Woodley & Anor v The Proprietors of Quay West Community Title Scheme 16610
[2006] QDC 277
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- Woodley & Anor v The Proprietors of Quay West Community Title Scheme 16610[2006] QDC 277
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Woodley & Anor v The Proprietors of Quay West Community Title Scheme 16610[2006] QDC 277
Woodley & Anor v The Proprietors of Quay West Community Title Scheme 16610[2006] QDC 277
DISTRICT COURT OF QUEENSLAND
CITATION: | Woodley & Anor v The Proprietors of Quay West Community Title Scheme 16610 [2006] QDC 277 |
PARTIES: | Ken and Mary Woodley (Applicant) v The Proprietors of Quay West Community Title Scheme 16610 (Respondent) |
FILE NO/S: | 806/06 |
DIVISION: | Civil |
PROCEEDING: | Application |
ORIGINATING COURT: | District Court |
DELIVERED ON: | 15 August 2006 |
DELIVERED AT: | Brisbane |
HEARING DATE: | 28 July 2006 |
JUDGE: | Forde DCJ |
ORDER: |
|
CATCHWORDS: | REAL PROPERTY – strata and related titles and occupancy – adjustment of contribution lot entitlement schedule – relevant considerations – Body Corporate and Community Management Act 1997 (Qld), ss 48, 49 Burnitt Investments Pty Ltd v Body Corporate for St Andrews Community Titles Scheme 20508 [2002] QDC 006 Ciriello v Panitz Centre Building Units Plan 3894 (1999) 20 Qld Lawyer Reps. 138 Cooloola Court [2005] QBCCMCmr 319 Fischer v Body Corporate for Centrepoint Community Titles Scheme 7779 [2004] 2 Qd R 638 Marquise (2004) ABCCMCmr 271 Ocean Side [2005] QBCCMCmr 148 Re Kurilpa Protestant hall Pty Ltd (1946) St R Qd 170 Sandhurst Trustees Ltd v Condah Bay Investments Pty Ltd [2003] QDC 438 St. Lucia Manors [2006] QBCCMCmr 104 |
COUNSEL: | Mr Atkinson for the Applicant Ms Heyworth –Smith for the Respondent |
SOLICITORS: | Home Wilkinson Lowry for the Applicant Maunsell Pennington for the Respondent |
Introduction
- [1]The applicants seek an order pursuant to s 48(1) of the Body Corporate and Community Management Act 1997 (Qld)[1] that the lot entitlement schedule for Community Title Scheme 16610 be adjusted in accordance with the schedule attached thereto. Relevantly, as far as the applicants are concerned it would change their lot entitlement on apartment 136 as a per cent of the total lot entitlement to .83%.[2] After some minor adjustments, on this application the figure sought is .84%.[3] This would produce a downward per cent change of some 46%. Obviously, the applicant’s apartment is one of the larger ones.
- [2]The experts from both sides[4] have prepared detailed reports. They are attached to their various affidavits. The initial position taken by Mr. Buntine at the hearing was that the per cent should be .99[5] or 1.16.[6] The former figure was amended to .98%, a new schedule provided by consent post the oral evidence.[7] The later submission by the applicant’s counsel stated that the figure of .98% “reflected the concession made by the respondent’s expert, Mr Buntine, in relation to the Building Management Agreement”.[8] The respondent would be content with that figure of .98%.[9]
- [3]It is common ground between the experts that the present lot entitlement is not in accord with the Act and requires some adjustment. It has been suggested that once an applicant has established a prima facie case that the existing schedule is unjust and unequal the onus then is on the respondent to place material before the court or tribunal to prove that any departure from equality in the schedule is just and equitable in the circumstances.[10] That approach seems to be consistent with the Act.
Issues for determination
- [4]The difference in the approaches is due, in the first instance to the methodology of each expert as to the figures to be used to reflect the administrative fund expenditure. This was determined by Mr. Sheehan by utilising the historical and budgeted figures. In Mr. Buntines case, he used the most recent administrative budget figures. Second, there are specific items which the experts cannot agree upon as to the method of apportionment: whether they should be apportioned equally amongst the lot owners or on some other bases.
- [5]The experts have agreed on most items. Those items in dispute are to be found in Exhibit 1. They include cleaning costs of the common areas and car park, common electricity costs, cooling tower/condenser costs, costs of the air-conditioning plant for the residential lobby areas, costs of repair and maintenance of garage doors, costs of providing the central emergency generator, the costs of maintaining automatic fire sprinklers, the costs of replacement carpet to general areas and passages, the costs of replacement of boom gates and the cost of the air conditioning service fee.
