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Sandhurst Trustees Ltd v Condah Bay Investments Pty Ltd[2003] QDC 438

Sandhurst Trustees Ltd v Condah Bay Investments Pty Ltd[2003] QDC 438

DISTRICT COURT OF QUEENSLAND

CITATION:

Sandhurst Trustees Ltd (ACN 004 030 737) v Condah Bay Investments Pty Ltd (ACN 050 287 206) & Ors [2003] QDC 438

PARTIES:

SANDHURST TRUSTEES LTD (ACN 004 030 737)

Applicant

v

CONDAH BAY INVESTMENTS PTY LTD (ACN 050 287 206) & ORS

Respondent

FILE NO:

D4586 of 2002

DIVISION:

Civil

PROCEEDING:

Application to adjust contribution schedule to entitlements

ORIGINATING COURT:

Brisbane

DELIVERED ON:

28 November 2003

DELIVERED AT:

Brisbane

HEARING DATE:

20 March, 11 April 2003, parties’ closing submissions in writing, July – September 2003

JUDGE:

Robin QC DCJ

ORDER:

Contribution schedule entitlements adjusted

CATCHWORDS:

Application under s 48(1) of Body Corporate and Community Management Act 1997 for adjustment of contribution schedule lot entitlement – applicant claimed it was “just and equitable” that entitlements of its 10 (commercial) lots be adjusted downwards, as against over 200 residential lots which allegedly obtained the benefit of body corporate expenditure for lifts, swimming pool and gardens etc – application granted, but to the extent urged by respondents only.

COUNSEL:

Mr Skoien for the applicant

Mr Perry for the respondents

SOLICITORS:

McMahon Clarke Legal for the applicant

Munro Thompson for the respondent

  1. [1]
    The originating application filed 20 November 2002 sought the following relief:

“1.That service on The Body Corporate for Alexandra Beach Resort I CTS 24604, The Body Corporate for Alexandra Beach Resort II CTS 24685 and The Body Corporate for Alexandra Beach Resort III CTS 24709 be substituted for service on each of the Respondents pursuant to Rule 116 of the Uniform Civil Procedure Rules.

  1. That the contribution lot entitlements schedule for the community title scheme that will be established for the Body Corporate for Alexandra Beach Resort Apartments be adjusted in accordance with the recommendations made by Stewart Silver King & Burns Strata Management in its report dated 16 October 2002 (a copy of which is annexed to the affidavit of Gregory Joseph McMahon filed with this application);”
  1. [2]
    The Body Corporate referred to in paragraph 2 of the application comes about by an amalgamation resolved on 5 August 2002 of the Body Corporate for Alexandra Beach Resort I CTS 24604, the Body Corporate for Alexandra Beach Resort II CTS 24685 and the Body Corporate for Alexandra Beach Resort III CTS 24709. The report relied on by the applicant Mr Sheahan, who has qualifications as a solicitor, underlying his experience in Body Corporate management matters. It is a re-working of one he apparently prepared in May 2001 at the request of the three body corporates which later amalgamated regarding “the appropriate contribution lot entitlement schedule for the community titles scheme that would be established upon the amalgamation.” Ten of the lots in the first of the community titles schemes are commercial lots. The entity which at that time had the management and/or control of the commercial lots, based on the report, requested an adjustment to contribution lot entitlements which would have the effect of substantially reducing the contributions that would have to be made by it. When the matter was put to a resolution of the three body corporates on 31 January 2002, it was rejected by the third body corporate. The applicant now stands in the shoes of that entity, and Mr Sheahan (with the agreement of all concerned) has become its champion from the point of view of providing “expert” evidence in support of his revised report.
  1. [3]
    Counsel for the applicant, Mr Skoien, has provided me with three versions of relevant parts of the Body Corporate and Community Management Act 1997: reprint No 1 G (reprinted as in force on 1 May 2002, including amendments up to Act No 13 of 2002), reprint No 1 H (reprinted as in force on 4 March 2003, including amendments up to Act No 6 of 2003) and reprint No 2 (reprinted as in force on 4 March 2003 including commenced amendments up to 2003 Act No 6). The provision under which the originating application is brought has been, successively, s 46 (2), s 46 (1) and s 48 (1). The changes in the legislation do not appear to affect the present application. Improvements worked by the changes include the possibility under s 48 (1)(b) of applying to a specialist adjudicator for adjustment of a lot entitlement schedule as an alternative to applying to the District Court and provisions in sub-s (2) identifying the body corporate as the respondent in such an application by a lot owner, other lot owners being given a right to elect to be joined as a respondent. (By s 48(2)(c) each party to the application is responsible for that party’s own costs.)
  1. [4]
    The new arrangements as to parties are highly beneficial; for the future they will obviate the need for seeking relief in terms of para 1 of the application. There being 226 lots involved here, many of which are jointly owned, the number of respondents runs into hundreds.
  1. [5]
    The application came on before Judge McLauchlan QC on 6 December 2002, ex parte, when I infer an order for substituted service was made, although I have been unable to locate the draft order referred to in the associate’s endorsement. Subsequently, the parties (the respondents having common representation) agreed on directions for the further conduct of the matter. The applicant’s estimate of the time to be allocated to the hearing was one hour. It came before me as applications judge on 20 March 2003 some time before lunch. There was insufficient time to complete the hearing in the court hours remaining on that day. A second day’s hearing suitable to everyone involved could not be found before 11 April 2003, when the matter was adjourned at 4.30 pm, on the completion of cross-examination of deponents, on the basis of the parties putting in written submissions. The first of them came in at the end of July, followed by a response the following month and a Reply in September. By the middle of that month, the parties confirmed to the court that there would be no more written submissions and that no further hearing for oral submissions was required. For the court, I express regret that absences from Brisbane in two different circuits and some very “heavy” sittings in the Planning & Environment Court giving rise to a number of difficult reserved judgments having to be written, have led to delay in finalisation of this application of undesirable proportions. However, the greater responsibility for what has happened would appear to lie with the parties.
  1. [6]
    The following table sets out the applicant’s lots, identified by number, their existing contribution lot entitlements and the new ones as proposed by Mr Sheahan:

Lot No

Entitlement Now

Applicant’s proposal

1

15

42

2

12

37

4

7

36

5

7

36

6

9

37

7

8

36

8

3

35

20

7

36

21

5

35

22

6

36

TOTAL

79

366

  1. [7]
    As to the last column, there have been some minor changes to what was proposed (up or down by 1) affecting three of the lots. The 10 lots are “Stage 1” lots. The lot entitlements of the other 84 lots in the Stage were 2, 3 or 4, with the exception of lots 75, 76, 78, 80, 81, 83 and 84 (5) and lots 93 and 94 (6). A roughly similar spread of lot entitlements among the 62 Stage 2 lots applies, likewise (except that there are no entitlements of 6) among the 70 lots in Stage 3. The aggregate of lot entitlements at present is 851; accordingly, the applicant’s lots bear responsibility for something like 9.28% of contributions levied. Under Mr Sheahan’s proposal, the aggregate of lot entitlements is 10,006, of which a total of 366 is proposed to be allocated to the applicant’s lots; its share of contributions will fall to something like 3.66%. The average lot entitlement proposed is slightly in excess of 34. The average lot entitlement among the 226 lots at present is under four, by about the same margin – one quarter of an entitlement ).
  1. [8]
    Except for lot 8, the applicant’s present entitlements are all well above the average. Under the new proposal, lot 1’s entitlement would be slightly below the average, the others’ entitlements would be well below. If a principle favouring equality of lot entitlements were respected, the applicant’s lots would be responsible for about 4.43% of contributions. Putting it broadly, the applicant’s contention is that its commercial lots, which face and draw their custom from the street, do not obtain from body corporate activities, or from the common property, the benefits which the owners of the other 216 residential lots stand to derive. The most striking instances are the lifts in the residential towers and the large swimming pool and surrounding gardens.
  1. [9]
    Assuming a lot owner who is not particularly excited about enjoying maximum voting power on resolutions within the Body Corporate, under current legislation, it is in the interest of a lot owner to have the minimum “contribution schedule lot entitlement”, the maximum “interest schedule lot entitlement.” This arrangement represents a marked change from that which originally pertained in Queensland, whereby there was a single lot entitlement for a lot applicable for all purposes. It is useful, in order to understand the present situation, to set out the definitions which currently apply which are in s 46 (Reprint No 2):

"46Lot entitlements

(1) A “lot entitlement”, for a lot included in a community titles scheme, means the number allocated to the lot in the contribution schedule or interest schedule in the community management statement.

(2) The “contribution schedule” is the schedule in a community management statement containing each lot’s contribution schedule lot entitlement.

(3) The “interest schedule” is the schedule in a community management statement containing each lot’s interest schedule lot entitlement.

(4) The “contribution schedule lot entitlement”, for a lot, means the number allocated to the lot in the contribution schedule.

(5) The “interest schedule lot entitlement”, for a lot, means the number allocated to the lot in the interest schedule.

(6) A lot entitlement must be a whole number, but must not be 0.”

(7) For the contribution schedule for a scheme for which development approval is given after the commencement of this subsection, the respective lot entitlements must be equal, except to the extent to which it is just and equitable in the circumstances for them not be equal.

(8) In deciding the contribution schedule lot entitlements and interest schedule lot entitlements for a scheme mentioned in subsection (7), regard must be had to –

  1. (a)
    how the scheme is structured; and
  1. (b)
    the nature, features and characteristics of the lots indicated in the scheme; and
  1. (c)
    the purposes for which the lots are used.

(9) A change to a lot entitlement takes effect on the recording of a new community management statement incorporating the change.”

The above provisions appeared as s 44 in Reprint No 1H. In Reprint 1G, “but must not be 0” was not included in s 44(6); nor were the provisions in (7) and (8) there; sub-s (9) above appeared as (7), but with additional words (now deleted) at the beginning: “To avoid doubt, it is declared that”. The language which confers (and controls) the court’s jurisdiction is relevantly identical, whether one looks to s 46(2), s 46(1) or the present s 48(1):

“The owner of a lot may apply … for the adjustment of a lot entitlement schedule”.

