Reef Terraces (Three) [2010] QBCCMCmr 27 (19 January 2010)

Number of Scheme:	17926
Name of Scheme:	Reef Terraces (Three)
Address of Scheme:	121 Port Douglas Road PORT DOUGLAS QLD 4877

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

I hereby declare that the regulation module which applies to Reef Terraces (Three) CTS 17926 is the Body Corporate and Community Management (Standard Module) Regulation 2008 despite anything to the contrary recorded on the community management statement.

I order that the remainder of the outcomes sought are dismissed.

This is an application dated 22nd July 2009 by Sophie Palethorpe (the Applicant) owner of Lot 10, against the body corporate for Reef Terraces (Three) CTS 17926 (the body corporate) for orders as follows –

The first outcome sought was withdrawn by the Applicant on 4th August 2009 and I formally dismiss this part of the application.

Reef Terraces (Three) CTS 17926 is a community titles scheme governed by the Body Corporate and Community Management Act 1887 (the Act) and the Body Corporate and Community Management (Commercial Module) Regulation 2008 (Commercial Module). There are 12 lots in the scheme created under a Building Unit Plan of subdivision.

Section 276(1) of the Act provides that an adjudicator may make an order that is just and equitable in the circumstances (including a declaratory order) to resolve a dispute, in the context of a community titles scheme, about-

(a) a claimed or anticipated contravention of the Act or the community management statement; or

(b) the exercise of rights or powers, or the performance of duties, under the Act or the community management statement; or

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

(ii) the authorisation of a person as a letting agent for a community titles scheme.

An order may require a person to act, or prohibit a person from acting, in a way stated in the order (section 276(2)). An adjudicator's order may contain ancillary and consequential provisions the adjudicator considers necessary or appropriate (section 284(1)).

The Applicant says that at an extraordinary general meeting held on 1st October 2004, the body corporate resolved by special resolution to change the regulation module from the Body Corporate and Community Management (Standard Module) Regulation 1997 (Standard Module) to the Commercial Module. The vote was 4 – 0, but the new module was not registered on a new community management statement within the three month period required by the Act.

At the annual general meeting held on 3rd December 2005, (the 2005 AGM) it was again resolved by special resolution (four owners voting unanimously in favour) to change to the Commercial Module. The committee elected at the 2005 AGM consisted of 6 non-owners and 1 owner.

The new community management statement (CMS) for the scheme came into effect on 14th December 2005 when it was registered in the Land Titles Registry. The Applicant says that until the day on which the scheme was registered as regulated by the Commercial Module, presuming that it was correctly registered, the Standard Module applied, and the Standard Module provisions about non- owners being eligible for the committee were not followed.

There is no mention in the minutes of the 2005 AGM as to whether the non-owners were attorneys or how they came to represent lot owners. The Applicant contends that the committee so elected was invalid, save for owner member P. Rivett who was unable to form a committee on his own. For the 6 non-owners to be validly nominated, 6 owners apart from P. Rivett would have had to appoint them, and there is no evidence of this.

Subsequent re-election of these same persons at annual general meetings continues to be invalid. The Applicant submits that despite the registration of the new CMS the relevant governing module is still the Standard Module. The execution of the new CMS was invalid as the persons signing it and sealing it were not committee members at the time. “The document is a nullity and even though registered has no effect” she says referring to section 115L Land Titles Act 1994.

The Applicant concludes that Motion 12 of the 2005 AGM, that “the seal of the body corporate be affixed to the CMS by two members of the committee, one of whom must be the Chairperson or the Secretary”, has not been complied with.

The Applicant further says that if the Commercial Module applies, it is contrary to section 21(3) Act and section 3(2A) Commercial Module. The usage of the lots as holiday accommodation and long-term lets makes the more suitable regulation module the Body Corporate and Community Management (Accommodation Module) Regulation. (Accommodation Module). The lots in the scheme do not fall under the definition of “commercial lots” (section 3(3) Commercial Module). The use of the lots falls squarely into the definitions of “accommodation lots” and “residential lots” as defined in the Commercial Module.

