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On
the 4th March, 2003 the Queensland Government passed amendments to the
Body Corporate & Community Management Act.
The amendments to the Act were almost 180 pages in length and there
will also be amendments made to the Regulations Modules.
The
two Modules that affect the Management Rights Industry, namely the Standard
Module and the Accommodation Module, already comprise approximately
120 pages in length each. The amended Modules will probably be greater
in volume than the current Modules, thus making the impact of the recent
amendments well over 300 pages in length.
It is important to note that the majority of the amendments commence
on 4th March, 2003, however some of the amendments to the Act itself,
namely the right of delegation of Committee powers to a Body Corporate
Manager and the new process for cancelling a Letting Agent’s authority
to let within a complex commence on proclamation.
As these amendments
however rely on amendment of the Regulation Modules they will not effectively
become law until the new Modules are introduced which is expected some
time in May.
Set out below
is a summary of the main alterations to the law.
Community Management Statements
Up until now whenever an alteration was made to a Community Management
Statement the whole of the new Statement containing the changes had
to be sent to every owner with the agenda material for the general meeting
at which the changes to the Statement would be considered by the owners.
This process has been simplified and only the proposed changes to the
existing CMS have to be sent to owners for consideration at a general
meeting.
Once the proposed changes have been agreed to by the owners in general
meeting, the Committee is authorised to prepare the new CMS incorporating
the change.
The general rule now too is that the Body Corporate itself is responsible
for the costs of preparing and recording the new Community Management
Statement unless the Act provides otherwise for example, where there
is an agreed adjustment of lot entitlements by the agreement of two
or more owners of lots.
There is also a new requirement for a copy of the CMS to be given to
the Local Government if lot entitlements are changed.
New CMSs will also need to include additional
information on why lot entitlements are not equal. Must also attach
a services location diagram, include other information about statutory easements
and more information about proposed future development.
Lot Entitlements
Developers must now make contribution schedule lot entitlements
equal unless it is just and equitable not to be equal.
The new factors for developers to take into account when setting these
lot entitlements include the Scheme structure, the nature, features
and characteristics of the lots and the purpose for which they are to
be used.
Up until now any alteration of lot entitlements in a Scheme must be
agreed to by way of a resolution without dissent by owners in general
meeting or the District Court had power to alter them where it did not
believe they were just and equitable. The process was very expensive
if you proceeded to the District Court.
The amendments now allow you to apply to a Specialist Adjudicator instead
of the District Court which will substantially reduce the costs involved
where a resolution without dissent could not be procured from the owners.
A significant reason for the reduction in costs is it is no longer necessary
for an applicant seeking to change the lot entitlements to serve each
of the lot owners as the Body Corporate is now deemed to be a respondent
to any application before a Court or the Adjudicator.
Examples Where It May Not Be Just and Equitable for Lot Entitlements
Not to be Equal Are:
1. A layered Scheme where the lots have different uses including
for example different car parking, commercial, hotel and residential
uses and have different needs for access, maintenance and insurance.
2. A commercial Scheme in which the owner of one lot uses a larger
volume of water or operates a more dangerous or higher risk business
from the lot.
If, under the old law, an application was made to the District Court
for adjustment of lot entitlements, the loosing party would generally
meet the winning party’s legal costs. The amendments to the Act now
provide that each party is responsible for their own costs of the application
and lot owners still have the right to elect to become a party to the
application if they wish to do so. It should be noted however that an
Adjudicator has power to order costs against a party (up to $2,000.00)
who makes application for alteration of the lot entitlements where the
application is dismissed on the grounds that it is vexatious, frivolous,
misconceived or without any real substance. It is therefore important
that an approach at least be made to the Committee of a Body Corporate,
and ideally the owners in general meeting, to alter the lot entitlements
before an application is made to an Adjudicator or a Court as this could
be a factor that a Court or an Adjudicator may take into account when
it comes to the issue of costs.
The amendments also provide concessions for Schemes which contain building
and format lots in the one Scheme for an ordinary resolution of owners
in general meeting to adjust the lot entitlements within 15 months of
commencement of the Scheme. The transitional provisions of the amending
Act allow a Body Corporate a one only opportunity to change the lot
entitlements to equitably reflect the difference in the maintenance
requirements of the different types of lots for the future, and not
the past. The Body Corporate is able to make these changes by ordinary
resolution and does not need to pass a resolution without dissent, however
the change to the lot entitlements must occur within 15 months of commencement
of the amending Act or in the case of a Scheme established after commencement
of the amending Act, within 15 months of establishment of the Scheme.