Legislative basis for determining lot entitlement
- [6]
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.
- [7]Section 49 of the Act provides as follows:
(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
(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
(b) the nature, features and characteristics of the lots included in the scheme; and
(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
(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.
Relevant case law
- [8]The Court of Appeal has discussed these provisions in Fischer’s case.[13] It is convenient to quote from that case to explain the difference between ‘contribution schedule lots’ and ‘interest schedule lots’.[14] It is not necessary to deal with the latter in the present case, but it is important to distinguish same when discussing the section:
[4] to avoid confusion in use of the word “lot” – which means both the real property represented by the residential unit and the designated number representing the obligation to contribute to body corporate expenses – I will use the word “apartment” to refer to the former use and the word “lot” to refer to numbers in the contribution schedule, which will be described shortly.
[5] the Building Units and Group Titles Act was repealed in 1997 and replaced by the Body Corporate and Community Management Act 1997 … which provides that there should be two sets of “lot entitlements” for each apartment in a community titles scheme, formerly a building units plan. The two sets were “contribution schedule lots” and “interest schedule lots”. The former is the means by which the respective contributions of the apartment owners to the maintenance costs of the building are determined. The interest schedule is the means by which the respective owners’ interests in the common property are determined. In each case there is a schedule of lot entitlements which consists of a whole number allocated to each apartment.
[6] to determine the amount on apartment owner’s contribution to expenses the total of body corporate expenses is divided by the total number of contribution lots. The quotient is then multiplied by the number of contribution lots in respect of each apartment to arrive at the respective amounts to be paid.
- [9]Further the Court in discussing equal contributions stated:[15]
[26] Although the Act gives no clear indication one way or the other, the preferable view is that a contribution schedule should provide for equal contributions by apartment owners, except in so far as some apartments can be shown to give rise to particular costs to the body corporate which other apartments do not. That question, whether a schedule should be adjusted, is to be answered with regard to the demand made on the services and amenities provided by a body corporate to the respective apartments, or their contribution to the costs incurred by the body corporate. More general considerations of amenity, value or history are to be disregarded. What is at issue is the “equitable” distribution of the costs.
- [10]In an attempt to clarify the meaning of the Act, Chesterman J. referred to the Explanatory Notes which accompanied the amendment in 2003 and also the Second Reading Speech when the Bill for it was debated. His honour stated[16] that because the meaning of the Act was ‘unclear, it is permissible to consult these materials’:
Explanatory Note:
The change is intended to reinforce the concept that usually all lot owners are equally responsible for the cost of upkeep of common property and for the running costs of the community titles scheme. However, it is recognised that there are many valid instances where the contribution schedules do not have to be equal. The amendment provides that usually the numbers in this schedule are equal, unless it can be demonstrated that it is just and equitable for there to be inequality. The need for difference is best shown by examples.
…
Example 3 In a basic scheme, if all lots are residential lots ranging in size from a small lot to a penthouse, the contribution scheme lot entitlements generally would be equal. However, the contribution schedule may be different if the penthouse has its own swimming pool and private lift. The contribution schedule should recognise this type of difference. The other lots in the scheme despite being of differing size or aspect would be expected to have equal contribution schedule lot entitlements.[17]
Second Reading Speech:
The issue of the nature of the contributions schedule for a body corporate scheme has created some discussion. The guiding principle for both setting and adjusting the contributions schedule is that it involves the equitable sharing of the costs of operating and maintaining the common property. These costs should be borne in proportion to the benefit, not in proportion to the unit’s value. It is not a contribution linked to an ability to pay, but as a payment for services … there is not an argument … against the fact that, in terms of costs related to a property value – costs such as rates and insurance – owners whose properties are worth more should pay more. But when we are talking about those parts of a property where the benefits are shared more or less equally, we cannot apply the same formula.[18]
- [11]What is ‘just and equitable’ depends upon the facts in each case and the circumstances of the case.[19] That means of course that any such finding must be consistent with the requirements set out in s 49 of the Act.
- [12]The following passages provide some further guidelines when one is required to make a determination as sought in the present case:
[30]These materials make it tolerably plain that the Act is intended to produce a contribution lot entitlement schedule which divides body corporate expenses equally except to the extent that the apartments disproportionately give rise to those expenses, or disproportionately consume services. That determination can only be made by reference to factors which have a financial impact of consequence on the body corporate. It cannot be affected by factors which go to an apartment’s value or amenity.
