Who Pays the Costs to Defend a Defamation Claim Involving a Committee Member?

Who Pays the Costs to Defend a Defamation Claim Involving Committee Members?

 

Committee members naturally think that any claim made by or against them while performing their duties should be defended, at the cost of the body corporate (or its insurer). 

However, this is not necessarily the case.

Insurance

Insurance policies for community titles scheme will generally include cover for office bearer’s liability. This policy is designed to provide protection to committee members against losses arising from their conduct performed (or not performed, as the case may be) during the course of carrying out their committee duties. 

However, this policy will generally contain an exclusion from protection for defamation. This means that if a defamation claim is made against a committee member, the insurer will generally not provide cover for any costs incurred in defending that claim. 

Body Corporate 

There are statutory restraints regarding how a body corporate may apply its funds. 

The primary functions of a body corporate include administering the common property, enforcing the community management statement and carrying out other functions – as required by the body corporate legislation. 

Body corporate funds may only be used to undertake these statutory purposes, and cannot be used for other purposes, no matter how worthwhile those other purposes may be. 

Adjudicators have previously determined that paying for costs incurred by a committee member defending (or initiating) a defamation claim, are not usually considered costs that fall within the functions of a body corporate. 

A body corporate’s duty to act reasonably also applies to the way that the body corporate chooses to spend its money and the circumstances where it might be reasonable for a body corporate to pay the legal costs of a committee member arising from a defamation claim are limited.

In the event that a body corporate was to pay the costs of a committee member arising from a defamation claim, it is likely that an adjudicator would order a body corporate to recover those costs, should an adjudication application be made. 

What to do? 

Before a body corporate makes any payment for costs incurred by a committee member in a defamation claim, it should obtain legal advice, otherwise the body corporate may be embroiled in a dispute in the Commissioner’s Office, despite any good intentions. 

If you are a committee member (including a non-voting building manager) and you are not protected from liability for a defamation claim by the body corporate legislation, it is unlikely that a body corporate will be allowed to pay for costs incurred by you to defend that claim. 

However, if a committee member is required to defend a defamation claim, the circumstances surrounding the claim may make it appropriate for the body corporate to pay for any costs incurred, and legal advice should be obtained about the committee member’s position about the recoverability of costs.

Article Written by Col Myers (August 2021)

 

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Terminated Caretaking Agreements – is it the Courts Problem

TERMINATED CARETAKING AGREEMENTS – IS IT THE COURTS PROBLEM?

 

We all know that disputes about terminated caretaking and letting agreements are heard by QCAT. However the Supreme Court of Queensland has recently considered whether the Courts have jurisdiction to hear claims arising out of a terminated caretaking and letting agreement (Dunlop Case). 

If they do, it would appear likely that access to litigation by caretakers and letting agents may increase.

The facts

  • Mr Dunlop conducted a caretaking and letting business at an apartment complex in Port Douglas;
  • Mr Dunlop was subsequently convicted of an offence, and at the time of the conviction, Mr Dunlop’s property licence was cancelled;
  • The Body Corporate made enquiries in to Mr Dunlop’s cancelled licence and, upon confirmation, resolved to terminate the caretaking and letting agreement;
  • Mr Dunlop filed a claim in the Supreme Court for the lost value of the caretaking business, alleging that there was a breach of contract and Australian Consumer Law;
  • Mr Dunlop’s claim was against the Body Corporate, committee members and solicitor;
  • The Body Corporate sought an order setting aside Mr Dunlop’s claim on the basis that the Supreme Court did not have jurisdiction, as the claim should be considered a “complex dispute” within the meaning of the Body Corporate and Community Management Act 1997 (Qld) (BCCMA);
  • The Body Corporate alleged that the “only remedy” for resolution of the dispute is by an order of a specialist adjudicator or QCAT.

 

What did the Supreme Court think?

The Supreme Court largely agreed with the Body Corporate’s position, given the very precise wording of the BCCMA, by commenting:

“The applicants submit the claim against the body corporate is a complex dispute … namely a dispute between the body corporate and a caretaking service contractor and letting agent about a contractual matter, namely the termination of the engagement of the contractor and letting agent. From this it follows… that pursuant to s 229 the “only remedy” for resolution of the dispute is by an order of a specialist adjudicator or QCAT.” 