Whether the matter proceeds to a Court or a Specialist Adjudicator,
the amendments state that regard must not be had to the knowledge or
understanding the applicant has or their lack of knowledge at the time
of entering into the Contract of Sale about:
1. The lot entitlement for the lot or other lots in the Scheme;
or
2. The purpose for which a lot entitlement is used.
The aim of the Government in excluding these items is to make sure that
a decision will be made which will provide the best possible lot entitlement
for the Scheme at the time without the need to find out or understand
what may or may not have been in the mind or understood by the owner
at the time they entered into the Contract to buy the lot.
Resident Unit Managers
The amending act imposes new performance standards by way of a Code
of Conduct for “Caretaking Service Contractors”. A Caretaking Service
Contractor is defined in the amending Act as a Service Contractor who
is also a Letting Agent i.e. a Caretaker who also conducts letting within
the Scheme.
The new Code of Conduct has similarities with the Code of Conduct imposed
upon Letting Agents under the Property Agents & Motor Dealers Act,
however the code for a Caretaking Service Contractor is deemed to be
included in the terms of their Contract with the Body Corporate and
if there is any inconsistency between the terms of the Code and the
Contract, then the Code of Conduct prevails.
I do not believe the Code will create any serious problems for RUMs as it contains fiduciary duties and requirements of
good faith by Managers which the law implies in most cases anyway.
However, if a Body Corporate issues a Notice of Breach of the Code to
a Manager, then a breach of the Code could ultimately result in the
Body Corporate requiring a forced sale of the Management Rights Business.
If there is a dispute about whether the Code is being breached, the
Manager or the Body Corporate can have the matter dealt with under the
Dispute Resolution provisions of the Act.
The main provisions of the Code are that the RUM is required to:
1. Act honestly, fairly and professionally;
2. Have a good working knowledge of the Act and the Code;
3. Use reasonable, care, skill and diligence in carrying out
their duties;
4. Act in the best interests of the Body Corporate;
5. Keep the Body Corporate informed about any significant developments
about activities performed by the Manager;
6. Take reasonable steps to ensure an employee of the RUM complies
with the Act;
7. Not engage in fraudulent or misleading conduct;
8. Not engage in unconscionable conduct.
Ownership
of Lot by Body Corporate
A Body Corporate may now buy a lot in the Scheme, but only if the lot
becomes common property for use solely by a Letting Agent or Service
Contractor as a residence or a residence and an office for conducting
the letting business.
The Body Corporate can only do so if authorised by owners by way of
resolution without dissent at a general meeting and then the Body Corporate
must then lease that area to the RUM for the term of their engagement
for letting and caretaking purposes.
No premium can be charged by the Body Corporate directly or indirectly
for granting the Lease and once the term of the Caretaker and Letting
Agent’s appointment comes to an end, the Body Corporate must re-convert
that common property area to a lot and sell it. The Body Corporate can
however charge fair market rental for use of the area.
It is doubted that this provision will be utilised at all by Bodies
Corporate as it can only be implemented if adopted by owners by a resolution
without dissent, all monies to finance the purchase of the unit are
charged to owners by way of a levy as the Body Corporate does not have
power to sign a Mortgage as security to finance the purchase.
Ownership of Lot by Letting Agent
A new Section 104A has been introduced to the Act that requires the
Letting Agent to be the owner of the lot from which their business is
conducted, or a Deed must be entered into between the Body Corporate
and the owner of the lot whereby that lot owner agrees to deal with
the lot on a forced sale of the Management and Letting Rights Business
or termination of the Agreements. This Section applies to all people
who become Letting Agents after the 4th March, 2003 and it will now
therefore be common practice where “Mum and Dad” purchase the Manager’s
Unit and their company or trust buys the Business, for “Mum and Dad”
to enter into this Deed with the Body Corporate. Therefore, it is critical
when there is split ownership of the Business and the Unit that the
Deed be entered into and if it is not entered into, then the amendments
to the Act provide the Agreement is of no effect i.e. worthless.
Lender’s Rights
Lender’s rights have been substantially expanded under the amendments
to the Act and as a result the Act now prohibits financiers from having
Agreements with the Body Corporate as their rights are properly protected
under the amendments to the Act.
This amendment will save Buyers of Management Rights Businesses substantial
legal costs as the practice of Agreements between the financier and
the Body Corporate have been common and the costs of these Agreements
have, in every case almost always been funded by the Buyer of the Business.
Right of Body Corporate to Sell Management Rights
The general prohibition against Bodies Corporate selling Management
Rights (i.e. Caretaking and Letting) remains, however if the original
developer did not grant Letting Rights during the period that they controlled
the Body Corporate, then the Body Corporate may now sell the Letting
Rights (not caretaking) for fair market value.