[31] Secondly, the nature of a contribution lot entitlement schedule itself suggests that the allocation of lot entitlements is to be made on the basis of the impact that individual apartments make upon the costs of operating and running a community titles scheme. Contribution lot entitlements determine the apartment’s share of the outgoings. The starting point is that the entitlements should be equal. A departure from that principle is allowable only where it is just, or fair, to recognise inequality. The departure must take as its reference point the proposition, from which it departs, that apartment owners should contribute equally to the costs of the building. The focus of the inquiry is the extent to which an apartment unequally causes costs to the body corporate.
[32] the third consideration is that if this principle not be the applicable one then there is no basis on which applications for adjustment of contribution lot entitlements schedules can consistently be made. As the evidence in this application shows, if the inquiry is limited to the extent to which an apartment creates costs, or consumer services, above or below the average, one can readily determine what the contribution lot entitlement should be the high degree of similarity in the reports of Mr Sheehan and Mr Linkhorn demonstrate this. If the inquiry be wider and include such nebulous criteria as the structure of the scheme, and the purposes for which they are used, there is no intelligible bases on which vast variety of circumstances might be relied upon to depart from, and therefore erode, the principle said to be paramount, that there should be an equality of entitlements.[20]
- [13]Some assistance in applying those guidelines can be found in cases which have discussed similar issues. For example, in Newport on Main,[21] Mr. Fischer, an adjudicator, commented that he agreed with the ‘apportionment of the administration fund costs on an equal basis between all lots.[22] Mr. Fischer commented that the ‘Respondent, at hearing … did not raise any objection to any of the costs apportionments made by Arkcoll. It seems that these costs, excluding the building washing, are equally beneficial to all of the lots within the scheme’.[23]
- [14]In Sandhurst Trustees Ltd v Condah Bay Investments Pty Ltd,[24] his honour Judge Robin was concerned with three different categories of lots: commercial lots on the ground level, and the residential units which ranged from studio units to penthouses. There was a history of unequal lot entitlements in the particular resort. There was some basis for discrimination. The parties on both sides were contending for an outcome which would produce closer equality of contribution lot entitlements. In that case, Mr. Sheehan’s methodology which the other expert followed, was accepted. Costs were shared equally where the lots benefited equally. Other costs were not shared equally but on a just and equitable basis which included some repairs and maintenance items. 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.[25] The typical support and shelter costs included exterior painting and was based on the area of the lot in proportion to the total area of all lots. Some lots had no access or need for the lifts and the report stated that it would not be just and equitable for those lots to contribute towards the lift costs. The latter is understandable. However, given the comments in Example 3 in the Explanatory Notes, the size of a lot does not mean that the contribution must be other than equal.[26] Unless, as noted in Fischer’s case, the cost is disproportionate.[27]
- [15]As was held in Ciriello’s case, the large area of the squash centre and the larger use made by the squash centre of roof area were not good reasons for resisting equal lot entitlements.[28]
- [16]Where there is access to the common property the costs should be shared equally, as the costs are equally beneficial to all of the lots in the scheme.[29] Contributions in accordance with the interest schedule may reflect ownership of the common property and assets. It does not follow that ownership ‘has any correlation to the costs of repair and maintenance incurred for the common property and assets, particularly when all of the common property and assets are equally accessible by all occupiers and ‘owners’ are unable to place any restriction on usage or access’.[30] The learned adjudicator made the following observation with which I agree:
[96] I consider it logical that the cost of repair and maintenance of the common property, for that property subject to deterioration by direct usage (such as paved areas), would have some relationship to its level of use. It would also seem logical that, for instance, the benefit derived by each lot from the provision of lighting to the common areas would be equally beneficial to all lots. I do not consider that there is any direct relationship between the ‘ownership’ of larger shares of the common property and assets by particular lots, particularly when all occupiers have equal access to those areas, and the need for repair and maintenance of it.
[97] It would seem reasonable to conclude that the appearance and proper function of the common property is beneficial to all that use it or obtain other benefit from it, such as security in the instance of fencing.
[98] I consider it just and equitable that the cost of repair and maintenance of the common property should be borne by lots in proportion to their use, or benefit from, that property.
[99] For those items included in Body Corporate expenditure for which no specific additional benefit is able to be attributed to any one lot more than any other, and as there is no restriction on the use of the common property by any owner or occupier in the Scheme, I consider that it is just and equitable for those items of expenditure to be borne equally by all lots.