The relevant control, now in sub-s (4), formerly in sub-s (3) in Reprint No 1G, is:

“The order … must be consistent with … the principle stated in sub-section …”

The sub-section referred to, which is of relevance presently, provides:

“For the contribution schedule, the respective lot entitlements should be equal, except to the extent to which it is just and equitable in the circumstances for them not to be equal.”

  1. [10]
    The legislative policy favouring equality of lot entitlements for the contribution schedule is clear. In Burnitt Investments Pty Ltd v Body Corporate for St Andrews Community Titles Scheme 20508 (5475 of 2001, 1 February 2002); [2002] QDC006, Judge Brabazon QC said at [17]:

“The words “just and equitable are words of the widest significance and do not limit the jurisdiction of the court. It is a question of fact. Each case must depend on its own circumstances (Kurilpa Protestant Hall Pty Ltd (1946) St R Qd 170, 183).

It is the consequences of change, to all the lots and to the present owners, that might be significant. It should also be accepted that the “just and equitable” exception should not necessarily be confined to a consideration of the lots and the rights and obligations that go with them. Those aspects of property and the history of the building will usually be the dominant considerations. However, it is possible to imagine situations in which the conduct of lot owners, or a developer, might lead to personal considerations that should be taken in to account. (For that wider view, see McMillan v Toledo Enterprises International Pty Ltd (1995) 18 ACSR 603, and Ciriello v Panitz Centre Building Units Plan 3894 (1999) 20 QLR 138 at 142.)  In Re Hosking (1998) 20 QLR 145 at 146, a judge of this court took into account the extent of any increased economic burden on the owners of other lots within the scheme.”

In Burnitt, the unexpectedly slow progress of progressive development of holiday units which were sold off to purchasers as they were completed had led to a situation in which the developer in respect of vacant land which it maintained had 32 lot entitlements, against 33, attributable to 33 separate lots each having one entitlement. Essentially, the situation was that the developer (applicant) was responsible for about half of the contributions but received no benefit. His Honour proposed that total lot entitlements be reduced to 43, that of the applicant’s lot being reduced to 10.

  1. [11]
    The court no longer enjoys the untrammelled freedom it did at the time of that decision. The Act now contains a new provision (s 46A in Reprint no 1H, s 49 in Reprint No 2):

"49Criteria for deciding just and equitable circumstances

(1)This section applies if an application is made for an order of the District Court or a specialist adjudicator for the adjustment of a lot entitlement schedule.

(2)This section sets out matters to which the court or specialist adjudicator may, and may not, have regard for deciding –

(a)for a contribution schedule – if it is just and equitable in the circumstances for the respective lot entitlements not to be equal; and

  1. (b)
    for an interest schedule – if it is just and equitable in the circumstances for the individual lot entitlements to reflect other than the respective market values of the lots.

(3)However, the matters the court or specialist adjudicator may have regard to for deciding a matter mentioned in subsection (2) are not limited to the matters stated in this section.

(4) The court or specialist adjudicator may have regard to –

(a)how the community titles scheme is structured; and

  1. (b)
    the nature, features and characteristics of the lots included in the scheme; and
  1. (c)
    the purposes for which the lots are used.

(5) The court or specialist adjudicator may not have regard to any knowledge or understanding the applicant had, or any lack of knowledge or misunderstanding on the part of the applicant, at the relevant time, about –

(a)the lot entitlement for the subject lot or other lots included in the community titles scheme; or

  1. (b)
    the purpose for which a lot entitlement is used.

(6) In this section –

“relevant time” means the time the applicant entered into a contract to buy the subject lot.

“subject lot” means the lot owned by the applicant.”

  1. [12]
    In my opinion, the new provision reinforces what has been the principle all along, that some positive justification must be shown for departing from equality. I think it is inherent that equality is taken to be a “just and equitable” arrangement, even if, as in Burnitt (at the time of the application), the assumption is difficult to justify. The new sub-s (4) of s 49 requires the court to have regard to matters of the kind that were the subject of evidence and contrary “expert” opinions of Mr Sheahan and his protagonist engaged by the respondents, Mr Linkhorn.
  1. [13]
    Mr Linkhorn’s suggested lot entitlements exhibit a move towards “equality” in the sense that the proposed lot entitlements of the residential lots fit within a fairly narrow compass – relatively more narrow than the variations at present. Only a dozen attract a proposed lot entitlement of 40 or below, only three are 49 or above: they are lot 28 (49) and lot 94 (50 – making a new distinction with lot 93) in Stage 1 and lot 51 in Stage 2 (52 – this is a four bedroom unit). Mr Linkhorn treats the applicant’s lots and also the management unit (lot 3) relatively unfavourably, recommending the following new lot entitlements:

Lots

Recommendation

Present

1

75

15

2

71

12

4

63

7

5

63

7

6

64

9

7

64

8

8

62

3

20

63

7

21

63

5

22

63

6

TOTAL

651

79

Lot 3 is assigned a proposed new entitlement of 71, although the present entitlement is only three. The total of lot entitlements recommended by Mr Linkhorn is 10,005, effectively indistinguishable from Mr Sheahan’s aggregate. Mr Linkhorn’s proposal would lead to the applicant’s lots having to bear some 6.5% of contributions, as opposed to something like 4.43%, if the principle of equality were followed.

