SUPREME COURT OF QUEENSLAND

[1]  McMURDO P:  I agree with Muir JA's reasons for granting leave to appeal but dismissing the appeal with costs.

[2] The contract between the parties was in the standard form approved by the Real Estate Institute of Queensland Limited and the Queensland Law Society Inc as being suitable for the sale and purchase of residential lots in a community titles scheme in Queensland.  This appeal raises the concern that the present terms of such a contract may not always provide adequate protection to a purchaser of a residential lot in a community title scheme where there is an error in the boundaries of, or encroachment by structures onto or from, or a mistake or omission in describing, not the lot, but the common property under the lot's community titles scheme.

[3]  MUIR JA:  The applicants apply for leave to appeal pursuant to s 118(3) of the District Court of Queensland Act 1967 (Qld) against a decision of a judge of the District Court given on 6 November 2008.

[4] The issue for determination on the appeal, should leave be granted, is whether an encroachment of a structure built mainly on common property under a community titles scheme and extending onto adjoining land can be described as "an encroachment by structures … from a Lot" within the meaning of "Lot" in a contract for the sale of a lot in that scheme.

[5] Under an agreement entered into in March 2007, the applicants agreed to purchase and the respondent agreed to sell for a purchase price of $415,000 a unit in the complex known as "Whitsunday Vista Resort."  The property sold and purchased was described in the agreement as "Lot 18 on SP 121164" in the County of Herbert, Parish of Conway.  On 26 April 2007, the date on which the agreement was to be settled, the applicants purported to terminate the agreement pursuant to clause 7.5 of its standard terms because the resort's swimming pool and related structures encroached onto some 93 m2 of an adjoining parcel of land.  They asserted that this constituted an encroachment from Lot 18.

[6] Clause 7.5 of the agreement provides:

"7.5 Survey and Mistake

(1)The buyer may survey the Lot.

(2)If there is:

a. an error in the boundaries or an area of the Lot;

b. an encroachment by the structures onto or from the Lot; or

c. a mistake or omission in describing the Lot or the Seller’s title to it;

which is

d. immaterial; or

e.material, but the Buyer elects to complete this contract;

the Buyer’s only remedy against the Seller is for compensation, but only if claimed by the Buyer in writing on or before settlement.

(3)The Buyer may not delay settlement or withhold any part of the Balance Purchase Price because of any compensation claim under clause 7.5(2).

(4)If there is a material error, encroachment or mistake, the Buyer may terminate this contract before settlement."

[7] The applicants contended that reference to "the Lot" in clause 7.5 includes reference to the scheme's common property.  The contention is founded on s 35 of the Body Corporate and Community Management Act 1997 (Qld) ("the Act") and on s 41C of the Land Title Act 1994 (Qld).  Section 35 provides:[1]

"35 Ownership of common property

(1)Common property for a community titles scheme is owned by the owners of the lots included in the scheme, as tenants in common, in shares proportionate to the interest schedule lot entitlements of their respective lots.

(2)Subsection (1) applies even though, under the Land Title Act, the registrar creates an indefeasible title for the common property for a community titles scheme.

(3)An owner’s interest in a lot is inseparable from the owner’s interest in the common property.

Examples--

1A dealing affecting the lot affects, without express mention, the interest in the common property.

2An owner can not separately deal with or dispose of the owner’s interest in the common property.

……………"

[8] The essence of the applicants' argument is as follows.  An owner's interest in its lot is inseparable from the owner's interest in the common property and that when a lot is sold, the lot owner's interest in the common property is sold also.  Consequently, the reference in the agreement to "the Lot" necessarily includes the vendor's interest in the common property which is included in the parties' bargain by force of statute.