- [17]In another case, the number of car parks did not reflect the cost of maintaining the movement of the roller door.[31] In another case the cost of gardening and cutting footpath areas were of more direct benefit to one unit rather than others but the cost was shared equally.[32] In considering certain items as part of sinking fund expenses, the approach adopted was to look at the floor area. The costs of an automatic door opener were dealt with on an equal basis in the Ocean Side case.[33] Adjudicator Bugden commented that apportioning wash down costs and repainting of the façade on a wall space basis rather than equally was ‘splitting hairs’. That latter approach is to discouraged.
Methodology
- [18]The use of both an historical and budgeted administrative expenditure give a more reliable figure. Mr. Sheehan has made some adjustments in the present case. The use of historical figures has been accepted in other cases except where it is a new development. Any anomalies were explained by Mr. Sheehan including the figure for insurance. There was also some fine tuning in relation to the costs of the Business Management Agreement,[34] electricity and painting.[35] It is in fact a hybrid approach with better checks and balances.[36] These adjustments brought the lot contribution entitlement figure to 84. In any event, the difference approaches do not produce significant variations.[37]
- [19]As set out in Exhibit 1, Mr. Sheehan divided his method as costs equally shared amongst all 136 lots, costs to be shared unequally based on the area of the lot in proportion to the total area of lots and costs to be shared unequally based on the use of the lot for residential use as opposed to commercial purposes. Mr. Buntine for the respondent categorised the problem costs in dispute into separate headings. It is convenient to discuss the disputed items under the separate headings as found in Exhibit 1.
Disputed Items
Cleaning of the common areas and the car park[38]
- [20]Mr. Sheehan asserts that this item should be shared equally. His approach he says is consistent with the Act and Fischer’s case.[39] A similar comment is made about the other items. The cost of cleaning the common areas and car park are not specified as a separate cost. They are part of the BMA costs. A separate quote was obtained from Mr. Cuskelly for these costs. Initially, Mr. Buntine separated the common areas near the lift, ground floor lobby, podium and plan rooms and divided the cleaning costs equally. These are obviously common areas. However, there is one cleaning contract. Mr. Sheehan attacks this figure as somewhat unreal and explains that cleaning work cannot be so easily divided. There is not the double amount of work just because there are two car parks. It also includes common driveways and turning areas. Mr. Buntine contends that the costs related to a car park are usually related to the size of the car park.[40] Similarly, he says the repairs and maintenance of items in a car park can be so related. In my view that is attempting to be too specific. It is introducing less certainty and more guess work. That approach is to be discouraged absent some disproportionate costing and some clear basis for changing the measurement from equality. There are specific amounts for cleaning windows and cleaning materials, but not for cleaning the garage.[41]
- [21]In relation to the cleaning of the common lobbies of the residential areas, Mr. Buntine looks at the number of lots serviced by particular areas to be cleaned. The cost for each area can then be divided amongst those using same. On some floors it is two and others it is six lots. Therefore, using his method, he can attribute the costs amongst the owners of each floor e.g. one half or one sixth. That approach has some merit, but I am not satisfied that by dividing the costs equally that it would be disproportionate for either situation. In an appropriate case, where there is exclusive use, some formula may be ‘fair and equitable’.
Common electricity costs[42]
- [22]Mr. Sheehan contends that the costs be divided equally between the lots for the reasons expressed above. It is too difficult to assess particular items. It adds to the uncertainty. The cost is part of the BMA. Mr. Buntine explained that he notionally separated the costs related to the lift, ground floor lobby, podium and plan rooms and divided those costs equally. The method used was complex and uncertain. He made ‘inquiries’ of someone who was involved in electrical supply and made an estimation based upon 50 cents per square metre lettable area and distinguished the commercial from residential and chose a 97 cents figure. Unfortunately, in the present case there is one electrical bill for the residential area. The lights at night in the car part are for all to see not just one or two car parks. Security issues arise. As for separating the residential lobbies and billing those who have access to those areas, the same uncertainty arises. The figure chosen by Mr. Buntine relied upon an uncertain estimate or guess in relation to costs referable to the lift, ground floor lobby etc. areas.
Cooling tower and condenser costs[43]
- [23]It is suggested by Mr. Sheehan that these costs be shared equally unless it can be shown that there is a mathematical relationship between the tower and condensing costs and the air-conditioning. For example, if one has an area which is twice as large as another it is not necessarily twice the cost. There must be some relationship between the higher demand and the higher cost of maintaining the equipment. Mr. Sheehan says to do otherwise would be less certain and too arbitrary.[44]
- [24]Mr. Buntine, on the other hand, says that the maintenance cost of the tower etc. should be based upon the area to benefit from the air-conditioner. Unfortunately, no costs basis was produced to show the relationship between the costs of running the cooling tower and condenser and the provision of air conditioning to an area of a lot. Lots having a separate system are another matter.