The Judge further commented that “these conclusions trend in favour of granting the application to set aside the claim and statement of claim in respect of the body corporate for the reason that it is a complex dispute to be resolved pursuant to s229(2)”. 

The Court considered that some aspects of the claim may be heard in QCAT and the remainder heard in the Supreme Court. However this outcome would be less than desirable, given that each claim has some connection to the other claims put forward by Mr Dunlop. 

In these uncertain circumstances, the Courts ultimately refrained from reaching a conclusion on the matter of jurisdiction pending further submissions on the matter. 

What does this mean? 

Whilst the outcome of this case is yet to be determined, it is of particular note to any Strata Manager that should the Courts take the view that such matters are within the jurisdiction of the Courts, it would appear likely that access to litigation may increase for a terminated caretaker/letting agent. 

Regardless of the outcome, the case serves as a timely reminder to ensure that any Body Corporate considering taking such steps to terminate a caretaker/letting agreement seek the professional advice of a Body Corporate lawyer.

 

Article Written by Brendan Pitman (1 July 2021)

 

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Fixing the Lottery this is Building Defects in NSW Strata Buildings

FIXING THE LOTTERY THAT IS BUILDING DEFECTS IN NSW STRATA BUILDINGS

 

We have all heard about the appalling building defects that have occurred in a number of new strata buildings in Sydney in recent years. Complexes such as “Opal Tower” and “Mascot Towers” are shocking examples of innocent mums and dads buying their dream residence, only to find that their unit and their complex were shoddily built and their dream has turned into a financial nightmare. Karen Stiles, from the Owners Corporation Network (which represents apartment owners) has said it “beggars belief that buildings so badly built received occupation certificates which allowed developers to settle on apartments.” How was this allowed to happen?

Design and Construct Contracts

Contractual arrangements for multi-storey projects differ, but commonly developers engage a builder to undertake a design-and-construct project. This means the builder is responsible both for the development of the design and the construction of the building. Whilst the developer might initially engage architects and engineers to prepare early designs to obtain planning approvals, these consultants then become subcontractors. Once contracted, the builder will work to find efficiencies and cost savings in the development of the design and construction of the building.

Although building approvals are required, the nature of a design-and-construct project means that many aspects of the design change after the initial approval is obtained. Many certifiers approve, allow, or are not aware of, variations that have been made. The result is that changes to approved design occur frequently, at the discretion of the builder, project manager and/or contractors and without independent certification.

The Shergold Weir Report commissioned by the NSW Government found that inaccurate designs mean that certifiers can never fully ensure compliance because they then must rely on inspections and some of the most important safety elements are hidden from view and a point-in-time inspection cannot properly assess essential construction processes.

Changes Implemented

The NSW Government has supported the vast majority of the Report’s recommendations and has (or is) implementing the following major reforms across the construction industry:

  1. Appointment of an expert Building Commissioner to act as the consolidated building regulator in NSW;
  2. Putting in place new laws that require building practitioners involved in designing buildings to submit building plans to the Commissioner (so that they may be audited), declare that the plans are BCA compliant and meet other relevant requirements and provide reports explaining why that is the case for performance solutions. Builders will also have to declare that their buildings are constructed in accordance with these plans. It will be an offence to knowingly or recklessly declare non-compliant plans or fail to lodge the documents on time. Disciplinary action will be able to be taken against practitioners who improperly make these declarations. The Building Commissioner will not need to sign off on building plans;
  3. The Building Commissioner will register the building practitioners who can lawfully make a declaration that plans are compliant or make a declaration that plans accurately reflect a building’s as-constructed design. These practitioners will have to maintain the necessary skills and insurance to meet the registration requirements and will be subject to disciplinary action for professional misconduct;
  4. Ensuring that building practitioners owe a duty of care to Owners Corporations and subsequent titleholders of residential developments, as well as unsophisticated construction clients who are small businesses. This means that homeowners will have a right to pursue compensation when they suffer damage because of a building practitioner’s negligence.

From 1 July 2021, most of these changes took effect for Class 2 buildings. These are typically multi-unit, multi-storey residential buildings where people live above and below each other.

