking fund must be paid annually so it does not fall short of funds. The Body Corporate must set its sinking fund contributions to the level recommended by the quantity surveyor (copy attached) in their sinking fund forecast prepared in February 2009. The recommended fees should be $38,000.00 or $1,900.00 per unit annually to avoid a shortfall in the future.

Under section 243 of the Act, a copy of the application was provided to the Body Corporate, with an invitation to the Body Corporate Committee (“the committee”) and all owners to respond to the matters raised by the application. Submissions were made by Mr and Mrs Chapman (the owners of lot 1), Mr and Mrs Bowles (the owners of lot 6), Mr and Mrs Schafer (the owners of lot 10) and Rochgate Pty Ltd (the owner of lots 2, 3, 4, 5, 7, 8, 11, 13, 15, 16, 17, 18, 19 and 20 at the time of the application) (“Rochgate”). The applicants did not make a written reply.[1]

A dispute resolution recommendation was made referring the dispute to departmental adjudication. I then investigated the dispute, pursuant to section 271 of the Act, which included reviewing the application and submissions and seeking further information from the parties as detailed below.

The application relates to the applicants’ request for the sinking fund levy contribution to be increased to an amount of $38,000.00 as stated in the sinking fund forecast. The facts of the dispute, as outlined in the application and submissions can be summarised as follows.

On 5 December 2008, the body corporate held its Annual General Meeting (“AGM”). Motion 8 of the AGM (“Motion 8”), passed by an ordinary resolution of the body corporate, resolved that the levy contributions per unit will be -

*Period*	*Admin Fund*	*Sinking Fund*	*Total*	*Due Date*
01/10/08 to 31/03/09	$2,350.00	$500.00	$2,850.00	01/02/09
01/04/09 to 30/09/09	$2,350.00	$500.00	$2,850.00	01/08/09
*Total*	*$4,700*	*$1,000.00*	*$5,700.00*

Therefore, the body corporate resolved to have a sinking fund levy of $1,000.00 per lot for the 2008/2009 body corporate financial year.

On 2 February 2009, an Extraordinary General Meeting (“EGM”) of the body corporate was held wherein motion 2 sought body corporate consent ‘to reduce the Sinking Fund Contributions to the levels for the 2008/2009 Financial Year, from $20,000 to $10,000’. This motion was submitted by Rochgate who was the owner of 14 lots within the scheme at the time. Rochgate was declared to be a non-financial member of the body corporate at the time of the meeting and thus was unable to vote on the motion. The motion was lost with nil votes in favour, 2 votes against and nil votes abstaining.

On 6 March 2009, another EGM was held wherein motion 2 (“Motion 2”) sought body corporate consent ‘to reduce the Sinking Fund Contributions to the levels for the 2008/2009 Financial Year, from $20,000 to $10,000 and adjust the Sinking Fund Levy previously set for the period 01/04/09 to 30/09/09 accordingly. This motion was submitted by Rochgate and passed with 14 votes in favour of the motion, 6 against and nil abstaining.

In March 2009, Graham Lukins Partnership Pty Ltd produced a sinking fund forecast for the scheme (“the Graham Lukins report”). This sinking fund forecast indicates that a net contribution of $38,000.00 should be paid into the sinking fund for the 2009/2010 financial year.

The applicants state that there are maintenance issues which are required in the scheme and the sinking fund is very low. The applicants claim that if the body corporate continues to make the required repairs they will have little or no funds left in the sinking fund. The applicants request that the current sinking fund contribution be increased from $10,000.00 to $38,000.00 as set out in the sinking fund forecast for the 2009/2010 financial year.

Submissions were made by Mr and Mrs Chapman (the owners of lot 1), Mr and Mrs Bowles (the owners of lot 6) and Mr and Mrs Schafer (the owners of lot 10) in support of the application. These submissions can be summarised as follows:

Rochgate (the owner of lots 2, 3, 4, 5, 7, 8, 11, 13, 15, 16, 17, 18, 19 and 20 at the time of the application) made a submission against the application. In their submission, Rochgate stated:

“I do not agree with the recommendations by the Quantity Surveyor that the Sinking Fund fees should be $38,000.00. The building is virtually new and there is very little major expense to be expended at this time or within the next six years. I believe the Quantity Surveyor quoted sums that are completely unrealistic and would never be adopted for usage in this building. I do believe the sum should be increased substantially within the next three years to allow for anticipated major expenditure.

However, if any major expense for the building did arise in an unforeseen manner, Body Corporate would simply issue a Special Levy and Rochgate Pty Ltd would naturally pay its share.”

On 26 May 2009, our Office forwarded a copy of all submissions received to the applicants. The applicants did not make a written reply to the submissions.