Residential lobby share of the air-conditioning plant[45]
- [25]Initially, Mr. Sheehan accepted a cost split using the area of the lot. However, consistent with his views on items 2(b), (c) and (d) above, he changed to an equal division of this cost per lot.[46] Mr. Buntine says that in apportioning the air conditioning costs he apportioned it to the volume of air required for a specific area as discussed in relation to item 2(d). It is unnecessary to elaborate further except to say that his approach introduces less certainty into the equation.
Costs of repair and maintenance of garage doors[47]
- [26]It is accepted by Mr. Sheehan that the more that the door goes up and down there would be more wear on moving parts. Occupiers with more than one car space would presumably use the garage more often if they own more than one car. It would also depend upon how many visitors one had if there was a spare parking space. In relation to the actual door, it would not require repair or replacement unless damaged. The risk of damaging it may be higher with more use. However, Mr. Sheehan is of the view that sharing the costs equally is appropriate. Mr. Buntine says that this is a usage issue and the number of car parks is determinative of the issue. This is an evenly balanced issue. For that reason, the respondent has failed to prove that it would be fair and equitable to proceed other than equally in relation to the costs.
Costs of providing emergency generator
- [27]In his opinion, Mr. Sheehan says that the static costs do not warrant a determination based on the size of units. The generator may be of more use to the restaurant and management[48] in the event of an emergency. This may be dependent upon the time of day or night of the emergency. Mr. Sheehan was unsure whether the generator would play a role in the fire system. The emergency lights were run off a battery. However, Mr. Sheehan did state that the emergency power may be used for certain basic lighting where the power could not be drawn off the grid.[49] This would benefit all.
Cost of maintaining automatic fire sprinklers[50]
- [28]All residents would derive some benefit from having an effective fire system. A fire in an adjoining unit could have catastrophic consequences.[51] The fire emergency system is a whole of building system. To attempt to determine the cost per sprinkler becomes somewhat pedantic and contrary to the benefits enjoyed by all. It does not follow that because one unit or car spot may have more sprinklers that the cost is doubled in relation to the extra sprinklers.[52] Once again, the respondent has not satisfied me that a distribution other than equally is justified.
Cost of replacement of carpet to general areas and passages[53]
- [29]The approach adopted by Mr. Buntine was similar to items (b) and (c) above. Mr. Sheehan conceded that if there was a foyer where only two share then it could be separated off. Then there is a situation where six lots share but there is different use by each. Mr. Sheehan says that the cost data is not available in relation to specific areas. For example, the residential area was not separated from the common areas.[54]
- [30]He believed an equal distribution of costs is the fairer approach. The uncertain nature of a division other than equal leads one to accept the approach of Mr. Sheehan.
Cost of replacement of boom gates[55]
- [31]A similar view was put on this issue by Mr. Sheehan as the garage door costs.[56] Mr. Buntine says that the costs should relate to the number of car parks. This issue has been discussed. An equal distribution is appropriate.
Air-conditioning service fee
- [32]It seems that Mr. Sheehan relies upon his view relating to item (d) above.[57] Mr. Sheehan did refer to modern systems that actually measure the output to specific areas. In that event he conceded that to be able to monitor and measure ‘would be more consistent with usage, i.e., what area one would want to be air conditioned’.[58] Mr. Buntine suggests that the costs should be split depending on the area of the lot. For the reasons stated above the distribution should be equal.
Application of principles
- [33]In deciding the specific issues, one starts from the premise that the lot entitlements should be equal is appropriate ‘except to the extent to which it is just an equitable in the circumstances for them not to be equal”.[59] The contribution lot entitlement determines the apartment’s share of the outgoings. Relevantly here, the nature, features and characteristics of the lots included in the scheme are to be taken into account.[60] It must be shown that some apartments give rise to particular costs to the body corporate which others do not.[61]
- [34]The question must be asked to what extent do the nature, feature or characteristic of an apartment affect the costs of operating the community title scheme. That is, what demands are made on the services and amenities provided by the body corporate. Such expenses should be divided equally except to the extent that the apartment in question disproportionately gives rise to those expenses or disproportionately consumes services. Those matters must have a financial impact for the body corporate which can be measured. If an apartment ‘creates costs or consumes services, above or below the average, one can readily determine what the contribution lot entitlement should be’.[62] In the present case, the respondent has failed to produce such figures. It is difficult to make a direct comparison per item in dollar terms because of the different methodology. It was submitted that that approach is not necessary.[63] However, in borderline cases such as the present, it may be necessary in order to decide items or whether the cost is disproportionate.