The NSW Government see Class 2 as the highest priority right now, but the NSW Government will expand the reforms to other classes of construction in the future.

Also, previous changes to the Strata Schemes Management Act relating to residential strata properties that are four or more storeys now require that:

  • Developers must lodge a building bond equal to 2% of the building contract price, before an application is made for an occupation certificate;
  • Developers must give documents to the building inspector that help with their inspection;
  • There is a means for the developer and owners to agree on the amount of the building bond to be released for repairs, if they can’t agree;
  • A debt recovery mechanism has been put in place that enables the recovery of unpaid or insufficient bonds from a developer

Conclusion

Strata building defects have resulted in enormous extra workloads for Strata Committees and Building Managers – not to mention the emotional and financial hardship caused to unit owners. David Chandler was appointed the NSW Building Commissioner in 2019 after an impressive forty year career in the Australian construction industry.

Hopefully, he is the right man to clean up all of this shoddy construction, workmanship and design in strata buildings.

Article Written by Col Myers (July 2021)

 

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ARAMA Service Provider Finalist

ANNOUNCEMENT

ARAMA Service Provider Finalist 2021

ARAMA FInalist 2021

ARAMA FInalist 2021

 

 ARAMA Australian Resident Accommodation Managers’ Association congratulates Col Myers on becoming a finalist in ARAMA’s Management Rights Industry Top Awards.

These Awards are designed to Target Outstanding Performers and this acknowledges that Col is certainly one of them.

 

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Pros and Cons of Pooled Letting

PROS AND CONS OF POOLED LETTING

 

When an owner lets out their unit through an on-site letting agent, there are two ways that the owner’s letting income is typically calculated. These can be described as the “direct income” method or the “pooled income” method.

The method to be used is set out in the letting appointment (i.e. the agreement between the letting agent and the owner of the investment unit).

The majority of letting appointments pay an income to owners using the direct income method, where the income collected from the unit bookings is paid directly to the owner, after deductions of all expenses.

The pooled income method is used predominantly for short term lettings in a hotel style business. When using pooled income, the combined income and expenses for all units in the letting pool are aggregated and then a share of the profit is paid to all the owners in the letting pool.

In a perfect world, the pooling of income would seem the fairest way for Managers to operate their letting businesses. By pooling the income, owners can’t accuse the Manager of favouring certain owners over others when allocating bookings, and all owners rise and fall together with the success of the letting business. However, as we all know, we don’t live in a perfect world!

There are a number of common issues that can arise when operating a pooled letting business. The types of questions you will encounter include:

  • How to fairly determine the income ratio? Do you allocate based on the number of beds, unit entitlements (which are designed to reflect value), quality of the unit, sea views or some other unique quality? Or do you divide everything equally regardless?
  • How to share expenses? Do you share any or all expenses across the letting pool? Do you share expenses only up to a certain cost? Do you use the same ratio for sharing income to also sharing expenses?
  • How to determine who authorises significant expenditure? Do you ask a committee or one or two owner representatives, or should you be asking all owners – as all owners are sharing the costs?
  • How to operate a maintenance fund? Do you deduct a maintenance levy each month or just withdraw expenses as and when incurred?
  • What happens when an owner leaves the pool or has only just joined the pool? Should part of the retained maintenance funds be returned to the leaving owner? What if an owner leaves the pool after the general maintenance fund has just paid out for a new hot water system or installed new carpet in their unit?
  • How to adjust income when the owner uses their unit? Do you make no adjustment, or do you pro rata adjust for the days used?
  • How to change the terms of the letting appointment? What do you do if not all owners agree to your proposed change?

If you elect to go the pooled income route with your letting business, all of the above questions need to be thoroughly considered and appropriately addressed in your letting appointments with your owners. Unfortunately, we see a lot of letting appointments providing for pooled income where the issues raised above are not sufficiently answered.

When these issues are not suitably addressed we see unfair scenarios arise where owners are not receiving an income that truly reflects their unit’s contribution to the letting pool income. For example, if two bedroom units are in demand far more often than three bedroom units, the owners of the two bedroom units are effectively supplementing the income of the owners of three bedroom units. To add insult to injury, if the distribution of the pooled income is based on unit entitlements (i.e. the value of the units), the three bedroom units will also receive a higher return from the pool than the two bedroom units.

