Fairness newly defined for strata living

by Simon Barnard, SCA (Qld) President

QUT Review Panel proposes new categories to divide costs in schemes, discontinuing contribution lot entitlements.

News of the apartment market seemingly heading towards a slow down include reports of lower building approvals in the last quarter, less new lending for owner occupiers and a decline in pricing of the average cost for all new apartments in Brisbane by $17,000 (Courier Mail, 20 September). Despite these trends which were somewhat expected to happen after such a long high, the strata sector growth is unlikely to slow down dramatically and we will continue to be pushing for real change in strata land. It is therefore timely that we welcome three new Board Directors who will each bring in their expertise to a long serving board.

The beauty of a non-profit organisation is the variety skills and knowledge represented and therefore the range of activities we are able to realise. On a board level there are discussions around everything that embraces our strategic goal of delivering quality education and advocating for the strata sector. Sometimes advocacy can be difficult with so many differing views but ultimately, the Board balances its views out by closely engaging with the Legislation Committee who makes recommendations on what the majority of the sector would support.

Finding this majority will of course be a major challenge for the quite minor issue of lot entitlements which have recently been published in the Final Recommendations Paper Property Law Review Lot entitlements under the Body Corporate and Community Management Act 1997.

As strata managers lot entitlements are really not a major concern as they effectively only create tension in a few schemes across Queensland and in real terms don’t affect the successful administration of a scheme. We have been lobbying the Attorney-General and related parties for all other Issues Papers currently part of the review but unfortunately Lot Entitlements, which in all fairness came out before the other papers, is now back in the limelight.

The review panel from the Queensland University of Technology superbly states in the opening paragraph of the Report that the history of lot entitlements in Queensland is complex and that there is no perfect solution that will please all stakeholders.

As the expert panel has identified, behind the (long) history of lot entitlement adjustments and reversions, the underlying issue has been the allocation of expenses within community titles schemes. SCA (Qld) is pleased to see that QUT has not considered a reversal of the reversal of the reversal. Instead, QUT has recommended that a new system for dividing costs in community titles schemes be adopted and that the current approach of dividing costs on the basis of contribution schedule lot entitlements be discontinued.

Interestingly, QUT has recommended a system based on the allocation of body corporate expenses into one of three categories: expenses that benefit all lots equally, expenses that benefit all lots, but differently, and expenses that benefit some, but not all, lots.

 Categorising expenses in this manner may facilitate a more direct allocation of costs between lot owners, by enabling some expenses to be shared equally (category 1), some expenses to be shared on the basis of lot owners’ respective ownership interest in the scheme (category 2), and other expenses to be shared solely by the lot owners that benefit from the particular expense (category 3).

The proposal is broadly reasonable in theory but will impose a significant management impost on many schemes. Considerations will be how o manage the BMS for a scheme and how to keep separate accounts for each scheme to adequately differentiate between the different groups of expenses. 

The Legislation Committee will now explore what this proposal may mean in future and what the extent of complexity will be for things like the sinking fund levy calculations.  Luckily submissions close on 9 December, leaving us ample time to provide some modelling of real world examples to explore the pros and cons of the new proposal. 

 

For more information on the Lot entitlements report, click here

Posted 2016-10-24

Article published in Resort News November 2016