- [35]Although the area of an apartment may provide an intelligible basis to calculate some expenses, one should not do so unless there can be shown to be disproportionate expenses arising from owning such an area. In the present case, no such evidence has been put forward to make such a finding in relation to those matters discussed in Exhibit 1. The evidence given by Mr. Sheehan in cross examination relating to air-conditioning costs and which is applicable to all of the disputed items was as follows:[64]
But we know that equal splitting is not accurate. It must be inaccurate? –
My view of the legislation and the cases is that that is the direction I have been given, to split it equally.
HIS HONOUR: When you say, “the legislation”. It also says that the just and equitable approach can be adopted if equal is not fair obviously. Why wouldn’t a fair approach, for example, in relation to air-conditioning, cost of cooling and the share of –sharing of lobby areas, for example, not be more fair if it was based upon area rather than equality? – Because there is portion of cost which is a static cost, a cost of having that service, a cost that won’t go up and down as areas vary and that, in my view- well, I’m not sure whether that’s a significant portion or an insignificant portion. In that case I believe it should be shared equally.
- [36]The overall approach by each expert produces a finding of lot entitlement of .84% by Mr. Sheehan or .98% by Mr. Buntine in relation to the applicants’ position. At the outset, the court was told that the difference was in the vicinity of $1,500.00 in so far as it affected the contribution for outgoings for the applicants. That figure is not determinative of the issues. It has been conceded by the respondent that the present lot entitlement schedule is unfair. The Act primarily requires that the respective lot entitlements be equal. There is an onus upon the respondent to prove that it would be just and equitable to adopt an approach other than equality. The respondent has failed to do so in respect of these items in Exhibit 1.
Business Management Agreement
- [37]In May 2006 a new BMA was agreed between the respondent and Mirvac Hotels Pty Limited. This resulted in a reduction in the cost to the respondent resulting in a new figure of $260,000.00 (excluding GST).[65] Mr. Buntine states that the BMA reflects the initial intention of the developers to operate Quay West as a serviced apartment hotel. The agreement, he contends, included several services which were not usually included in a typical building management agreement. In his report, Mr. Buntine referred to the services included in the new BMA which go to substantially make up the figure of $260,000.00:[66]
- Caretake the common property and be available for attendance on the owners or occupiers of Lots between 8.00 am and 6.00 pm each week day other than public holidays
- Provide a staff member available from the reception desk team of the Building on each day, 24 hours per day as a concierge to assist guests or residents by storing luggage, taking and delivering messages, and making reservations for tours (but not by carrying errands or luggage around the Building or by attending the Building’s entrances).
- Operate a 24 hour telephone and switchboard service for the benefit of owners and occupiers.
- [38]Mr. Buntine observed that these services relate directly to the operations of the whole scheme and also to the business conducted by Lots 1 and 2. He proposes a different method for dividing the costs of the BMA amongst all Lots.[67] In the first instance he compared the BMA of other buildings and reached the conclusion based upon a per lot costing of the next most expensive scheme that the total for the BMA should be $124,000.00 less. That is, the cost of the additional attendance provisions. He concedes that in most cases the cost generated by the BMA would be split equally amongst each of the lots. He then proceeds to argue that the lots that benefit most from the attendance provisions (concierge etc.) as related to a serviced apartment hotel are Lots 1 and 2 and the lots within the letting pool. He then concludes that as potential changes can occur to the number of lots within the letting pool that this should not be a basis for splitting costs. Although he states that the costs of the BMA should not be split equally between all lots of the scheme, he concedes that deciding on a fair and reasonable method to split the costs ‘was not straightforward’. In order to arrive at the proposed figure for Lot 136 at 1.16%,[68] Mr Buntine split the concierge costs, or additional service costs, of $124,00.00 by area. If he split the concierge costs equally the figure is .99% as relative to Lot 136. Counsel for the respondent said that this approach was acceptable to the respondent.[69] In cross-examination he concluded that apart from Lots 1 and 2, the balance, he accepted, could be divided equally.[70]
- [39]In order to overcome the difficulty posed by Lots 1 and 2, he proceeded to use the area of those lots as a basis of distribution. Mr. Buntine asserted that Lot 1 benefits from the service apartments as it provides food and beverages. The managers are providing more services for the serviced apartments. Lot 2, occupied by the managers benefit by having the extra services provided within the BMA where the costs are shared by all. Mr. Buntine said that it is difficult to determine the extent to which Lots 1 and 2 benefit over and above the other lots, but asserts that as Lots 1 and 2 have the larger areas then they should contribute accordingly. He apportions the figure of $10.806.93 to Lots 1 and 2 and deducts that figure from the extra amount of $124,000.00 attributable to the extra cost.[71] The balance ($113,193.00) is then distributed amongst the 134 lots in the residential scheme equally.[72] This amounts to $844.72 extra per unit, per annum, or $16.00 per week. If the total of $260,000.00 was divided amongst all units (136 which includes Lots 1 and 2) the figure would be $1912.00 per annum of $37.00 per week per unit. Even if one assumed that the figure of $124,000.00 related to an excessive amount for servicing, it cannot be said that $16.00 extra per unit is a disproportionate figure.