On 7 September 2009, I requested that a staff member from our Office contact the Body Corporate Manager and obtain a copy of the voting roll for the EGM dated 6 March 2009.[2] The Body Corporate Manager emailed this document to our Office the same day. The voting register confirmed that all 14 votes in favour of Motion 2 were submitted by Rochgate.

I am satisfied that this is a matter which falls within the legislative dispute resolution provisions.[3]

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:

(b) the exercise of rights or powers, or the performance of duties, under the Act or the CMS; or

(i) the engagement of a person as a body corporate manager or service contractor; or

An order may require a person to act, or prohibit a person from acting, in a way stated in the order.[4] An adjudicator's order may contain ancillary and consequential provisions the adjudicator considers necessary or appropriate.[5]

The main issue for consideration in this matter is whether the sinking fund levy contributions should be altered from that passed by the body corporate in Motion 2 on 6 March 2009. In considering this issue, it is necessary to determine whether the sinking fund levy as passed in Motion 2 is reasonable in the circumstances of this application.

Section 137 of the Accommodation Module sets out the budget requirements for the administration and sinking funds. This section is set out below.

(1) The body corporate must, by ordinary resolution, adopt 2 budgets for each financial year—

(a) contain estimates for the financial year of necessary and reasonable spending from the administrative fund to cover—

(b) fix the amount to be raised by way of contribution to cover the estimated recurrent expenditure mentioned in paragraph (a).

(a) allow for raising a reasonable capital amount both to provide for necessary and reasonable spending from the sinking fund for the financial year, and also to reserve an appropriate proportional share of amounts necessary to be accumulated to meet anticipated major expenditure over at least the next 9 years after the financial year, having regard to—

(b) fix the amount to be raised by way of contribution to cover the capital amount mentioned in paragraph (a).

Example— Painting of the common property is anticipated to be necessary in 3 years time at a cost currently estimated at $12000. The contribution amount for the sinking fund in the budget for the financial year must therefore include the annual proportional share for painting of $4000. Next year, the estimated cost has increased to $12400 and so the second year levy will be $4200. The estimated cost in the third year is $12800, so with the $8200 accumulated, a levy of $4600 is necessary to meet the cost. In larger community titles schemes, the sinking fund will have several projects being funded for various future times.

(4) If the community titles scheme is a lot included in another community titles scheme, the administrative fund budget must also include an estimate of the total amount the body corporate may reasonably be expected to be required to contribute to the administrative and sinking funds for the other scheme, and any other fund provided for in the regulation module applying to the other scheme.

(5) The original owner must prepare proposed budgets for adoption by the body corporate at its first annual general meeting, and the committee must prepare proposed budgets for adoption by the body corporate at each later annual general meeting.

(6) Copies of the proposed budgets must accompany the notice of an annual general meeting.

(7) To remove any doubt, it is declared that the inclusion of an item of expenditure in a budget adopted by the body corporate is not, of itself, authority for the expenditure.

One of the objects of the Act is to balance the rights of individuals with the responsibility for self management within the scheme.[6] Further, section 94(2) of the Act states that the body corporate must act reasonably in anything it does. Whether the sinking fund levy is reasonable in this instance is a difficult question. On the one hand, Rochgate was the owner of 14 lots within the scheme at the time of the EGM and was entitled to have 14 votes. The fact that Rochgate has a majority ownership in the scheme does not prima facie make its vote unreasonable.

On the other hand, submissions from the applicants and the owners of lots 1, 6 and 10 argue that the current sinking fund levy contribution of $10,000 is insufficient to cover the body corporate’s expenses. In support of their arguments, the applicants’ have submitted a sinking fund forecast by Graham Lukins which indicates that the 2009/2010 sinking fund levy should be set at net $38,000.00.

However, it should be noted that the sinking fund forecast by Graham Lukins only begins setting out contributions payable by lot owners from the 2009/2010 financial year. As the body corporate held their AGM in December 2008 and have not as yet held their 2009 AGM, the budgets in question relate to the 2008/2009 financial year. Therefore, despite any reference in Motion 2 to the budget being reduced ‘to the levels for the 2008/2009 Financial Year...’ the previous financial year was the 2007/2008 financial year and the issues which are the subject of this dispute relate to the 2008/2009 financial year of the body corporate. Therefore, the Graham Lukins report does not refer to the financial year in question, but rather relates to the next financial year of the body corporate.