  1. [14]
    In my opinion, applications such as the present should not be approached on the footing that there is a single “just and equitable” solution. There may be many views open, subtly, even glaringly different, which could reasonably be seen as ‘just and equitable.” If there is very little to distinguish the lots – for example, they are units of like size in a “6 pack” – it is unlikely the equality principle could be displaced. Here, the lots are quite easily seen to fit into different categories. The commercial lots are all at ground level, indeed, depend for their viability on their street frontages, one would think. The residential units are readily capable of differentiation as well, should one be minded to differentiate, as happened when the existing lot entitlement schedules were drawn up; they range from studio units to penthouses and a four bedroom unit. The occupants of the larger units will presumably make more use of common facilities and cause more wear and tear. As will be seen, it is suggested that the owners of ground floor residential lots ought not to have to contribute to running costs for lifts; if ground floor residents use a lift that, it is said, can be allocated against the higher level units being accessed. Minds may differ about this, also about whether those who use lifts to access higher floors should pay no more than those who travel only to the lower floors.
  1. [15]
    Another issue as to which approaches may vary concerns whether regard is had to the use owners of individual lots or their invitees may actually make of common property, the swimming pool and garden surroundings in particular, or to the use they may potentially make of those facilities. There may be owner-residents incapable of using the pool, because of physical limitations. Should they have to pay for its upkeep? It is not going to be feasible to make adjustments periodically to implement what may be “just” or “equitable” as circumstances of this kind change. One would expect new arrangements to be set having regard to the long term, accepting that things may change with respect to particular lots in the short term. One might not expect the entitlement of a commercial unit to be reviewed every time the nature of the occupier’s business changed.
  1. [16]
    To a considerable extent, the parties reached common ground as to the methodology to be adopted. They did not agree about the proper treatment of all relevant inputs, or as to what ought to be the final outcome. Mr Sheahan described the methodology in a report of 1 May 2001 addressed to the members of the bodies corporate:

“Rationale

for the

methodology

 

Contribution lot entitlement should be equal between all lots unless it is just and equitable for the entitlements not to be equal.

 

Given that contribution lot entitlement is used by the Body Corporate to collect from each lot owner a portion of the funds required by the Body Corporate to operate, it is not just and equitable for the contribution lot entitlements to be equal between lots where the lots are not causing the underlying expenses equally or enjoying equally the benefit arising from the expenditure.

 

To determine whether it is just and equitable for entitlements not to be equal requires a line by line analysis of the expenditure patterns of the bodies corporate to determine which lots are the cause of (and to what extent) of the expenses of the bodies corporate.

Step 1 in

applying the

methodology

Using historical data and forecasts, for both the sinking fund and the administrative fund formulate a typical statement of expenditure for each body corporate.

 

From this typical budget I have omitted the data relating to insurance of  replacement and reinstatement of the building as it relates to the interest entitlement schedule only.

Step 2 in

applying the

methodology

Amalgamate the 3 statements to produce the hypothetical expenditure pattern for the new combined body corporate.

Step 3 in

applying the

methodology

Categorise each item of expenditure-to determine how it should be distributed to each lot. For Alexandra Beach Resort it was determined that the following categorisations of expenditure were relevant –

  1. Costs that related equally to all lots and should be shared among all lots equally
  1. Costs that related to the relative size of each lot and should be shared among all lots according to the relative size of the lot
  1. Costs that related to the numbers of users of each lot and should be shared according to the number of bedrooms in that lot.
  1. Costs that related to the lift giving access to the lot, and should be shared according to the number of bedrooms in that lot.
  1. Costs that related to the possible type of use of the lot, and should be shared according to whether the use was residential or commercial. For this category many expenses related solely to the residential use and were shared equally between the residential lots. Other expenses related to the use of the garbage collection, with the commercial lots using a the garbage more regularly then the residential lots.

Step 4 in

applying the

methodology

Attribute to each lot the total expenditure relating to (or caused by) that lot.

Step 5

Convert the relative expenditure caused by each lot, or benefiting the particular lot, to a lot entitlement value. The value should be a whole number.

Working Paper

The working paper attached to this covering latter shows the steps being performed for the bodies corporate of Alexandra Beach Resort.

It also contains some comparisons of the entitlements of the current bodies corporate and the lots in those bodies corporate.

Conclusion

When comparing lots within each body corporate, the entitlements are not correct. Some lots with higher entitlements are unjustly bearing too much of the body corporate expenses.

Comparing the various bodies corporate, my analysis indicates that on a per lot basis the relative weightings of each body corporate are within tolerable margins, but some bodies corporate are carrying expenses where the owners and occupiers of other bodies corporate are benefiting without bearing their relative share of the cost. This is unjust and the amalgamation should establish a just balance between lot owners in all three stages.”