Body Corporate Managers
The Code of Conduct and its performance standards also apply to Body
Corporate Managers as well as RUMs.
Under the previous laws a Body Corporate Committee could delegate all
of its powers to a Body Corporate Manager. Under current Agreements
with Body Corporate Managers the amending Act preserves such delegations,
however the amendments now distinguish between delegation of the powers
of an Executive Member of the Committee and delegation of the remaining
powers of a Committee.
Where a Body Corporate has a Committee it can only delegate some or
all of the powers of an Executive Member of that Committee to the Body
Corporate Manager.
Where a Body Corporate does not have a Committee, it can delegate all
of its powers.
There are however reporting requirements and other protections and safe
guards which will be included in the Regulation Modules.
A new Section 113A also states that a financial institution account
can be opened for a Body Corporate and that account must be in the name
of the Body Corporate. If the Body Corporate wishes the Body Corporate
Manager to operate the account, the Contract of Engagement between the
Body Corporate and the Manager must authorise the Manager to open the
account, however the Body Corporate can give notice to the financial
institution that the Contract of Engagement has ended, thus terminating
the authority of the Manager to operate that account.
Forced Sale
of Management and Letting Rights
The amendments introduce a right for a Body Corporate to force a Letting
Agent to transfer their Management Rights i.e. their Caretaking and
Letting Business and Manager’s Unit. These rights apply to all Letting
Authorisations in existence after the commencement of the amendments,
regardless of when they were entered into.
For the provisions to apply the Management Rights must not be a Serviced
Strata arrangement or Scheme under the Corporations Act (the Managed
Investments Act) and the original owner’s control period has ended i.e.
the developer no longer controls the voting. Therefore these forced
sale provisions only apply to permanently let complexes in general and
not to short term or holiday let complexes.
The main features
of the sale process are as follows:
• A Body Corporate must first pass an ordinary resolution by secret
ballot to issue a Code of Conduct Contravention Notice;
• The Manager must fail to remedy the Contravention Notice within a
reasonable time or contravene either of the Codes again after the Notice
is given; and
• The Body Corporate by majority resolution passed by secret ballot
requires the Manager to transfer the Manager’s Unit and the Business.
A majority resolution is one that requires more than 50% of all lot
owners who are entitled to vote (and not just those that vote) to vote
in favour of the motion unlike an ordinary resolution which only requires
more than 50% of the lot owners who vote to vote in favour of the motion.
• The Manager must transfer the Unit and the Business within 9 months
to a person chosen by them and approved by the Body Corporate.
• The transaction must be an arms length one and the Body Corporate
cannot unreasonably refuse to consent to a transfer to the new Manager
selected by the existing Manager.
• If the Letting Agent does not transfer the Management Rights within
the required time frame then the Committee can choose the new Manager
at a specified price calculated through valuation, auction or tender.
• The Body Corporate is not able to receive a fee for approving the
transfer to someone selected by the Manager,
however it is entitled to charge its reasonable legal fees incurred
in granting the approval.
• If the Management Rights are not transferred to the Transferee of
the Body Corporate, then the Body Corporate may terminate the Letting
Authorisation applying to the Scheme.
• If the remainder of the term on the Agreements with the Body Corporate
is less than 7 years at the time of the transfer, the Body Corporate
must grant new Agreements for a term of 9 years on the same terms as
the current Agreements unless there has been a review of the terms of
those Agreements immediately prior to the transfer.
• These forced sale provisions are similar to those that already apply
in respect of short term and holiday let complexes under the Managed
Investment Act, however these provisions can be activated by a much
smaller group of owners i.e. a majority of letting owners and do not
require there even to be a breach by the Manager of its obligations
under the Act.
It is important to realise that not all Schemes under the Managed Investment
Act are subject to the forced sale provisions because there are various
exemptions and exceptions detailed in the Managed Investment Act and
the relevant ASIC Policy Statement and advice
from a specialist solicitor will need to be obtained to ascertain which
of the short term and holiday complexes are caught by the forced sale
provisions of the Managed Investment Act.
Review of Caretaking and Letting Agreements
Under the 1997 Act a Body Corporate can apply to the Commissioner for
a review of the salary between the third and fourth AGM for the complex.
This is a one off review and the right to conduct it is retained.
An additional and far more detailed review procedure is set up under
the amending Act in addition to the right to review the salary under
new Agreements but it only applies to the Management or Caretaking Agreements
and not the Letting Agreement.
