A Call for Transparency in Body Corporate Levy Recovery

A Call for Transparency in Body Corporate Levy Recovery

As Body Corporate Lawyers, we have the privilege of working with bodies corporate across Queensland – from small schemes, to large commercial schemes.  We must, in good conscience, put it out to our fellow practitioners and the industry generally – that transparency must be improved in the production of records to owners – especially, when the owners are subject to possible levy recovery proceedings.

We know that at least two of our legal competitors, have published papers to body corporate managers that suggest a single ledger combining unpaid contributions, interest and recovery costs can be produced.  We submit the difficulty with this proposal, in that the notice can be confusing for owners to understand and not reflective of an actual liability.

An example of the confusion arises over the question of what constitutes “reasonable recovery costs”.   The decision of Westpac Banking Corporation v The Body Corporate for The Wave CTS 3627 [2014] QCA 73 has been advocated as a decision upholding a recovery by a body corporate of legal costs on a “dollar for dollar” basis.  In fact, the Court concluded:

The advantage given to the body corporate…of being able to recover recovery costs as a debt is qualified by the express statement that it applies only to costs reasonably incurred by the body corporate in recovering the amount of the unpaid contribution and penalty.”  (emphasis added, see paragraph 60)

We remind the industry that Wave was based on the question  of whether a mortgagee, which takes possession, can be held liable for costs incurred in the recovery against an owner.  The Court did not vary the previous decisions that the amounts charged, and the actual conduct undertaken, must be reasonable – accordingly, a singular ledger suggesting an owner as “non-financial” without a finding as to reasonableness (or agreement) of recovery costs – can (and we suggest will) give rise to a legal liability against managers and committees who refuse an owner the right to participate, charge penalty interest and refuse discounts (because, in fact, recovery costs are not liquidated, even though costs are defined as a debt).

We have also been provided with a statement issued by another law firm, advising body corporate managers not to distribute ledgers to owners, where the recovery costs have been recorded on the singular ledger.  The only way an owner can understand the claim is to see the ledger, but this law firm refuses to produce the ledgers to owners – causing an escalation of costs sought as “recoverable” against owners.  This is simply vulgar and unethical, in our opinion.

We ask the industry, how is it that an owner can consider the “reasonableness” of recovery costs – if they are not permitted the opportunity to view the costs from the outset?  Why is that the costs are only disclosed (noting here, we produce our invoices immediately upon an owner seeking copies) when substantial costs are incurred?  Why is not standard practice for the costs and ledgers to be produced to owners on request?  Is this not “reasonable”?

Furthermore, we put it to the industry, how is it that “indemnity” costs can be recoverable, when costs between firms vary?  Are we all permitted to raise our legal fees to the highest of us, and then we stand united as to the bar for what is “reasonable” in the industry?  Who sets what is “reasonable” in the industry?  Which one of us sets the “reasonable” indemnity rate?  Is it Nautilus?  Is it SPG?  Is it Hynes?  Is it MBA?    Is it Success Law?  Is it OMB?

Which one of us sets that “reasonable” industry rate?  It is sufficient for us merely to have a cost service agreement that says our associates charge $350, an hour – or should there be a quantification of what is being done?  Is it appropriate for a senior lawyer, charging $450 an hour, to contact a client with an update – when that same update could be performed by a $110 per hour law clerk?  Is it “reasonable” that the owner is charged $45 for a 1 unit call, versus $11 for the same 1 unit call?

Is it reasonable for mercantile agents to charge at lawyers rates, merely because the mercantile agents obtain a sign off by a Committee?  Who decides if that is reasonable?  I suggest the owner might think differently to a hostile Committee, who might not even care – if they are told the costs will be recoverable “dollar for dollar”.

How can anyone, with a commercial and ethical mind, think that litigation for $3,000, should result in legal costs in excess of $150,000? Yet, it is happening – and we have seen it (not from us, but from a competitor).  The premise, of course, being that the body corporate should not be out of pocket – but at what stage is this industry of ours going to take a logical look at itself?  How often could commercial strategies have been adopted, to prevent the escalation of costs from $1,000 to $150,000+?  If a commercial party tried to withhold evidence, the commercial party would be penalised.  Yet, a number of these ridiculous cases are premised on a lack of transparency – whether it’s a refusal to produce records for an owner’s inspection, or a refusal to produce invoices for an owner’s inspection – or simply, a refusal of the lawyer to try and listen to the owner, and find a solution which is commercially reasonable.

