 On
the 4th March, 2003 the Queensland Government in a late night sitting
of Parliament surprisedly passed amendments to the Body Corporate
& Community Management Act which were not expected to be implemented
for a number of months. The amendments to the Act itself 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.
OVERVIEW OF THE AMENDMENTS TO THE
BODY CORPORATE & COMMUNITY MANAGEMENT ACT MARCH 2003 >>
Back To Top |
THE
BODY CORPORATE