The body corporate is “Stage 3” of three bodies corporate making up the Reef Terraces Complex. Stage 1 is made up of 144 villas and central facilities; stage 2 is 26 villas and two villas used for housekeeping and administration, and stage 3 has 12 villas. Documentation from the annual general meeting of 2006 explained that there was one committee for all three bodies corporate as that made “operational sense”. The committee then consisted of 7 members “with representation from each stage.” In 2006 the committee had comprised the same membership for a number of years.

In accordance with section 243(2)(b) Act submissions were invited from all lot owners.

Philip Walker and Dianne Perry, owners of Lot 8, support the application and say that the committee is in fact illegal and operates outside the legislation. Recent works have been carried out to scheme land and they have asked for copies of quotations from the body corporate manager and secretary of the committee but not received them from either. The works were not approved in accordance with the legislation but the committee chose to accept a quotation given a year previously. Lot owners are also asked to contribute to capital costs for improvements to other bodies corporate in the Reef Terraces Complex, not part of their body corporate.

Myles White, owner of Lot 6, supports the application. He believes that the change from commercial module to accommodation module is imperative. He is concerned that it is suggested that any lots in the scheme could be used for commercial purposes.

Eugene D’Orsogna, nominee of Condor Nominees Pty Ltd, owner of Lot 7 says that the company bought Lot 7 in 1995 as an investment property on the understanding that it would provide “ a commercial return.” To change the regulation module would have a serious impact on the performance and value of the investment. He objects to the application.

Rod Adkins, owner of Lot 2, says he has a management agreement with the resort operator to provide short term holiday rentals of Lot 2. Recently more units in the scheme have been sold to owner/ occupiers which is causing friction. The three stages of the resort have also undertaken major refurbishment and repairs requiring “closer cooperation between the three stages to manage the refurbishment, associated external works and dealing with suppliers and the resort management.” He says that the “combined approach and committee management has worked well..” The Applicant bought into the resort knowing that it was a holiday resort. The current commercial module “ suits the sharing of resources and costs to benefit owners in all stages.” To change the regulation module now will risk a cancellation of the agreement with the resort operator and will separate “Stage 3" from the other two stages.

Jennifer Barry of Lot 9 says that she supports the present arrangements although she is not familiar with the law. She purchased an investment unit in the “Rendezvous Reef Resort” in 2006. She was influenced by the strong body corporate committee and the letting agreement in place between owners and Rendezvous, the management company. The letting agreement ensures maintenance and caretaking, the letting out of her unit and she can have occupation of it for up to 4 weeks a year. The committee works hard to upgrade the grounds and units. She “was made aware” on purchase that the units “were for holiday rental only and not for permanent occupancy by either tenants of owners.” She does not think that the Applicant should be a resident in the resort. The Applicant was aware when she purchased of the type of resort it was and now objects to paying fees as she does not make use of facilities within the resort. She finds that things work well as they are and does not want change. If the commercial module is changed to the accommodation module she will be forced to leave the letting pool, and “to repay Rendezvous $11,000 they contributed to the cost of upgrading [her] unit.”

Max Dawson nominee of Immanual Travel Pty Ltd owner of Lot 1 opposes the application. He purchased on the understanding that Stage 3 was “an integral part of the Reef Resort”. He has spent considerably in upgrading the unit and agreed that body corporate funds be spent to benefit “the stage”. He says that the “ whole resort was never meant for permanent residents. The by-laws in fact prohibit it.” He was shocked to find resident owners occupying lots. The Applicant should not be living there and she should have been aware what type of unit she was buying. Making the 12 villas “residential” would take them out of the resort. He is happy with the committee dealing with all the complex’s matters, and it is important that they “present as one”. Rendezvous would not deal with the scheme if it had an “entirely separate committee.”