And what of 2.5% interest per month?  That is 30% per annum (simple interest).  Is this a windfall, when indemnity costs (set at who knows what standard) are recovered?  If the managers charge for issuing late notices, and then charges for producing its records and secretarial duties – and these costs are all claimed in the proceeding against the owner, then what is the 30% used for?  We have seen the 30% interest fall in excess of $200,000 in some large developments in which the owners are developers – what is that interest going to?  Most certainly, in smaller debts, the 30% interest is necessary to settle the costs of dealing with committee issues, finance and alike.  However, when we are talking substantial amounts of interest, for example upwards of $40,000, is this not intended, in part, to compensate for costs incurred…so how is it that anyone in our industry would not consider raising the use of interest as a potential negotiation tool (having regard to the costs incurred and ensuring interest is withheld to cover such costs) when dealing with committees to assist in settling matters earlier? Certainly, there is no legislative or court decisions which would suggest the offset is a requirement, but is this not what we do when we deal with our commercial clients?  We try to balance the scales of justice, to deliver an outcome benefiting the whole.

But who really wins, even if a scheme recovers its indemnity costs and interest?  Is no one concerned about the damage to the industry this practice could effect in the long term?  Where will banks and finance institutions stand on lending to acquire body corporate properties?  Will they start to set higher interest rates, to address the risks of lending (because if they end up taking possession, their liability for the bodies corporate lawyers recovering $12K, may exceed $350,000!)?  If they increase interest rates, does anyone think that will be a good outcome for property values in bodies corporate?  If there is less interest in the body corporate market, does anyone not see a problem in the long run for our industry?

And what of the situation when the legal fees charged by a law firm exceed the value of a property?  We are reviewing a case in which the legal fees charged on what started as a $3,000 debt are now in excess of $180,000!  The property is valued at $220,000!  Is it not the lawyer’s duty to advise the owners that even if they win – there may be a substantial shortfall which can only be raised by a special levy charged to all owners  (because not all costs charged are recoverable – as we are seeing in cost assessments and legal proceedings)?  And what happens if that $3,000 debt was actually calculated incorrectly – and the court finds against the body corporate?   In the present case (with $180,000+ in legal costs) – that means every owner is going to wear a percentage of that failed litigation – even the owner who was sued, and won!  How can any of us see this as fair to the industry to which we serve?

We have had our fair share of extraordinarily difficult debtors who have incurred recovery costs of $20-$30K in protracted litigation.  We appreciate this can and does happen.  There are some owners who, no matter what you do, are habitual and defiant debtors, vendetta driven debtors and/or irrational debtors.

Our thought is this:

  1. The industry must make transparency a priority! If an owner asks for a document, produce it! Do not go to lawyers to avoid production, simply produce it.  If an owner wants an invoice, produce it.  If the cost is “reasonably incurred” – what’s the problem?  Why hide anything?
  2. The industry must question legal practices and rates. Lawyers and mercantile agencies need to be held accountable for spending.  The legal and mercantile industry in the body corporate arena must be held to commercial standards, and not “anything goes” standards.  It reflects poorly on our entire industry – although only a handful of firms and agencies are abusing the situation.
  3. The industry need to be problem solvers, not instigators. If there is an easier solution, try it first.  If that does not work, then go the distance.  But at least try the easier solution.  For example, if you have judgment – go back and try and negotiate again – don’t simply go to bankruptcy!  Find out if the owner can raise additional finance, or consider whether superannuation access can be acquired through hardship.   However, the debtor is someone’s parent, sibling or best friend; therefore, start the process by affording each debtor the disclosure and respect you would want provided your family or friend to be granted, if they were in a similar situation. If the debtor nonetheless refuses to act reasonably, then costs necessarily follow.

Respectfully submitted,

KATRINA ELIZABETH BROWN BA ATIA TIA SSA
Senior Lawyer
Katrina@nautiluslaw.com.au

 

NAUTILUS LAW GROUP
Suite 7, 128 Bundall Road
Bundall Queensland 4217
(07) 5574 3560

 

Nautilus’ Top 10 Reasons for Non Payment of Body Corporate Levies

As Body Corporate Lawyers, we’ve heard every excuse imaginable.