In determining whether the current sinking fund levy of $10,000 as set out in Motion 2 is reasonable, regard needs to be had to section 137(3) of the Accommodation Module. Section 137(3) of the Accommodation Module states that the sinking fund budget must ‘allow for raising a reasonable capital amount both to provide for necessary and reasonable spending from the sinking fund for the financial year, and also to reserve an appropriate proportional share of amounts necessary to be accumulated to meet anticipated major expenditure over at least the next 9 years after the financial year, having regard to—

(iii) other expenditure that should reasonably be met from capital.
The section goes on to state that the body corporate must fix an amount to be raised to cover the expenditure as set out above.

In support of Motion 2, Rochgate argue that, “the building is virtually new and there is very little major expense to be expended at this time or within the next six years”. I do not consider this to be a valid consideration pursuant to section 137 of the Accommodation Module. The section states that the sinking fund must allow for necessary and reasonable spending to meet anticipated major expenditure over at least ten years. Therefore, regardless of whether the building is ‘new’ or whether there is ‘little major expense to be done for six years’, the Accommodation Module sets out that the sinking fund must proportionally accrue funds to allow for all necessary and reasonable expenditure for at least ten financial years. This includes planning for events which are not immediately foreseeable, but which may reasonably become foreseeable in the designated time frame.

Further, Rochgate argues, “if any major expense for the building did arise in an unforeseen manner, Body Corporate would simply issue a Special Levy and Rochgate Pty Ltd would naturally pay its share.” Section 139(2) of the Accommodation Module sets out the requirements for a ‘special levy’. This section provides that if a liability arises for which no provision, or inadequate provision, has been made in the budget, the body corporate must, by ordinary resolution fix a special contribution to be levied on the owner of each lot towards the liability. This ‘special levy’ is only to be used where no provision, or inadequate provision, has been made for the expenditure in the sinking fund budget. The section in no way negates the body corporate’s responsibility under section 137 of the Accommodation Module to set a sinking fund budget which covers all necessary and reasonable spending for at least ten years. The body corporate has an obligation to set such a sinking fund budget and cannot simply rely on a ‘special levy’ as an alternative method for providing for major expenditure within a scheme. Therefore, I find this argument irrelevant to the present issue, namely whether the sinking fund budget of $10,000, is a reasonable amount of expenditure for the scheme.

While finally, Rochgate states, “I believe the Quantity Surveyor quoted sums that are completely unrealistic and would never be adopted for usage in this building”. On 31 August 2009, I instructed a member of our Office to write to Rochgate asking if they had obtained, or wished to obtain, an alternative sinking fund forecast or other evidence, to support their assertions. I requested that any such information be received by our Office by 15 September 2009. No response was received by our Office. On 18 September 2009 a member of our Office contacted Mr Maurice Silman, Director of Rochgate, via telephone and asked whether he intended to obtain an alternative sinking fund forecast, or other evidence, to support Rochgate’s assertions. A file note provided by the Officer states that Mr Silman has “not obtained and does [sic] not wish to obtain an alternative sinking fund forecast”.[7]

In the absence of contrary expert evidence, I have had some regard to the Graham Lukins report in determining whether the sinking fund levy as passed in Motion 2 was reasonable. The Graham Lukins report estimates that the sinking fund levy contributions for the scheme should be net $38,000.00 for the 2009/2010 financial year. Section 137(3) of the Accommodation Module states that the sinking fund should accrue ‘an appropriate proportional share of amounts’ necessary to meet anticipated major expenditure over at least ten financial years. If by the 2009/2010 financial year it is estimated that the sinking fund levies should be $38,000, I question whether the current sinking fund levy of $10,000 (being almost one quarter of that recommended for the subsequent financial year), is an ‘appropriate proportional share’ of the amounts necessary to meet major expenditure over at least ten financial years.

Further, on 8 October 2009, I instructed a member of our Office to contact the body corporate manager and obtain a copy of the notice of meeting and explanatory notes for the AGM dated 5 December 2008 and the EGM dated 6 March 2009.[8] Our Office received this documentation on 9 October 2009. Upon inspecting the explanatory notes and notice of meeting for the EGM dated 6 March 2009, I found no additional explanation or justification from Rochgate (the entity submitting Motion 2) as to why the sinking fund levy for the scheme should be reduced from $20,000 to $10,000.

Therefore, after considering the information contained in the application and submissions, as well as the absence of any documentation or expert evidence demonstrating that a sinking fund levy of $10,000 is an appropriate proportional share of the scheme’s major expenditure for at least this year and the next 9 financial years, I find that the amount of the sinking fund levy is unreasonable in the circumstances. Therefore, I am invalidating the resolution of the body corporate on Motion 2 of the extraordinary general meeting dated 6 March 2009 on the basis that the resolution is unreasonable.

Should the sinking fund levy contributions as set out in the Graham Lukins Report be adopted?