  1. [17]
    I have taken the liberty of reproducing extensively what I take to be the working paper referred to, to reveal Mr Sheahan’s approach:

"2.3PHYSICAL DESCRIPTION OF THE BUILDING ON THE SCHEME LAND

The buildings in the Scheme are low / medium rise built above car parking facilities. The buildings have an architectural style and finish that is complementary. There are additional car parking facilities at the rear of the Scheme. The Scheme is predominantly accommodation lots of various sizes and internal configurations. Some have access to lifts. Others have no use of the lifts within the Scheme. These accommodation lots have access and use of a magnificent recreational oasis that contains pools, spa, barbeques and a gym. The main entry to the recreational oasis is through a management foyer building from which the on-site management operates. The portion of the Scheme that is on the corner of Alexandra Parade and Pacific Parade contains commercial lots. These commercial lots are effectively self-contained. They make virtually no use of the recreational facilities contained in the accommodation portion of the scheme.

2.4LOT USAGE, CONTRIBUTION ENTITLEMENTS, AREAS, CAR PARKING RIGHTS, OTHER EXCLUSIVE USE SPACE, AND BEDROOMS.

There are commercial lots and residential lots, used for either short-term holiday accommodation or long-term accommodation. . One lot on the ground level is used for residential purposes and for running an on site caretaking and letting business (commonly referred to as management rights).”

  1. Basis for lots to contribute to costs

This report assumes that lot owners should contribute to the costs of their Body Corporate in a proportion equivalent to the share of the costs that are incurred by the Body Corporate because of their particular lot.

  1. Just and equitable contributions

The following example demonstrates a simple application where it would be just and equitable for the contribution schedule not to be equal.

A ten story building has a cooling tower on its roof, but only the lots on levels six to ten can connect to the air conditioning system. It would be unfair for the lots on levels one to five to have to contribute towards the costs of operation and maintenance of the cooling tower. In this case, the lots on levels six to ten should pay a higher proportion of the levies than the lots on levels one to five. (The BCCM for Everybody – Ros Janes, p 61)

The example illustrates that if a lot is not able to obtain the benefit of a particular utility or service, it is not just and equitable that the lot owner contribute towards the cost, operation and maintenance of that service. Consequently it would be just and equitable in these circumstances for the contribution schedule entitlements not to be equal.

The same principle set out in the example applies to other operation and maintenance costs detailed in the administrative fund and sinking fund budgets and financial statements.

To comply with the intent of Section 45(2) of the BCCMA, the historical and budgeted expenditure from the administrative fund and sinking fund are examined on a line by line basis and a just and equitable share of each item of expenditure is attributed to each lot. The amount of expenditure attributed to each lot then provides the basis for determining a just and equitable contribution schedule lot entitlement for each individual lot in the scheme.

The balance of this report examines the just and equitable apportionment of the costs to each lot in the scheme.

The premium for an insurance policy is an example of an expenditure item that the Act specifically excludes from collection proportionately in accordance with the contribution schedule. Consequently, this expense has been excluded from the analysis of the Body Corporate’s expenditure.

10 Body corporate expenditure

10.1INVESTIGATION OF  BUDGETS AND STATEMENTS OF ACCOUNT

The relevant financial information relating to Body Corporate expenditure is set out in the historical financial statements. Estimates of the proposed and predicted expenditure are set out in the forecasts and budgets. As there are no historical financial statements for the Scheme (as it does not yet exist) we have used the historical information from the Old Schemes. We have prepared “typical statements of expenditure” for each of the Old Bodies Corporate and then amalgamated these to produce a hypothetical expenditure statement for the Scheme, taking into account the Old Bodies Corporate.

In accordance with best accounting practices we have used historical statements spanning several periods in conjunction with the budgeted expenditure (including the 10 year sinking fund forecast) at the time the original report was prepared as the basis for our calculations. In doing so the impact of extraordinary items in any particular financial period, including those budgeted in the current financial year are seen in their proper context. The “working paper” appendix sets out the historical administrative fund expenditure. Typical yearly expenditure on each item is then arrived at and set out in the far left hand column.

The approach set out for the administrative fund is not adopted for the sinking fund expenses. Prior to the BCCMA many bodies corporate in Queensland did not have a program for systematic maintenance of the common property, and consequently funds to cover these expenses were recovered haphazardly by way of special levies. The CCMA contains a requirement for bodies corporate to put in place a ten-year program for the collection of sinking fund expenses sufficient to cover the likely demands for maintenance over that 10 year period.

To comply with this requirement the Body Corporate has commissioned a report from a quantity surveyor, a copy of which is appended. The report forms the basis of examination of the sinking fund expenses. The “working paper” appendix sets out the budgeted expenditure from the fund and then a national average yearly expenditure on each item.

  1. DETAILS OF BODY CORPORATE EXPENDITURE

A complete list of the items of historical and budgeted expenditure from the administrative funds and sinking funds, is compiled in the working paper appendix. Each expenditure item in this appendix is allocated a typical yearly expenditure figure. The average expenditure for each item is then totalled to provide a typical total yearly expenditure for the Scheme. It is then possible to arrive at a percentage of total expenditure for each expenditure item. This appendix is then drawn upon when allocating expenditure to each lot in accordance with the procedure referred to in this report.