Our top 10 favourites are:

  1. “I didn’t pay my levies because no one respects me.” (Sorry – respect has nothing to do with your legal obligations.)
  2. “When I bought the unit 20 years ago the levies were $150 a quarter and now they are $500 a quarter – I’m being robbed!” (Sorry – it’s called inflation.)
  3. “I didn’t approve the budget. I’m only paying what I think is fair and the other owners can pay the rest.” (Sorry – majority wins in strata living.)
  4. “What do you mean I haven’t paid my levies?? I paid them once two years ago!!” (Sorry – levies keep falling due – it’s not a once off expense.)
  5. “The Body Corporate doesn’t cut my grass, so I’m not paying my levies.” (Sorry – the Body Corporate isn’t responsible for cutting your grass.)
  6. “The gardener assaulted me – the weed whipper stirred up the grass and I was hit by the flying grass when I walked to my car. I want compensation, I have gone to the police and I am not paying my levies until I get justice.” (Sorry – but weed whipper incidents do not constitute an offset for levy liability.)
  7. “The letting agent has not paid my rent, so if I am not getting paid – neither is the Body Corporate!” (Sorry – the Body Corporate isn’t your letting agent or tenant, you can’t offset one against the other.)
  8. “I gave my time to the Body Corporate and they didn’t pay me, so I am deducting the value of my time against my levies.” (Sorry – but trimming your bushes does not offset your levies.)
  9. “My spouse and I are going through a divorce – they live there, they have to pay it!” (Sorry – but you both own the property, you are both liable to the Body Corporate.)
  10. “What are levies?” (Seriously?)

Owners must appreciate that it is their legislative duty to pay levies as and when they fall due.  Disputes in respect to the amounts of validly raised levies need to be made at an AGM/EGM level – and not as a separate vendetta by non-payment.  Additionally, an owner is not at liberty to offset from levies, any alleged or real claims the owner may have against the body corporate (such as a claim for payment of damages caused by the body corporate to an owner’s exclusive use area, consequential to a repair made to common property).  Careful consideration has to be made to arguments by owners as  to the responsibilities of the body corporate in relation to maintenance matters, and this is dependent on the scheme type (for example, an owner cannot impose maintenance costs on the body corporate in respect to the owner’s lot – but equally, a body corporate cannot impose a levy in respect to maintenance costs in respect to lot except in a strictly narrow set of circumstances).  Importantly, owners have to appreciate the body corporate is not a charity, bank or financier – and has absolutely no obligation to grant payment plans, abstain from raising levies and/or otherwise provide financial assistance to owners.

At Nautilus Law Group, we work zealously for our bodies corporate to recover unpaid levies in a timely and cost effective manner.  Sometimes, the most effective method of achieving the recovery is spending the time to educate owners.  By no means is it the bodies corporate responsibility to have to “educate” its owners; however, transparency and education achieve results.  When, transparency and education do not work, then the legal system must intervene.

If you have questions about body corporate levy recovery, please do not hesitate to contact our Team to discuss your matter on (07) 5574 3560 – or – by emailing our Team at Info@nautiluslaw.com.au.  We look forward to speaking with you.  Katrina Brown, Senior Lawyer.

To Tow or Not to Tow – the Queensland Body Corporate Parking Nightmare

To Tow or Not to Tow – the Queensland Body Corporate Parking Nightmare

Body Corporate ParkingParking disputes are a common body corporate problem.   In Queensland, they are nothing short of a nightmare.

Parking and towing remedial action do not fall within the Body Corporate and Community Management Act 1997 or the Regulation Modules.

A body corporate is entitled to make by-laws to regulate the use of common property and lots in the Scheme, but the by-laws must not discriminate against the types of occupiers or impose a monetary fine (see Section 180 of the BCCM Act).  Where a contravention of the by-laws arises (such as an abuse of visitor parking), the right reserved to the body corporate falls under Sections 181, 182 and 184, which authorises the imposition of contravention notices and enforcement action.