The applicants have requested that the sinking fund levy contributions, of net $38,000 for the 2009/2010 financial year as set out in the Graham Lukins report, be adopted by the scheme. As the application arose from budgets voted upon at the AGM in December 2008, the budgets in question relate to the 2008/2009 financial year. However, the contributions quoted in the Graham Lukins report belong to the body corporate’s subsequent financial year, that is, the 2009/2010 financial year. Therefore, due to the information in the report relating to the body corporate’s subsequent financial year, I am of the prima facie view that it would be unreasonable to require these contributions to be adopted by the body corporate in their 2008/2009 financial year.

Further, section 137(1) of the Accommodation Module states that the body corporate must, by ordinary resolution, adopt the sinking fund budget. One of the inherent principles of the Act is the body corporate’s responsibility for self management within the scheme.[9] Accordingly, I am of the view that the body corporate has a responsibility to ‘self-manage’ in the first instance and that this includes taking proposed budgets to the body corporate for consideration. As the sinking fund levy contributions proposed in the Graham Lukins report have not been considered by the body corporate at a general meeting, I am not inclined to impose such levy contributions upon the body corporate.

However, the body corporate or a lot owner (with the support of 25% of lot owners in the scheme)[10] is at liberty to call an EGM to vote on the sinking fund levy contributions should they wish to adopt the proposals as set out by the Graham Lukins report. Alternatively, the body corporate may wish to consider adopting the proposals as set out in the Graham Lukins report in their upcoming 2009 AGM.

In any event, when determining the sinking fund budget for the 2009/2010 financial year, the parties need to consider what level of funds is reasonably necessary to meet the scheme’s ongoing expenditure in accordance with section 137 of the Accommodation Module. Further, in the absence of any contrary expert evidence, the parties need to consider whether it is reasonable not to adopt the proposal as contained in the Graham Lukins report. In addition, it should be noted that a lot owner is able to challenge a decision of the body corporate pursuant to the dispute resolution provisions under the Act if they believe a decision of the body corporate was in contravention of the Act or CMS.

Therefore, the question arises as to what sinking fund budget is in place for the scheme during the 2008/2009 financial year. At the AGM on 5 December 2008, the body corporate voted to adopt a sinking fund budget as set out in Motion 8. At the EGM on 6 March 2009, the body corporate subsequently voted to adopt a sinking fund budget as set out in Motion 2. As the body corporate did not rescind Motion 8, Motion 2 merely had effect in its place. Therefore, upon invalidating Motion 2, Motion 8 will have effect and the sinking fund levy contributions will revert back to that contained in Motion 8. The body corporate may need to consider issuing a further sinking fund levy to cover any short falls between that collected and the amount required for collection pursuant to this order.

One of the objects of the Act is to balance the rights of individuals with the responsibility for self management within the scheme. Although, Rochgate is the majority owner in the scheme and entitled to exercise each of their votes at their discretion, I find that the sinking fund budget of $10,000 is unreasonable having regard to section 137 of the Accommodation Module and the information provided by the parties in the application. Accordingly, I am invalidating the resolution of the body corporate on Motion 2 of the EGM dated 6 March 2009 on the basis that the resolution is unreasonable.

Further, in accordance with section 137(1) of the Accommodation Module, I am of the view that the body corporate has a responsibility to ‘self-manage’ in the first instance and that this includes taking proposed budgets to the body corporate for consideration. As the levy contributions proposed in the Graham Lukins report have not been considered by the body corporate at a general meeting, I am not inclined to impose such levy contributions upon the body corporate.

As the body corporate did not rescind the previous budgetary motion, namely Motion 8 of the AGM dated 5 December 2008, the sinking fund levy contributions for the scheme should revert back to that passed at the 2008 AGM. Should the body corporate wish to adopt the sinking fund levy contributions as set out in the Graham Lukins report, the body corporate is at liberty to call an EGM to vote on the issue.

[1] See sections 246 and 244 of the Act respectively.
[2] See the investigation powers of an adjudicator under section 271 of the Act.
[3] See sections 227, 228, 276 and Schedule 5 of the Act.
[4] Section 276(2) of the Act.
[5] Section 284(1) of the Act.
[6] Section 4 of the Act.
[7] See the investigation powers of an adjudicator under section 271 of the Act.
[8] See the investigation powers of an adjudicator under section 271 of the Act.
[9] See section 4 of the Act.
[10] See the requirements for calling a requested EGM in section 65 of the Accommodation Module.

Queensland Body Corporate and Community Management Commissioner - Adjudicators Orders

Skygardens Caloundra [2009] QBCCMCmr 423 (28 October 2009)