When you look at the questions and examples above, you can see there are many situations where a disgruntled owner could easily start asking some difficult questions. Questions that will be uncomfortable to answer if the terms of your letting appointment are either vague or silent on the issue.

If you operate a letting business that pools the income given to owners and your letting appointment doesn’t have the answers to these questions, it’s definitely recommended that you prioritise a revision of your letting appointments, as it only takes an issue with one owner to be an issue with all owners.

Article Written by Col Myers (June 2021)

 

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Resolutions Without Dissent

THE POWER OF ONE

 

The Queensland strata legislation, like other States’ legislation, includes varying motion types which necessitate different levels of voting support in order to become resolutions. Each State has unique categories of motions and different threshold voting requirements for such motions to be approved. Whilst there is some overlap, a special resolution in one jurisdiction may have a different meaning in another (at least in terms of the way votes are calculated).

In Queensland, the Body Corporate and Community Management Act 1997 prescribes the following resolution types (for general meetings):

  • Ordinary resolution
  • Majority resolution
  • Special resolution
  • Resolution without dissent

The most common resolution type is an ordinary resolution. Such a resolution is calculated quite simply in terms of a majority of those voting. The motion passes if there are more votes in favour than against. The qualifying aspect to this is if somebody (anybody entitled to vote) requests a ‘poll’. In such circumstances, the motion is passed if the total contribution lot entitlements in favour of the motion are more than the total contribution lot entitlements against the motion. An ordinary resolution is the only resolution type where a poll can be requested.

One infrequently used resolution type is a majority resolution. Because they are rarely required, there seems to be a tendency to assume (incorrectly) that a majority resolution is the same as an ordinary resolution – after all, it talks about a ‘majority’ doesn’t it? However, they are quite different things. A majority resolution is calculated based on the total number of lots in the scheme. The resolution carries only if the votes in favour of the motion are more than half of the lots entitled to vote on the motion. Given the general apathy and low voting turnout at general meetings, obtaining the required support for a majority resolution can be quite difficult.

Another misconception that owners and others in the strata sector frequently seem to have is the voting requirements for a special resolution. There appears to be a common assumption that such a resolution requires a simple 75% majority. Whilst perhaps that might be useful as a ‘rule of thumb’, the counting of votes for a special resolution is quite different. The test is a three-tier one, and requires all of the following requirements to be satisfied:

  • At least two-thirds of the votes cast are in favour of the motion.
  • The votes counted against the motion are not more than 25% of the number of lots in the scheme.
  • The contribution lot entitlements for lots voting against the motion are not more than 25% of the total contribution lot entitlements for the scheme.

That brings us to the final resolution type and the purpose of my commentary in this newsletter – the resolution without dissent. Such a resolution quite simply requires that no vote is cast against the motion. What’s more, this resolution type does not prohibit owners who owe a body corporate debt at the time of the meeting from voting on the motion. Accordingly, a single owner (financial or unfinancial) can ensure that such a motion does not carry – and this frequently occurs. 

It holds true that there will be very serious decisions that a body corporate will need to make from time to time that should require strong majority support – even beyond the requirements of a majority or special resolution. However, the question arises as to whether a unanimous voting requirement is a step too far? 

Of course, there will be those that point out that any failure of a resolution without dissent to pass can be the subject of challenge in the Commissioner’s Office – the relevant test being whether it failed to pass ‘because of opposition that in the circumstances is unreasonable’ – a test for which we have High Court authority (Ainsworth v Albrecht [2016] HCA 40).

However, that still means that valuable time and resources are consumed in seeking to have an unreasonable vote overturned in the Commissioner’s Office. Conversely, if one or two votes were insufficient to prevent the passing of the motion, it would be up to those ‘aggrieved’ owners to take the initiative and commence dispute resolution proceedings to challenge the passing of the motion. Without good cause and reasons for their dissent, most owners will probably not take up this option – particularly as frivolous or vexatious applications can be dismissed with costs. 