- [40]Mr. Sheehan agrees that the BMA costs are higher in a scheme where there are serviced apartments. He went onto explain[73] that there are some compulsory duties of the onsite management for which it is paid. Then there are other services which the management is authorised to provide. When the scheme is operated as a hotel style facility, they are duties the body corporate does not pay the management to do. The management is paid to take care of the common property and to be in attendance during certain hours.[74] He then asserts that it is inappropriate to divide off a portion of the cost based on operating a hotel from it.[75] He further states that it is wrong for the larger lots to pay more for the serviced apartment fee. Consistent with his view that there is no specific figure referable to the added costs of operating serviced apartments, the costs should be divided equally. Otherwise it becomes too arbitrary. It is less certain. He rejects the view that the floor area should be used as a basis for dividing the costs. Mr. Sheehan says that the floor area does not affect the cost in this instance and therefore it is inequitable to distribute costs on that basis. In support of his methodology Mr. Sheehan stated in cross –examination:[76]
MS.HEYWORTH-SMITH: So, the more people who are likely to be benefited from the concierge and hotel services are (sic) in the larger lots than in the smaller lots? – The more people who are likely to benefit would probably be the smaller units, simply because they are more likely to be part of the investment pool and operate it as hotel style units. The larger units are more likely to be well to do individuals with only two people living in them, irrespective of whether they are a lot larger or smaller, and their use of that space is – or that service is not necessarily more nor less than any other unit.
- [41]That answer illustrates the problems of assuming that area should be used as a basis for a fair and equitable distribution under the BMA in the present case. The equality approach of Mr. Sheehan is more certain. It is not the perfect solution but it is in conformity with the intention of the Act. It removes the arbitrary and less certain aspect of determining a reasonable sum for management services from a comparative BMA, adjusting it for the commercial lots 1 and 2 where areas many vary and then assuming that because a lot is a larger area then more services will be provided to the occupants of that larger apartment. It may be that the permanent residents find that having a concierge improves the security and prestige of the building. Also, as conceded by Mr. Buntine, apartments can change from owner occupied to the letting pool. There are many different benefits which flow to all lots from the hotel and concierge services. To be definitive of those benefits as they relate to particular lots only adds uncertainty to the costing schedules. For those reasons the approach of Mr. Sheehan is preferred to the sharing of costs under the BMA as proposed by Mr. Buntine. A comparison with other buildings is not particularly useful. Before one interferes with the equal distribution of costs, it must be shown that that approach produces disproportionate costing and that it would therefore be fair and equitable to distribute costs other than on an equal basis. The Act does not say equality is not appropriate if the costs are disproportionate to similar buildings. Different schemes or their body corporate may negotiate different commercial terms of engagement under the BMA.
Conclusions
- [42]For the reasons discussed, the approach of Mr. Sheehan has been accepted as conforming to the requirements of the Act. The respondent has failed to prove that the distribution of costs relating to the disputed items in Exhibit 1 should be other than on an equal basis. I refer specifically to Example 3 in the Explanatory Note. In that event, the Schedule of Lot Entitlement should be in terms of the schedule attached to the letter dated 26 July 2006 from Mr. Sheehan.[77]
Orders
- That pursuant to section 48(1) of the Body Corporate and Community Management Act 1997 (Qld) that the lot entitlement schedule for Community Title Scheme 16610 be adjusted in accordance with the table attached to Exhibit 2.
- Liberty to apply in the event that the findings do not correlate to Exhibit 2.