Gregory Fitzgerald owner of Lot 3 says that he bought 14 years ago off the plan as part of an integrated tourism resort. It became apparent that the three bodies corporate of stages 1, 2 and 3 needed to work more closely together as one in order to ensure that the nature of the resort as a whole was maintained, contracts would be coordinated, and to take advantage of the economies of scale. They voted to move into the Commercial Module in 2004 and has been happy ever since. The complex is unique. The three bodies corporate forming one committee suits the unique environment. Guests do not know that the resort is actually three community titles schemes. The Applicant bought in with full knowledge of the circumstances. Using the villa as residential property is in contravention of the by-laws.

The body corporate made a submission through the body corporate committee from Owen Carrington Smith (Mr Carrington Smith) as chairman of Reef Terraces (Three). Mr Carrington Smith is not an owner in the scheme.

It says that the resort is unique in that it is set out in 15 acres of tropical gardens and constitutes three bodies corporate. There are 4 lagoon pools, a gym, tennis courts and putting green. Many of the resort’s services used by Stage 3 are located in Stages 1 and 2. Stage 3 was constructed in 1994/5 and is the smallest with only 12 villas, but has more spacious accommodation. Ten of the 12 owners are investors either in the Rendezvous letting pool or using local letting agents.

“subject to the provisions of these by-laws Lots 1 – 12 inclusive shall be used for short term holiday accommodation purposes only.”

The Applicant was aware of this by-law when she purchased, and has no right to make this application.

In respect of the order sought it says there has been one committee managing the three bodies corporate (stages), by mutual consent of each body corporate for the past 10 years, reaffirmed at each annual general meeting.

If the module is changed, owners are likely to be financially disadvantaged “because the current harmonised committee structure would need to be changed whereby the current committee members from stages 1 and 2 would be removed.” The committee is experienced and has good relations with Rendezvous, the management company. The three bodies corporate have a common on-site manager for caretaking and letting agreements, and linked collateral agreements. Stage Three would probably not be viable to stand alone and may lose management by Rendezvous. Rendezvous would be reluctant to deal with a small and separate committee. It would be disadvantageous to owners to single out Stage 3.

When the bodies corporate were established there was no provision for a layered scheme under the Building Units and Group Titles Act 1980. They have sought to amalgamate the three schemes but to do so requires a resolution without dissent, and there were some votes against from Stage 1 when this was attempted. The change to the regulations in 2004 made the “cross membership of committees between the three stages a lot more difficult” in the Standard or Accommodation Modules, so they voted to change to the commercial module “so that a cohesive body corporate structure could be maintained by having common members on all committees.” The Applicant’s view that Stage 3 would be better off as a residential site with very low body corporate fees, is not shared by the majority.

Mr Carrington Smith thereafter provided a copy of a report from Building Management and Consulting Services commissioned by “the body corporate for Reef Terraces” in 2005 for the purpose of reviewing proposed caretaking duties for the three schemes. The report advised inter alia that the three bodies corporate enter into a Shared Facilities Agreement so that a caretaking service contractor could be “operate the complex as one entity.”

In this application the Applicant seeks a declaration that the existing regulation module for the scheme is the Standard Module, or in the alternative, that the body corporate be ordered to change the regulation module governing the scheme to the Accommodation Module.

The Applicant has provided no evidence whatsoever that the scheme should be governed by the Accommodation Module save that lots in the scheme are used for holiday accommodation and letting. The question of governance by the Accommodation Module has not apparently ever been put to the body corporate.
The Applicant might if she wished, propose a motion to a general meting that the Accommodation Module is adopted and until such time as that motion is rejected, the Applicant has no dispute with the body corporate.

In July 2000, the scheme was registered by the Registrar for Land Titles under the Standard Module as were all schemes which had not, since 1997 following the introduction of the Act, registered a first community management statement.

At an adjourned extraordinary general meeting of the scheme held on 1st October 2004, by Motion 2, the body corporate resolved by special resolution to adopt the Commercial Module and record a new community management statement. The new CMS was not so recorded.