That brings us to another question about whether the current statutory maximum of $2,000.00 is sufficient to discourage the lodging of frivolous or vexatious applications. Certainly not in my opinion. However, that is a debate for a different day – and a different newsletter!

Article Written by Jarad Maher (26 May 2021)

 

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When Should A Body Corporate Allow A Discount for an Overdue Payment?

WHEN SHOULD A BODY CORPORATE ALLOW A DISCOUNT FOR AN OVERDUE PAYMENT?

 

The legislation has created a significant incentive for owners to pay their contributions by allowing a body corporate to fix a discount of up to 20% to be given to owners if a contribution is paid on time. 

But … 

The issue lies in the scenario where the contribution is received by the body corporate after the due date but the owner still wants the benefit of the discount. 

The blunt response is that the owner is not entitled to the discount. But, in certain circumstances, that seems overly harsh. 

That is why the legislation also gives a body corporate the power to allow part or all of a discount even if the amount was not received by the due date, if the body corporate is satisfied there are ‘special reasons’.

Special reasons 

What constitutes ‘special reasons’, is not defined. 

It depends on the circumstances of the situation and a body corporate should consider the merits of the particular case before making its decision. 

Take the following scenarios:

  1. an owner paid the contribution on the due date but it was received by the body corporate the next day, the owner had no history of late payments, the owner did not know the payment would be received the next day;
  2. an owner paid the contribution 12 days late because the owner unexpectedly went to hospital for emergency surgery just before the due date for the contribution and made payment the day after returning from the hospital;
  3. an owner had a direct debit set up with Stratapay (a recognised payment platform) to pay contributions, however a computer error resulted in Stratapay not paying the contribution amount to the body corporate by the due date;
  4. an owner did not receive the notice of contribution before the due date for payment.

In each of these scenarios, an adjudicator has found that the body corporate acted unreasonably in deciding to not allow a discount. 

Consequences 

If a body corporate refuses to allow a discount, it can have the following consequences:

  1. the owner may not be entitled to vote at a general meeting because they owe a body corporate debt;
  2. the owner may accrue up to 30% interest per annum on the unpaid amount;
  3. the owner may be required to pay reasonable recovery costs in recovering the unpaid amount.

That is not to say that a body corporate should always allow a discount, but rather emphasises that a body corporate must act reasonably in deciding whether to allow a discount. 

What should you do? 

A body corporate should treat requests by lot owners to reinstate a discount carefully. 

That is because:

  1. if a body corporate does not consider the specific circumstances of the request and adopts a blanket approach, an adjudicator will likely find that the body corporate acted unreasonably and order the body corporate to refund the amount of the discount;
  2. if a body corporate allows a discount without there being ‘special reasons’, it is arguable that that the body corporate exceeded its powers and other owners may apply to the Commissioner’s Office for relief. 

If a body corporate is unsure of its ability to allow a discount for an overdue payment, or simply wants to try and avoid a potential dispute, legal advice should be obtained as soon as possible.

 

Article Written by Brendan Pitman -10 May 2021
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Disclaimer – This article is provided for information purposes only and should not be regarded as legal advice.

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What is Gallery Vie

WHAT IS GALLERY VIE?

 

What is Gallery Vie, and why is the caretaker wanting to vary the caretaking agreement?

 

Gallery Vie is the name of a strata building which was involved in a 2015 Queensland Civil and Administrative Tribunal (QCAT) decision that significantly changed how Body Corporate legislation was interpreted going forward. In particular it changed how termination clauses in caretaking and letting agreements are applied when the caretaker has taken out a loan and used the caretaking and letting business as security for that loan.

In the Body Corporate legislation, when a bank has provided a loan to a caretaker, the bank is granted a special ability to step in and take control of the caretaking and letting business in the event the Body Corporate intends to terminate the caretaking and letting agreements. This special right is intended to prevent disruption to the services being provided to the Body Corporate and provide comfort to banks to encourage them to invest in the caretaking industry. Without bank investment, the vast majority of caretakers would not be able to operate.