Footnotes
[1] The “Act”.
[2] Affidavit filed on 6 April 2006 para. 15.
[3] Exhibit 2.
[4] Mr. Sheehan on behalf of the applicants and Mr. Buntine on behalf of the respondent.
[5] RB1 [6]
[6] RB1 [8.9]; affidavit sworn by Mr Buntine on 18.07.06 [4]-[5] RB4.
[7] Annexure to written submission from Ms Heyworth-Smith dated 31 July 2006 and marked Exhibit 3.
[8] Exhibit 4, being written submissions from Mr Atkinson 31.7.06; T78.50 – 79.12.
[9] T.85.20-30.
[10] Cooloola Court [2005] QBCCMCmr 319 at [45] per Adjudicator Fischer.
[11] s 48(1)(a) of the Act.
[12] s 48(4)
[13] Fischer v Body Corporate for Centrepoint Community Titles Scheme 7779 [2004] 2 Qd R 638; [2004] QCA 214.
[14] Ibid. pp. 639-640.
[15] p.644 para. 26 per Chesterman J. with whom McPherson JA and Atkinson J. agreed
[16] p. 644 para. 27.
[17] Ibid. p.644-645.
[18] Ibid. p.645.
[19] Re Kurilpa Protestant hall Pty Ltd (1946) St R Qd 170 at 183 referred to by Brabazon DCJ in Burnitt Investments Pty Ltd v Body Corporate for St Andrews Community Titles Scheme 20508 [2002] QDC 006.
[20] Fischer v Body Corporate for Centrepoint Community Titles Scheme 7779 [2004] 2 Qd R 638 at 645.
[21] [2005] QBCCMCmr, 2 August 2005.
[22] Excluding the building washing which has been apportioned taking account of the external area of each lot.
[23] Ibid. para. 85.
[24] [2003] QDC 438
[25] Ibid. p.16 in referring to the report of Mr. Sheehan.
[26] Ibid. [26].
[27] op. cit. [30].
[28] Ciriello v Panitz Centre Building Units Plan 3894 (1999) 20 Qld Lawyer Reps. 138 at 144.
[29] per Adjudicator Fischer in Cooloola Court [2005] QBCCMCmr 319 at [66].
[30] Ibid.[92]
[31] Marquise [2004] ABCCMCmr 271 per Adjudicator Savage SC at [30].
[32] St. Lucia Manors [2006] QBCCMCmr 104 per Gallagher QC at [74].
[33] Ocean Side [2005] QBCCMCmr 148 at [16] to [23] per Adjudicator Bugden.
[34] BMA.
[35] T.p12.50-13.28.
[36] T.14.1-45.
[37] T. 16.25.
[38] Exhibit 1Item 2(b)
[39] Op. cit.
[40] T56.1-10.
[41] Report of Mr Sheehan Ex TS-1 Appendix 3 – Working Paper – Admin Fund p3.
[42] Exhibit 1 item 2(c).
[43] Exhibit 1 item 2(d).
[44] T. 22.54-23.46.
[45] Exhibit 1 item 2(e).
[46] T.25.20-40.
[47] Exhibit 1 item (f).
[48] Lots 1 and 2.
[49] T42.55-60.
[50] Exhibit 1 item (h).
[51] T43.8-12.
[52] T. 26.55-27.44.
[53] Exhibit 1 item (i).
[54] T.38-44.
[55] Exhibit 1 item (j).
[56] T32.40-50.
[57] T.32.55-60.
[58] T41.48-50.
[59] s 48(5).
[60] s 49(4)(b).
[61] Fischer’s case op. cit.[30].
[62] Fischer op. cit.[32].
[63] T96. 1-10; 96. 50-54
[64] T.39.14-24
[65] Report of Mr. Buntine para.2.3.
[66] Ibid.para 2.3.1.
[67] Ibid 8.9. This produces a 1.16% figure for Lot 136 based on area.
[68] para 8.11 of Mr Buntine’s report.
[69] T76.5-30.
[70] T.78. 50-79.12.
[71] Exhibit 3 [1.9]. Mr Buntine deducted the cleaning costs from the total BMA amount (see para 20 supra) before performing this exercise.
[72] T56.28-58.
[73] T46.10-54.
[74] Mr. Sheehan referred to pp.14 and 16 of the BMA which is 8.6 of Mr. Buntine’s report attached to his affidavit filed 1 June 2006.
[75] T.47.1-5; Exhibit 3 [1.9].
[76] T 48.32-42.
[77] Exhibit 2.