A motion to record a new CMS and new and amended by-laws was passed at the AGM on 3rd December 2005. The Applicant says that a motion was again put to adopt the Commercial Module, but this is not apparent from the minutes of the AGM of 2005. However, the new CMS then recorded stated that the “Commercial Module” was the governing module, and set out the amended by-laws as passed.

The Applicant contends that until such time as the scheme was registered under the Commercial Module, the signatories as purported committee members for the scheme, not being owners in the scheme, or authorised representatives of owners, as required by the Standard Module, had no power to sign or seal the request to lodge a new CMS, making the whole document a nullity.

Further, she argues that the Commercial Module is not applicable to the scheme by virtue of section 21(3) Act and section 3(2)(a) Commercial Module.

Neither the Applicant, (nor Mr Carrington Smith) explain why it is their view that a committee made up principally of non-owners might be lawful after the adoption by the scheme of the Commercial Module. Section 11 Commercial Module says that the committee must be made up of owners, or persons nominated by owners. It is not clear to me that owners “nominated” the committee members at that time although it seems that a list of names was put forward at the AGM of 2005 with a recommendation that they formed a good and experienced team. Owners were therefore invited to vote for those named persons en bloc and appeared to be happy to do so.

The Commercial Module is silent on the process of “nomination” save that an owner who owes a body corporate debt may not nominate a person for membership of the committee (Section 11(4)) The Commercial Module is in general a far less prescriptive regulation than the Standard Module or Accommodation Module. However, I am of the view that “nominating” committee members, and voting for persons suggested by someone else, are not the same thing. It does not appear to me that the “nominating” was done by the owners, albeit that the owners might have been in agreement with those persons “nominated” by someone else, not an owner in the scheme, being either Mr Carrington Smith or previous committee members, judging by a subsequent letter to owners dated 7th November 2006 and sent prior to the annual general meeting of 2006.

I am not satisfied however, that the Applicant has made out a case that if the committee was not properly nominated and/or elected in 2005, that a document sealed under its authority was a nullity. Section 115L Land Title Act 1994 concerns only the liability of the registrar and that the registering of the CMS does not guarantee its accuracy, validity or enforceability as against the State.

Further, Section 100(4) Act says that if persons, honestly and reasonably believing that they are the committee for the body corporate, make a decision while purportedly acting as the committee, the decision is taken to be a decision of the committee despite a defect in the election of one or more of the persons.

The Applicant’s better argument lies in the capacity of this scheme to carry a CMS governed by the Commercial Module.

Section 21(3) Act states that a regulation module does not apply to a community titles scheme, despite anything in the community management statement, if the regulation module states circumstances that must exist if the regulation module is to apply.

The circumstances which must exist for the Commercial Module to apply to a scheme, are that the scheme must have lots in the scheme which are “predominantly commercial lots.” (Section 3(2)(a) Commercial Module); or the lots are not predominantly commercial lots but when the first community management statement was recorded “the lots included in the scheme were intended to be predominantly commercial lots.” (Section 3(2)(b) Commercial Module.) The other circumstance is that the Commercial Module might apply if a scheme has previously been made of predominantly commercial lots.

A “commercial lot” is defined as a lot that is used for commercial (including retail) or industrial purposes; and “is not an accommodation lot or residential lot.” An “accommodation lot” is defined as meaning a lot which is “the subject of a lease or letting for accommodation for long or short term residential purposes, or immediately available to be the subject of a lease or letting for accommodation for long or short term residential purposes.” A “residential lot” is defined as a lot used for residential purposes whether or not it is also an accommodation lot. (Section 3(3) Commercial Module)

It seems to me that there are no “commercial lots” in this scheme. In all three schemes which make up the resort complex, it does not appear that there are any commercial lots, and certainly not “a predominance” of commercial lots. A residential or accommodation lot does not become a “commercial lot” because it is let out at a commercial rent, or for reward. From the evidence provided by both the Applicant and the respondent body corporate, all 12 lots in this scheme are intended for residential use, chiefly for holidays or short-term accommodation for visitors to the area. A “commercial lot” must engage in commerce, such as does a restaurant or shop.