Prior to the Gallery Vie QCAT decision it was widely understood that a Body Corporate could not terminate a caretaking or letting agreement that was secured by a bank for any reason without first allowing the bank the opportunity to rectify the breach or step in and take control of the business. The Gallery Vie decision however came to the conclusion that if the caretaking or letting agreement included additional termination rights over and above the rights granted in the Body Corporate legislation, it was possible for a Body Corporate to terminate an agreement without allowing the bank the option to step in first. This outcome severely undermined the protections the banks thought they held under the legislation and immediately led to banks cancelling or limiting lending to caretakers who were affected by the precedent set by the Gallery Vie decision.

To address the banks’ concerns raised by the Gallery Vie decision and ensure that loans could continue to be offered to caretakers, most caretaking and letting agreements need to be amended to remove termination triggers that deny the banks the option to step in. These are triggers that allow the Body Corporate to terminate the agreements, such as:

  • the caretaker becoming bankrupt,
  • the caretaker having receivers appointed,
  • the caretaker being convicted of a crime, or
  • the caretaker becoming physically or mentally incapacitated.

By varying caretaking and letting agreements to remove the ability of these triggers to prevent banks stepping in, it returns the caretaking industry to the position it was in prior to the Gallery Vie decision (as originally intended in the legislation) and gives the banks the comfort they need to continue offering finance to caretakers. If the caretaking and letting agreements are not varied as required by the banks, the caretaker faces the prospect of losing their finance altogether or having to agree to finance on significantly less viable terms.

    Article Written by Ben Ashworth (7 May 2021)

     

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    Termination of Residential Tenancies in NSW after the COVID-19 Moratorium

    TERMINATION OF RESIDENTIAL TENANCIES IN NSW AFTER THE COVID-19 MORATORIUM

     

    The temporary tenancy moratorium introduced by the NSW Government to restrict when landlords could evict residential tenants due to rental arrears as a result of COVID-19 ended on 26 March 2021.

    From 27 March 2021, a six-month transitional period has begun.

    NSW Fair Trading has introduced a flowchart to assist landlords and tenants to understand how the transitional measures may affect a tenancy agreement.

    Step 1 – Establish if the tenant was COVID-Impacted during the moratorium period?

    During the moratorium period, between April 2020-26 March 2021,

    1. Did one or more rent-paying members of the household:
      • lose their employment, income or work hours due to COVID-19, OR
      • have to stop working or substantially reduce work hours due to illness with COVID-19, another member of the household’s illness with COVID-19 or to care for a household or family member with COVID-19? AND
      • did this result in a reduction in the weekly household income (including government assistance) of at least 25%?

    If so, the tenant was an ‘impacted tenant’.

    1. Did the ‘impacted tenant’ fail to pay rent or charges under their lease during the moratorium period that:
      • were payable, and
      • were not paid (either with or without the agreement of the landlord), and
      • are still owing?

    If so, these are ‘arrears’.

    If the above applies, the transitional measures apply.

    Step 2 – Have the parties negotiated a repayment plan between themselves?

    Step 2B – Use NSW Fair Trading Dispute Resolution (formal arrears repayment negotiation process)

    1. A landlord or a tenant can apply to NSW Fair Trading for assistance.
    2. NSW Fair Trading will request evidence to help parties negotiate the repayment plan.

    Step 2C – Have the parties been able to agree to a repayment plan?

    1. If yes, the repayment plan documented should include:
      • total amount payable;
      • payment frequency and amount.
    2. If no, the landlord may issue a termination notice or apply to Tribunal for a termination order to end the tenancy.

    A landlord cannot issue a termination notice unless:

    1. if no repayment plan is in place, they have participated in the formal arrears repayment negotiation process in good faith; OR
    2. if a repayment plan is in place, the tenant has missed more than two consecutive repayments; AND
    3. it is fair and reasonable to do so.

    In deciding whether it would be fair and reasonable, the Tribunal will consider:

      • the steps taken by the landlord and tenant to negotiate a repayment plan;
      • any payments made by the tenant towards the arrears;
      • the general financial position of, and any financial hardship experienced by, the landlord or tenant;
      • the availability and affordability of reasonable alternative accommodation for the tenant; and
      • any special vulnerability of the impacted tenant.

    Decision and orders are then made by NCAT and, if appropriate, the tenancy will end.

     

    Article Written by Col Myers (May 2021)
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    Disclaimer – This article is provided for information purposes only and should not be regarded as legal advice.

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