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)

 

Liability limited by a scheme approved under Professional Standards Legislation
Disclaimer – This article is provided for information purposes only and should not be regarded as legal advice.

 

 

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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)

 

Liability limited by a scheme approved under Professional Standards Legislation
Disclaimer – This article is provided for information purposes only and should not be regarded as legal advice.

 

 

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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
Liability limited by a scheme approved under Professional Standards Legislation
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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    Disclaimer – This article is provided for information purposes only and should not be regarded as legal advice.

     

     

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    Reallocation of Exclusive Use Areas – A Cost on Who?, For the Benefit of Two

    REALLOCATION OF EXCLUSIVE USE AREAS – A COST ON WHO?, FOR THE BENEFIT OF TWO

     

    A situation that frequently comes across my desk is where two or more lot owners (but usually just two) are seeking to ‘swap’ exclusive use areas between their lots. Sometimes it is just one owner, who owns multiple lots, seeking to transfer areas between their lots (usually for the purpose of selling one or more of the lots with the different allocations in place).

    Section 171(1) of the Body Corporate and Community Management Act 1997 (Act) sets out the following:

    (1)       The common property or body corporate asset to which an exclusive use by-law for a community titles scheme applies must be—

    (a)         specifically identified in the by-law; or

    (b)         allocated—

    i            by a person (who may be the original owner or the original owner’s agent) authorised under the by-law to make the allocation (an authorised allocation); or

    ii           by 2 or more lot owners under a reallocation agreement (an agreed allocation).

    Essentially, if two or more owners decide that they would like to swap areas of common property (that are subject to an exclusive use by-law), then they are entitled to such a swap by entering into a ‘reallocation agreement’. Such an agreement is defined in the Act to be ‘an agreement in writing under which two or more owners of lots for which allocations are in place under an exclusive use by‑law agree to redistribute the allocations between the lots.’

    Other than needing to be in writing, there are no strict requirements about the form or content of a reallocation agreement. It could be as simple as a one page document setting out an extract of how the revised allocations will appear in the table in Schedule E of the Community Management Statement (CMS) and executed by the owners involved. I have also seen and prepared much more complex versions, setting out the terms of the reallocation in a formal deed of 10 or so pages. Much depends on the needs of the owners involved in the transposition, whether they are related parties, and whether the reallocation also involves the exchange of money.

    Section 174(1) of the Act provides than an authorised or agreed allocation has no effect unless details of the allocation are given to the body corporate. Accordingly, once two or more owners agree to swap their exclusive use areas, the owners must give notice and details of the agreed allocation (ie a copy of reallocation agreement) to the body corporate.

    Once the notification is received, the body corporate must lodge a new CMS with the Department of Resources (titles office) that includes the change within 3 months (section 176 of the Act).

    Two questions that are frequently posed to me by a committee or body corporate manager following receipt of an agreed allocation are:

    1. What are the approval requirements for the body corporate to lodge the new CMS?; and
    2. Who is responsible for the costs of preparing and lodging the new CMS with the titles office?

    It is important to note that body corporate consent is not required to the recording of a new CMS pursuant to an agreed allocation. The approval requirements set out in section 62 of the Act do not apply to an agreed allocation. The body corporate must simply comply with the legislative obligation to register a new CMS within 3 months of the allocation being notified (in accordance with section 176 of the Act).

    Sometimes a body corporate will still be concerned to properly record the fact of the new CMS being lodged and, in such circumstances, my recommendation is that the committee pass a motion at its next meeting, or by voting outside committee meeting (VOC / flying minute), noting the agreed allocation and the fact of the new CMS being prepared and lodged with the titles office. A committee meeting may be required in any event to properly engage and instruct a solicitor to prepare and lodge the new CMS on behalf of the body corporate. That brings us to the next issue of the responsibility for the costs associated with preparing and lodging the new CMS.

    Section 63 of the Act provides that the body corporate is responsible for the costs of preparing and lodging a new CMS (unless another section of the Act provides otherwise). There is no exception to the general position under section 63 of the Act in relation to the preparation and lodgment of a new CMS arising because of an agreed allocation. Accordingly, the body corporate is responsible for preparing and lodging the CMS at its own cost.

    This often comes as quite a surprise to the committee given that an agreed allocation only benefits the lot owners involved and the body corporate may have no reason (other than the reallocation itself) to register a new CMS in the 3 months following notification of the agreed allocation. Nonetheless, the statutory obligations of the body corporate are clear in this regard and, whilst the owners providing the notification can be asked to contribute to the cost, the body corporate cannot insist upon it if the owners decline.

      Article Written by Jarad Maher (27th April 2021)

       

      Liability limited by a scheme approved under Professional Standards Legislation
      Disclaimer – This article is provided for information purposes only and should not be regarded as legal advice.

       

       

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      Part 2: Who Pays For The Costs To Defend A Defamation Claim Involving a Committee Member?

      PART 2: WHO PAYS FOR THE COSTS TO DEFEND A DEFAMATION CLAIM INVOLVING A COMMITTEE MEMBER?

      It makes sense to think that any claim made against you while performing your duties as a committee member should be defended at the cost of the body corporate (or their insurer).

      But, think again.

      Insurance

      The insurance for a community titles scheme will generally contain a policy covering 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 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 includes 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 however worthwhile those other purposes may be.

      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 as interpreted by adjudicators.

      The 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 were 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 should I 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 and are not protected from liability for a defamation claim by the body corporate legislation (see our previous article here), 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 Brendan Pitman (January 2021)

       

      Liability limited by a scheme approved under Professional Standards Legislation
      Disclaimer – This article is provided for information purposes only and should not be regarded as legal advice.

      GET IN TOUCH

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      Postal:      PO Box 1876, Southport QLD 4215

       

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