Section 21(4) Act states that a regulation module applies to a scheme if it states that it will apply if no other regulation module applies, for example because the CMS identifies a regulation module which is not applicable pursuant to section 21(3) Act.

Section 3(2) Standard Module says that the Standard Module is the module which applies where no other regulation module applies if the circumstance of the example given above arises.

I am of the view that this scheme cannot be governed by the Commercial Module as it fails the test to be applied by section 21(3) Act. It therefore seems to me that following section 21(4) Act and section 3(2) Standard Module, the Standard Module applies to this scheme.

In this application, a number of matters have concerned me and I make the following observations so that this scheme might take steps better to arrange its structure to reflect its true nature as a holiday resort. It seems that the three bodies corporate which make up the resort have attempted to work together to ensure a high-class atmosphere for the purposes of tourism and investment. Whilst the efforts of the team which calls itself “the committee” are clearly applauded by many, the fact remains that each body corporate is governed by the Act and a regulation module the circumstances of which it must fit, and each lot is freehold land which is the highest form of land ownership holding from the Crown.

This alone gives owners certain rights, subject only to restrictions which bind owners in community titles schemes being the by-laws of the scheme, and the relevant legislation.

It appears to me that by-law 22.2 quoted by ‘the committee” is questionable for validity. Section 180 (3) Act states that if a lot may lawfully be used for residential purposes, the by-laws can not restrict the type of residential use. A by-law which is inconsistent with the Act is invalid to the extent of the inconsistency. (Section 180(1) Act).

The relevant legislation requires that each community titles scheme has a committee of a certain number and regulates who those committee members may be. The three schemes cannot lawfully by any method which I can currently think of, have only one committee with representation from each of the “three stages”, even if it is the wish of the majority of all owners in all three schemes. There is however nothing to stop the three committees working together.

It seems that the various bodies corporate have explored such options in the past, but if these three schemes are of the view that their most productive and profitable course is to act as one with shared or joint facilities, the schemes should amalgamate, or the three should now adopt a layered scheme with a principal body corporate administering the assets, facilities and common property. If there is objection from a very small minority when a resolution without dissent is required, such dissent if unreasonable might be overturned on an application for dispute resolution to this Office. That is to say, a handful of dissenting votes might not be the end of the proposal if it is a reasonable way forward for the three bodies corporate offering something they believe to be unique.

It is not this Office’s function to regulate schemes, but the Applicant will not be the last owner to bring a dispute application to this Office if these three schemes continue to act in this unorthodox way because of their unquestioned pride in their facilities and the view that they are unique and do not fit the governing legislation. As stated, I am not of the view that by adopting the Commercial Module for the scheme that the scheme is able to adopt the “harmonised committee structure” it has apparently done.

Finally, it appears that submitters have some basic misconceptions about what a regulation module achieves. A change to the regulation module means that the body corporate for a community titles scheme is bound by that module, chosen by it. It seems that this scheme (and the other two schemes in the resort) as presently established, might choose to be governed by the Standard Module or the Accommodation Module. The Accommodation Module is particularly suitable for schemes where apartments are let for short-term lets and holidays, and for reward. The word “commercial” does not enable the letting out of units, but units governed by any regulation module may be let for reward and the body corporate cannot prevent any letting or leasing of a lot through any management company or private agent as the owner may choose.

As an end note I see from a Land Titles Registry search that Reef Terraces CTS 888 is a scheme registered as being governed by the Accommodation Module; and that Reef Terraces (Two) CTS 18180 is a scheme registered as being governed by the Commercial Module.

Queensland Body Corporate and Community Management Commissioner - Adjudicators Orders

Reef Terraces (Three) [2010] QBCCMCmr 27 (19 January 2010)