We are aware that advocacy of by-laws imposing recovery of towing fees from parking on common property have been espoused by some firms.  The problem we have with this arises from the adjudicator’s finding in Ephraim Island – Subsidiary 105, Ref 0879-2006:

“I am of the view that by-laws 19.6 (and 11.6) are invalid.   Section 180 Act puts limitations on what a by-law can do. Section 180(6)  states that a by-law (other than an exclusive use by-law) must not impose a monetary liability on the owner or occupier of a lot.  A fine under this by-law would be such a monetary liability.  There is no power in a body corporate to fine its members for breaches of by-laws.”

Therefore, if parking and a monetary fee are combined in one by-law, it may be deemed to be invalid in its entirety if sought to be enforced against an owner/occupier.

This does not mean a body corporate is without a solution.  Despite Sections 135 through 136 of the Transport Operations Road Use Management Act 1995, which prohibits the locking of vehicle immobilisations and towing in broad circumstances; a body corporate has options.

Options in relation to Owners/Occupiers:

A body corporate may specify in its by-laws that an owner is not permitted to park on common property unless granted an exclusive use of that area, and proscribe that if the owner does park on common property, the body corporate shall be permitted to enter upon the area to carry out the owner’s obligations (including removal of the vehicle).

Many by-laws do not prohibit owners/occupiers from parking on common property.  Therefore, in the absence of the prohibition, a body corporate may struggle to issue a contravention notice in circumstances where the conduct is not expressly prohibited.

Whether the costs associated with the exercise of the body corporate’s powers are recoverable (such as tow fees), is a question for the Commissioner or Court.  Importantly, however, bodies corporate should be hesitant to tow or compromise a vehicle owned by an “owner/occupier”.  The body corporate’s legislative rights arise out of Sections 181, 182 and 184 – which require the body corporate to issue contravention notices.  If contravention notices do not quash the activity, then the body corporate can pursue enforcement with the Body Corporate Commissioner or Magistrate Court.

Options in relation to Visitors:

A visitor has no inherent right to occupy common property; therefore, if the limited right of access (which is often advertised by way of board over parking areas) is exceeded in duration – an “owner” – being the “body corporate” may remove the vehicle.

The difficulty arises in determining whether a vehicle is owned by a “visitor” or an “owner/occupier.”  A number of bodies corporate have introduced parking voucher/passes which are required to be “displayed” to distinguish owner/occupier and visitor cars.  The problem is that if the voucher or pass is not displayed and by the omission of that voucher or pass the car is deemed to be a visitor without rights, the body corporate could be liable for damages.

If repeated offences arise, and a vehicle cannot be readily determined to be a “visitor” owned vehicle, we recommend erring on the conservative side and commencing the process of contravention notices.  It may be that the issuance of a contravention notice alone may alert an offending “visitor” to the issues that they may be creating for their associated “owner/occupier” – and this alert may be sufficient to stop further violations of the visitor parking license.

Summary:

The entire question of towing is very dangerous, and accordingly, any recommendations we make to you need to be properly weighted with warnings.  By all means, however, we can vary your current parking and introduce towing by-laws.  We recommend that any body corporate encountering serial offenders seek legal advice before taking action, including, but not limited to the issuance of a contravention notice.

If you have a body corporate parking issue, we welcome you to contact our offices on (07) 5574 3560 or email info@nautiluslaw.com.au. We thank you for considering Nautilus Law Group.

Submitted by:  Katrina E. Brown BA JD ATIA TEP SSA

What is the process of approving “common property improvements”?

What is the process of approving “common property improvements”?

Common property improvementsDoes your common property require improvement, but your Committee is unsure of their rights or the requirements imposed on it by law? Or is your Body Corporate aware of its obligations but requires guidance? At Nautilus Law Group, our team can assist your Committee or Body Corporate to make the correct choices of how to implement any common property improvements.

A Body Corporate cannot make improvements to common property without meeting particular requirements. It must also make sure that the correct procedures are undertaken to ensure it cannot be held liable.

Section 163 of the Body Corporate and Community Management (Standard Module) Regulation 2008 (“the Regulations”) allows for a Body Corporate to make improvements to common property. (Depending on your Body Corporate Scheme, you may be subject to an alternate Regulation Module.  For purposes of outlining, in principle, the process across all Modules, we only refer to the Standard Module in this Article.  If you have specific questions about a different Module and the Improvement Limits associated with each, please do not hesitate to contact our Team.)  