  1. Categorization of costs

11.1METHOD 1 – COSTS SHARED EQUALLY

There are certain administrative and sinking fund items that should be shared amongst all lots on an equal basis. These items of expense either are directly proportional to the number of lots in the scheme (eg body corporate administration contract) or are fixed without reference to the number of lots but from which all lots benefit equally (eg security contract or fee for preparation of a tax return). The common characteristic of these items is that no particular lot places any greater or lesser demand on the underlying expense item.

These costs are identified in the working paper appendix.

11.2UNEQUALLY SHARED COSTS

Certain administrative and sinking fund items should not be shared on an equal basis amongst all lots when determining just and equitable contribution lot entitlements. Certain lots within the scheme place a greater demand for the underlying service than other lots. Examples of this expenditure include, but are not limited to, and some repairs and maintenance items.

Unequally shared costs are influenced by several characteristics. These include potential use of common property facilities by each lot’s occupants and visitors, and the support and shelter provided to the lot by the common property.

These costs are categorized and identified in the working paper appendix under the headings “Area” or “Potential Accommodation Costs”.

11.3METHOD 2 – SUPPORT AND SHELTER COSTS

The purpose of the structure of the building is to provide support and shelter to the lots. Typical support and shelter costs include exterior painting. The nature of the construction makes it appropriate to share the support and shelter costs based on the area of the lot in proportion to the total area of all lots. Intuitively, if lot A is twice as big as lot B then it requires twice the support and shelter.

11.4METHOD 3 – POTENTIAL ACCOMMODATION COSTS

Some costs are directly related to the use of common property. Certain maintenance costs of the common property depend predominantly on the number of people who use it. The most logical determinant of the potential use a lot owner and the lot’s invitees make of the common property is to look at the number of bedrooms in each lot to determine a potential accommodation factor for each lot.

11.5METHOD 4 – LIFT COSTS

There is a category of costs that relate to the provision of lift facilities within the Scheme. However, some lots have no possible use of the lift, for instance they are on the ground floor. For these lots it is not just and equitable that they contribute toward the lift costs. For the lots that do have benefit from the provision of lifts within the Scheme it is appropriate that they share these lift costs equally.

11.6METHOD 5 – COMMERCIAL LOTS COSTS AND ACCOMMODATION LOT COSTS

Some costs related to the different types of uses for the lots. Particularly, there were some costs from which the accommodation lots received the exclusive benefit. Examples of costs of this kind include the provision of the pool and other recreational facilities. For these types of costs, it was appropriate for those accommodation lots to share the costs equally. Again, certain costs benefited the commercial lots exclusively. Examples of these costs included the garbage disposal costs.

13Distribution of contribution entitlements

13.1APPLICATION OF METHODOLOGY

Our analysis (contained in the working paper) details how the costs should be distributed between the various categorises of body corporate expenditure. –

Methpd

Summary of Distribution

Costs

1

Costs to be distributed equally between the lots

76.90%

2

Costs to be distributed according to the relative area of each lot

4.22%

3

Costs to be distributed according to the relative number of bed rooms of each particular lot

3.13%

4

Costs to be distributed according to the use of the lift

5.93%

5

Costs to be distributed according to whether the lot was commercial or accommodation

9.61%

14Suggested schedule and comparisons

After applying the methodology adopted in this report and distributing the burden of Body Corporate expenditure to each lot the figure arrived at for each lot forms the basis for that lots contribution schedule lot entitlement. Those figures are set out in the summary page that is the first 5 pages of the working paper Appendix. This is simply the percentage of costs attributable to the lot (expressed to 2 decimal points) multiplied by 10,000.

15Conclusion

This report comments on the existing lot entitlement contribution schedule for the Scheme and concludes that the contribution schedule should not be equal for each lot because it is just and equitable for the contributions not to be equal for each lot.

My analysis of the costs of the Body Corporate found that the current schedule is not just and equitable. It is recommended the current contribution schedule be adjusted as set out in the working paper appendix. The working paper Appendix also compares the existing lot entitlements with the new lot entitlements.”

  1. [18]
    Mr Sheahan’s methodology appears to an appropriate one, having regard to the legislation. In endorsing it, the court is by no means identifying it as the methodology that should be adopted in any other situation where a question of changing contribution lot entitlements might arise. In the present circumstances, it would be perverse of the court to disapprove of the methodology, given that Mr Linkhorn, who has years of expertise in the same field, was content to do his work, when engaged by the respondents, on the basis of what Mr Sheahan had done.
  1. [19]
    Mr Linkhorn’s report contains the following observations, which may be treated as accurate for purposes of this application, in s 3:

"3.ON-SITE INSPECTION OF THE SCHEME:

3.1On Tuesday 14 January 2003 I carried out an on-site inspection of the resort in accompaniment with Mr B Kaufmann, (a lot owner in the complex), to view the layout of the buildings, the Body Corporate’s common property, assets and facilities.