The right to conduct this second review only applies to Agreements that
were entered into when the original developer or owner controlled the
Body Corporate and applies to:
1. Any new Agreements commencing after the 4th March, 2003. The
Body Corporate will be entitled to request a review, but it must be
completed within 3 years after the term of the Agreement commences or
within 1 year after the first AGM held after the developer no longer
controls the Body Corporate, whichever occurs last; and
2. Any existing Agreements where it is proposed they are amended
or extended before 1st January, 2005. The review must be carried out
before 31st December, 2004 in the case of existing Agreements that are
amended or extended.
The provisions in the amending Act are very complex and to work out
which existing Agreements will be caught by the new right to review
a specialist solicitor will need to be engaged to make such a determination.
The review can deal with all of the terms of the Agreement including
the duties and salary, but the review is not able to be grounds for
cancelling the Agreement, however it can result in a reduction of the term
of the Agreement.
There are
criterias set out in the Act to allow a determination to
be made whether the Agreement is reasonable and appropriate.
Whether the review is of a new Agreement commencing after 4th March,
2003 or involves a review of an existing Agreement, the right to require
a review ceases once that Agreement is varied or extended after the
commencement of the amending Act and in any case a request for a review
can only be made once.
If the Manager and the Body Corporate cannot reach agreement about the
review, then either party can have the party referred to Dispute Resolution
under the Act.
Perpetual Agreements
Agreements that are regarded as being perpetual eg. that
are renewed on a year to year basis with no fixed expiration date, will
now expire after the last option is exercised before July 14, 2022.
Transfer of Scheme from Standard Module to Accommodation Module
The definition of a special resolution has been changed. Previously
a special resolution was required by owners in general meeting to transfer
a Scheme from the Standard Module to the Accommodation Module and such
a resolution required no more than 25% of owners to vote against it
i.e. if generally ¾ of the owners who voted voted
to transfer to the Accommodation Module, a special resolution had been
passed.
A special resolution is now defined to mean a motion that requires a
2/3 vote in favour of the motion instead of the simple 51% majority.
It may now therefore be more difficult for Body Corporates
to change Modules and for Managers to obtain terms greater than 10 years
and up to 25years in duration under their Caretaking and Letting Agreements.
Amendment of Section 98 in the amending Act contains the new definition
of a vote by special resolution.
It seems that the new amendments prohibit a RUM
from proposing amendments to transfer a Scheme to the Accommodation
Module, however upon a closer examination this is not the case. What
the amending Act provides is that a motion to change a CMS eg. to transfer
to the Accommodation Module, can only be submitted by the Committee,
the Body Corporate Manager or the owner of a lot (including the Manager’s
Lot) (Section 50A).
The amendments then go on to provide that the new Community Management
Statement (prepared following the amendments) must be prepared by the
Body Corporate Manager if permitted under their engagement or the Committee.
Thus, although the Manager cannot prepare the new Community Management
Statement, he can certainly propose a motion for a general meeting to
amend the Scheme to transfer to the Accommodation Module and it is the
Committee or the Body Corporate Manager who must then prepare the new
Community Management Statement to be lodged at the Department of Natural
Resources.
Records and Information
It is now an offence for a Body Corporate to fail to supply information
requested by an owner, mortgagee or a buyer of a lot or an agent of
any of these persons.
A Body Corporate now however does not have to allow a person to inspect
or obtain a copy of part of their records if the Body Corporate reasonably
believes that it contains defamatory material.
Original Owners’ Costs
An original owner is now prevented from recovering from a Buyer of a
lot in the Scheme any part of the original owner’s costs incurred for
the engagement of a Body Corporate Manager or a RUM.
In addition, the amending Act now imposes a positive obligation on the
original owner to use reasonable care and skill and act in the best
interests of the Body Corporate when contracting with the Body Corporate
Manager and the RUM.In addition, if a Regulation
Module requires a building to be insured for its full replacement value,
then the original owner must obtain an independent valuation of the
buildings and ensure that the insurance covers the full replacement
value in accordance with the independent valuation.
Conveyancing Matters
New information must be disclosed by Sellers of units to Buyers of units
in the Section 163 and Section 170 Disclosure Statements.
Irrevocable Powers of Attorney Outlawed
A Body Corporate Manager or a RUM or associate cannot exercise an irrevocable
Power of Attorney given by a lot owner for any matters relating to the
Scheme unless the RUM or BCM is a relative
of the lot owner and where the Power of Attorney is contained in a registered
mortgage.
Developers can still be granted limited Powers of Attorney by the first
Buyers of units on certain restrictions.
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