Basic Improvement Limit

A Body Corporate can only make improvements to common property providing the cost of the improvement is not restricted by the monetary limit stipulated within Section 163 of the Regulations. Simply, the improvement must not exceed the basic improvements limit for the community title scheme.

The Regulations provide a definition of this limit as being $300.00 multiplied by the number of lots within the community titles scheme (“the Scheme”). For example if your Body Corporate has five (5) lots, that number (being five) is then multiplied by $300.00, which is $1,500.00. Should the improvement be equal to or less than this amount, the Committee does not require Body Corporate approval to resolve the improvement.

Not only is this section beneficial for lot owners in that the Committee cannot approve a costly large scale improvement but it also allows for the Committee to make decisions on small scale improvements without requiring it being passed by ordinary resolution.

Ordinary Resolution Improvement Range

There are times when a Body Corporate wishes to make improvements to common property on a larger scale. When such a situation arises, the improvement must be approved by ordinary resolution of the Body Corporate. Generally an improvement of a larger scale will far exceed the Basic Improvement Limit of $300.00 multiplied by the number of lots within the Scheme. Large scale improvements may consist of the construction of a new swimming pool or the re-painting of the entire complex.

If the improvement is necessary, section 163 of the Regulations provides for the cost of the improvement to fall within the Ordinary Resolution Improvement Range. It further provides a definition of this limit being $2,000.00 multiplied by the number of lots within the Scheme. For example if your Body Corporate has five (5) lots, that number (being five) is then multiplied by $2,000.00, which is $10,000.00.

Some issue can arise in larger Bodies Corporate, such as those with hundreds of lots, where the proposed improvement reaches the maximum limit. In these situations, the budget for the improvement can be upwards of more than one hundred thousand dollars.  There may be a time where you, as a lot owner, may not agree on the improvement or the amount it will cost your Body Corporate. Thankfully, Section 163 assists in protecting lot owners by imposing a maximum limit on large scale improvements and allowing each lot owner the opportunity to vote on whether the improvement should be allowed.

Conclusion

At some point during your ownership of a lot within the Scheme, there is a high probability that your Body Corporate will want/need to make improvements to the common property. When this occurs, it is critical that your Body Corporate meets the requirements under Section 163 of the Regulations. If you or your Body Corporate is unsure or it simply requires clarification or confirmation, the Body Corporate Team at Nautilus Law Group is here to help.

We welcome you to contact our offices on (07) 5574 3560 or email info@nautiluslaw.com.au. We thank you for considering Nautilus Law Group.

Body Corporate and Community Management – Small Scheme Module

The Body Corporate and Community Management (Small Scheme Module) Regulation 2008 (the Small Scheme Module) applies from 30 August 2008, and generally relates to bodies corporate with 2-6 lots and of a predominantly residential nature.

Letting Agents
Complexes applying the Small Scheme Module do not retain letting agents, which reflects on the type of the complex.
Term of engagement of Body Corporate Managers
Under the Small Scheme Module, Body Corporate Managers are retained for 12 months from the date of engagement, or such lesser terms as determined by the body corporate.  Managers are, therefore, required to renew terms of appointment on an annual basis.
Meetings

Meetings of the Body Corporate are referred to “annual general meetings” or “extraordinary general meetings.”  The meetings may be called as follows:

(1)   A general meeting may be called by—

(a)   if the positions of secretary and treasurer are held by the 1 person—the person; or

(b)   if the positions of secretary and treasurer are held by 2 persons—the secretary or treasurer, if authorised by a resolution of the committee to call the particular meeting.

(2)   A general meeting may also be called by a person authorised or required to call a general meeting by an order of an adjudicator acting under the dispute resolution provisions.

Written notice of a general meeting (including the time and place of the proposed general meeting) must be given to the owner of each lot included in the community titles scheme, and if not given personally, must be sent to the owner at the owner’s address for service. If an owner changes address, they are required to lodge a Body Corporate and Community Management Form 8 (Information for body corporate roll) with the Body Corporate. If an owner fails to do so, it is at their own peril.