3.2During my visit I observed that Lot 1 and Lot 2 of the Stage 1 Scheme operate as a combined bar and restaurant, (Galliano’s Bar and Café). The occupiers of Lots 1 and 2 have full access to all Units and facilities in the complex, full use of all building lifts, complete access to all of the residential and entertainment areas of the buildings in order to provide all residents, occupiers, guests and members of the public with full restaurant and bar services, (either to their individual Units, from a sunken pool bar, the resort’s associated swimming pools, internal access pathways, an internal restaurant and bar and an adjacent 55 square metre open serving restaurant area). Copies of Galliano’s Bar and Café room service menus have been placed into the Perspex covered advertising notice boards of each lift and were also found in the guests’ compendium of a one bedroom unit that I inspected.

3.3Whilst conducting this inspection I also observed a constant number of Alexandra Beach Resort Apartments residents and guests frequenting the bar facilities from the swim-up counter and also from the common property internal access pathways. (Please refer to photographs in Appendix 2 of this report). The business operators of Lots 1 and 2 have full access to all lifts and Units in the Resort’s buildings in order to provide residents and guests with restaurant room service.

3.4Stage 1, Lot 3, currently operates as the Resort’s Reception and on-site Manager’s Office. As such, the Manager and staff need full access to all areas of the complex in order to complete their required daily duties and responsibilities. They therefore have full use of all lifts and complete access to all of the residential and entertainment common property areas of the complex including storerooms service areas and other facilities.

3.5I took photographs of the building, common property and facilities in order to assist me with the checking and verification of the contents of and calculations contained in the SSKB Strata Consulting Report.

3.6As a result of:

  1. (1)
    my personal on-site inspections of the complex;
  2. (2)
    my review of a copy of the SSKB Strata Consulting Report,
  3. (3)
    my reference to further items of documentation from BUGT,

In my opinion the SSKB Strata Consulting Report does not reflect a fair and equal allocation of proposed Contribution Schedule Lot Entitlement values between each of the lots in the Scheme. It appears to favour some of the commercial and larger residential lots over many of the smaller units in the complex (Please refer to section 4 of this report – Pages 4 to 7 inclusive).”

(The SSKB strata consulting report referred to as Mr Sheahan’s.)

  1. [20]
    At a later point Mr Linkhorn wrote:

“4.6.Whilst I agree with the conclusion reached by SSKB Strata Consulting in their Report that the Contribution Schedule Lot Entitlements should not be equal for each lot I do not agree with their recommended lot entitlements for the following reasons:

  1. (1)
    they have not taken into full consideration all of the justified adjustments and allowances for several of the lots with regard to owners’ anticipated usage of common property areas, use of the lifts, facilities and other matters associated with the repair, maintenance and servicing of the Body Corporate’s common property and assets.;
  2. (2)
    there are errors in their various mathematical computations based on lot classification, size, occupational capacity, location, usage of lifts and other items of Body Corporate common facilities and assets;
  3. (3)
    their worksheet papers contain mathematical mistakes which directly effect their calculation of the proposed Contribution Schedule Lot Entitlements;
  4. (4)
    their proposed Contribution Schedule Lot Entitlements are not fair and equal as required under Section 46(4) of the Body Corporate and Community Management Act 1997.”
  1. [21]
    It is not necessary to go through the detail provided, which does not mean the Court is accepting error on Mr Sheahan’s part in the respects alleged. Mr Linkhorn proceeded to make and justify recommendations:

"6.RECOMMENDED NEW CONTRIBUTION SCHEDULE LOT ENTITLEMENTS FOR THE SCHEME:

6.1I have prepared recommended Contribution Schedule Lot Entitlements for the Scheme. These recommended Contribution Lot Entitlement calculations are not equal but in my opinion are just and equitable.

6.2In making my calculations I have weighted the commercial lots with potential accommodation factors of at least one per lot to allow for usage, servicing, repairs and maintenance of the common property and facilities associated with those commercial lots, (eg Staff toilets). My calculations of recommended Lot Entitlement values are based on the following:-

  1. (1)
    individual lot descriptions and usage;
  2. (2)
    lot location and floor level;
  3. (3)
    lift usage;
  4. (4)
    individual lot floor area;
  5. (5)
    individual lot potential accommodation factor;
  6. (6)
    common area facilities usage;

6.3My recommended new Contribution Schedule Lot Entitlements for the recently amalgamated Scheme are detailed in Appendix 2, in the Tables headed “Calculation and Worksheet Document for Recommended Contribution Schedule Lot Entitlements’ pages 1 to 5 inclusive.

6.4My recommended Contribution Schedule Lot Entitlements range from a minimum value of 38 through to a maximum value of 75 with a total aggregate of 10005.