[9] This argument did not find favour with the learned primary judge and I am unable to accept it either.  The question is one of contractual rather than statutory construction.  The description of the property to be sold and purchased is clear.  It is "Lot 18 on SP 121164."  For a community titles scheme to be registered, there must be two or more lots and other land designated as the common property for the scheme.[2]  The scheme plan, as reasonable persons in the position of the parties with their background knowledge knew or ought reasonably to have known at the date of the agreement, had delineated on it the scheme's common property and each of the lots in the scheme.  Also, as such reasonable persons would have known, the lots were separate from each other and from the common property.  A lot or an interest in it is capable of assignment and of being encumbered by a proprietor, but no proprietor of any lot is capable of assigning or encumbering the common property or any interest in it.[3]

[10]  Clause 1.2 of the standard conditions of contract provides that words and phrases in the Act "have the same meaning in this contract unless the context indicates otherwise."  "Lot" is defined relevantly in Schedule 6 to the Act as "a lot under the Land Title Act."  Section 41C(1) of the Land Title Act provides that "in this Act, a reference to a lot is taken to include a reference to common property."  Sub-section (2) however provides that sub-section (1) "has effect only to the extent necessary to allow for the registration, and appropriate recognition under this Act, of dealings that (a) affect common property …; and (b) are consistent with the BCCM Act."  Sub-section (4) provides that sub-section (1) has no application for the purpose of the Land Title Act's definition of lot.  Lot is defined, relevantly, as "a separate, distinct parcel of land created on the registration of a plan of subdivision." 

[11]  There is nothing in the agreement which supports the notion that the reference to "Lot 18" includes a reference to the common property or may include such a reference, depending on the context and there is certainly no indication in clause 7.5 that the words "the Lot" do not have their statutory meaning. 

[12]  The second page of the agreement makes provision for a statement of whether an electrical safety switch is "installed in the Lot."  Plainly, "the Lot" in that context means the lot as depicted on the plan.  Beside the heading "Additional Body Corporate Information" the words "interest schedule lot entitlement of the Lot" and other references to "Lot entitlement" appear.  All such references are obviously to physical property which does not include common property.  On the third sheet, under the heading "Seller's Disclosure", the words "Latent or Patent Defects in Common Property or Body Corporate Assets" appear.  Thus, where the agreement wishes to make reference to the common property it does so expressly. 

[13]  Clause 4 of the Standard Conditions of contract makes provision for the consequences of obtaining a Building and Pest Inspection Report which is unsatisfactory to the buyer.  The report may be obtained on "the Lot" and the "Building".  "Building" is defined as "any building that forms part of the Lot or in which the Lot is situated."  There is thus a distinction between "the Lot" and the "Building" in which "the Lot" is situated.  Clause 7.7 provides for the consequences of adverse affectation of the Land.  "Land" is defined as "the Scheme Land".  Again, there is no blurring in the agreement of the distinction between "the Lot" and other real property within the scheme.  The agreement’s treatment of a lot and common property as quite separate pieces of real property is consistent with the scheme and language of the Act.

[14]  There is no reason to suppose that what was in contemplation in clause 7.5(1) by the right on the part of the purchaser to survey "the Lot" was the survey of all of the land the subject of the scheme, or for that matter, the common property.  Apart from any other consideration, the respondent vendor had no right to confer on the applicant purchasers authority to survey common property.  It is unlikely that "the Lot" in 7.5(1) has a meaning different from its meaning in 7.5(2), as the two provisions are interrelated.  If the parties had in mind conferring the rights and remedies in clause 7.5 in respect of errors, mistakes, omissions or encroachments in or affecting the common property generally, their failure to add "or the common property" after "the Lot," wherever those words appear in the clause, is remarkable.

[15]  Section 35 of the Act does not assist the applicants' argument.  Its effect is merely that upon a person's acquiring an interest in a lot, that person, by virtue of the acquired interest, also holds a prescribed interest in the common property.  The latter interest is not sold and purchased as such, but even if this analysis is erroneous, it would not follow, for the reasons I have given, that "the Lot" in clause 7.5 should be construed as including reference to the common property.

[16]  Leave to appeal is usually granted "only where an appeal is necessary to correct a substantial injustice to the applicant, and there is a reasonable argument that there is an error to be corrected."[4]  No appellable error has been shown to exist but, as this Court has heard all the arguments which would have been advanced on the hearing of the appeal, the preferable course is to allow the application for leave to appeal and to dismiss the appeal.

[17]  In view of the conclusions I have reached on the question of construction, it is unnecessary to consider the subsidiary issues which would have arisen had the applicants' construction of the agreement been accepted. 

[18]  I would order that the application for leave to appeal be allowed and the appeal be dismissed with costs.

[19]  ATKINSON J:  I agree with the orders proposed by Muir JA and with his Honour’s reasons for doing so.