Seal

In Queensland, a Body Corporate will affix the seal to any document, deed or instrument or in accordance with the delegation given to the Body Corporate Manager by the Body Corporate, and the Small Schemes Module requires:

(1)   The body corporate’s seal must be kept in the custody directed by the body corporate by ordinary resolution.

(2)   The body corporate’s seal may be used only as directed or authorised by ordinary resolution.

However, if a body corporate has not resolved how the seal is to be used, the seal may be attached to a document in the presence of the secretary or treasurer and 1 other person.

If you have any questions about the structure or requirements of Queensland Body Corporate matters,  contact our team on  (07) 5574 3560 or email us info@nautiluslaw.com.au. Thank you for considering Nautilus Law Group.

Body Corporate Repairs and Maintenance – who pays for what?

Body Corporate Repairs and Maintenance – who pays for what?
Has an owner requested your Body Corporate to do repairs and maintenance, or compensate the owner for repairs made?    There may be fine distinctions between what constitutes an owner’s obligation, and what otherwise falls within the catchment of a Body Corporate responsibility.

Generally speaking a Body Corporate is responsible for a repair relative to common property. The Body Corporate and Community Management (Standard Module) Regulation 2008 (“the Regulations”), Section 159, provides:

   “The body corporate must maintain common property in good condition, including, to the extent that common property is structural in
   nature, in a structurally sound condition.”

A Body Corporate’s obligation to repair and maintain common property, extends as well to structures bordering the common property, such as railings, fencing, doors, windows and associated fittings separating a lot from the common property.  There are exceptions to the above; however, limited.

Utility infrastructure is not necessary a “common property” matter for which the Body Corporate is liable.  If the infrastructure is on common property, but solely supplies an individual lot – the owner of the lot is liable.  An example of such an infrastructure includes air conditioning units, hot water systems and other devices supplying a utility or service to a lot.

Whilst Body Corporate liability as to “common property” and “boundary” matters are readily understandable, significant ambiguity follows from an incident arising within an individual unit which is traceable to matters associated with common property.

One such example arose in the matter of The Palms Apartments [2009] QBCCMCmr 428 (30 October 2009).  In this case, a water pipe burst in the wall of an owner’s bathroom. Both the owner and the Body Corporate disputed responsibility. The Body Corporate argued that the pipe was within the boundary of the lot and was a utility infrastructure (and referred to Section 159 of the Regulations in support of the position that the owner was liable). The owner disputed this argument producing a plumber’s report, which stated that the water pipe did not supply water solely to that unit (referring liability back to the Body Corporate). The adjudicator determined that the dispute related to a utility infrastructure, subject to Section 20 of the Body Corporate and Community Management Act 1997, and held that the pipe was considered “common property” for which the Body Corporate was responsible to maintain. The Body Corporate was required to compensate the owner of the damages arising from the water pipe leak.

The last three years have been brutal on Queensland body corporate owners, in terms of environmental damage and retraction in the property market generally.  Following from the storm surges, cyclones and flooding, many Queensland bodies corporate have been dealing with disputes between insurers and owners as to liability for repairs and maintenance.  This is especially difficult in circumstances where the bodies corporate are willing to make repairs, but skilled labour and/or services are not available.  Owners lacking appreciation for the difficulties faced by Body Corporate Managers and Committees balancing between insurers, assessors, occupiers (including displaced tenants) and alike, cause further delays in processing and can clog the Body Corporate Commissioner’s Office with complaints.

The best strategy to adopt is one of information dissemination to all owners, on an annual basis, at least.  The information sheets should identify the difference between common property/body corporate obligations and those associated with an owner specifically. Owners need to be encouraged to adapt proactive efforts at minimizing damages following environmental events, such as seeking approval from insurers to organize their own repairs (even if the repairs need to be paid out of pocket initially by the owner) so as to protect the properties from further and continuing damage.

The Nautilus Team is experienced in a wide range of body corporate disputes, and in the last three years have been engaged in negotiating with insurers, owners and Committees regarding recovery and restoration of properties following the environmental events.

If you require assistance in resolving property damage matters, please do not hesitate to contact our team to arrange a meeting on (07) 5574 3560.  Our solicitors regularly travel between Port Douglas, Cairns, Townsville, Mackay, the Sunshine Coast and the Gold Coast offering assistance to Committees along Eastern Queensland.

We thank you for considering Nautilus Law Group.