6.5I consider that this wide range of recommended Contribution Lot Entitlement values offers all owners a much fairer and gradual scaled value difference between each lot than either those of the current lot entitlement values, (from 2 to 15 inclusive with a total aggregate of 851), or those as proposed in the SSKB Strata Consulting Report, (from 35 to 50 inclusive with a total aggregate of 9981);”

  1. [22]
    He and Mr Sheahan (who, as noted, made minor adjustments to his recommendations subsequently) were cross-examined at length. Essentially, each has stuck to his guns. The views of both are defensible, although I have been persuaded by Mr Skoien that Mr Linkhorn was wrong to treat Goods and Services Tax as a separate item of expenditure: it should have been treated as carried with the individual expenditures it is referrable to. In the end, I prefer Mr Linkhorn’s view as to the benefit the commercial lots gain from facilities such as lifts and the pool and garden area. Unless the parties can show some error which has had an effect in Mr Linkhorn’s final entitlements recommendations, I would propose to order changes in contribution lot entitlements accordingly.
  1. [23]
    I have considered counsel’s detailed written submissions, which include close analysis of the oral evidence given. It strikes me as profitless to embark on any detailed resolution of these matters. Both Mr Sheehan and Mr Linkhorn are competent professionals whose views are entitled to respect. The respondents have been cooperative and reasonable in conceding that the lot contribution entitlements relating to the applicant’s lots are excessive; in aggregate, they are more than twice what one would expect from the principle of equality. It is surprising that the court is presented with the contention that their aggregate entitlements should be reduced by 60% or so, to well below the level of average lot contribution entitlement. One wonders why those who devised the original schedules of unequal entitlements did so in the way they did. Mr Sheahan’s view was that “analysis indicates that on a per lot basis the relative weightings of each body corporate are within tolerable margins.” Focussing on the Stage 1 lots only, the applicant’s contribution entitlements (79 of 367) amount to 21.52% of the total; Mr Sheahan’s proposal would reduce that to 366 (of 4135), or only 8.85%, for 10.64% of the lots by number. Mr Linkhorn’s proposal would reduce the applicant’s responsibility to an aggregate 13.5% (651 out of 4080).
  1. [24]
    I have seriously considered whether the proper outcome of the application would not be equal lot entitlements, in accordance with the strong legislative policy favouring equality. However, in the Alexandra Beach Resort, there is a tradition of unequal lot entitlements and there are justifiable bases for discrimination. The parties on both sides contend for an outcome closer to equality of contribution lot entitlements. Mr Linkhorn does not go as far in this direction as Mr Sheahan, who in my opinion, has “overshot” for reasons identified by Mr Linkhorn. It is particularly significant that, as I understand it, the respondents are agreed in supporting Mr Linkhorn’s proposals. Were it not so, there might be difficult issues here about changing the status quo adversely to the interests of lot owners indicating satisfaction with it. I would observe, at the risk of inconsistency with my observations about the Act’s strong policy of equality, that in the present circumstances, with so many lot owners involved, having disparate interests, an outcome which changes the status quo less, rather than more, seems preferable.
  1. [25]
    It must be accepted that the exercise the court embarks on is necessarily a rough and ready one. There is much scope for arguments as to which lot owners benefit from particular facilities and services. There may be no easy answer. Much may depend on the proclivities of particular lot owners. The occupants of the commercial lots, presumably, are free to ride the lifts or use the pool to their hearts’ content, rather than attend to their commercial interests. I would observe, too, that not too much store can be set by historical or short-term figures for expenditure. In the nature of things, there is likely to be fluctuation, which may produce different results with the same methodologies applied at different times. The court’s order, presumably, will have effect for at least the medium, if not the long term. I think a broad brush approach is necessary, rather than one which focuses too closely on the last dollar or percentage point.
  1. [26]
    The outcome is that the application succeeds, but on the basis contended for by the respondents, rather than the one contended for by the applicant.
  1. [27]
    Before making orders, I will allow the parties an opportunity to consider these reasons, with a view to making submissions as to the appropriate form of order.
Close

Editorial Notes

  • Published Case Name:

    Sandhurst Trustees Ltd (ACN 004 030 737) v Condah Bay Investments Pty Ltd (ACN 050 287 206) & Ors

  • Shortened Case Name:

    Sandhurst Trustees Ltd v Condah Bay Investments Pty Ltd

  • MNC:

    [2003] QDC 438

  • Court:

    QDC

  • Judge(s):

    Robin DCJ

  • Date:

    28 Nov 2003

Appeal Status

Please note, appeal data is presently unavailable for this judgment. This judgment may have been the subject of an appeal.

Cases Cited

Case NameFull CitationFrequency
Ciriello v Panitz Centre Building Units Plan 3894 (1999) 20 QLR 138
1 citation
In Re Hosking (1998) 20 QLR 145
1 citation
McMillan v Toledo Enterprises International Pty Ltd & Ors (1995) 18 ACSR 603
1 citation
Re Kurilpa Protestant Hall Pty Ltd [1946] St R Qd 170
1 citation

Cases Citing

Case NameFull CitationFrequency
Fischer v Body Corporate for Centre Point Community Title Scheme 7779 [2004] QDC 173 citations
Fischer v Body Corporate for Centrepoint Community Title Scheme 7779[2004] 2 Qd R 638; [2004] QCA 2141 citation
Franklin v Body Corporate for La Porte D'Or [2004] QDC 1543 citations
Huang v Body Corporate for Anchorage One CTS 35311 [2024] QCAT 3812 citations
L v H [2004] QDC 1522 citations
M v K [2004] QDC 2271 citation
Radchenko v Body Corporate for Richmond Apartments CTS 30240 [2018] QCAT 2512 citations
Woodley & Anor v The Proprietors of Quay West Community Title Scheme 16610 [2006] QDC 2772 citations
1

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