Short summary:
An adjudicator has ordered the body corporate of a 50-year-old building to carry out significant structural repairs, despite their intentions to avoid those repairs pending the redevelopment of the building under the new scheme termination amendments to the BCCM legislation.
Key take away:
a body corporate’s statutory obligation to maintain common property and certain parts of the building in a good or structurally sound condition cannot be put on hold while redevelopment opportunities are explored.
Background
“President” is a 50-year-old building in Surfers Paradise comprised of 34 lots over 14 levels.
In June 2023, the Gold Coast City Council and the Queensland Fire and Emergency Service issued numerous enforcement notices concerning the serious structural problems with the building and on the basis that there was a risk to the life and safety of its occupants in the event of a fire.
Those notices were issued after many different building consultants had reported on the defects in the building. In early 2023, one of those consultants reported that the building is extremely unsafe for both occupiers and the public, it is not fit for habitation and, in its current condition, is a serious liability for the body corporate.
An owner’s motion proposing that remedial works be carried out failed to pass at a general meeting.
The dispute
That owner filed a dispute resolution application arguing that the decision to not pass the motion was
unreasonable and sought orders to have the remedial works carried out.
The committee’s response to the application was summarised by the adjudicator as being that “the majority of owners in the scheme would rather sell their lots to developers, who intend to demolish the building and redevelop the land, than pay for expensive repairs on an aging building”.
It seems that the body corporate put itself in a holding pattern1 while a particular developer was “still trying to persuade the remaining 9% of owners of the advantages of selling their lots and for the developer to take over the responsibility of maintaining the building until it is demolished”.
The body corporate intended to bring that holding pattern to an end when Queensland’s body corporate legislation was amended to make it easier to terminate and redevelop old schemes if there were economic reasons for doing so and it had the support of 75% of the owners.
The adjudicator’s decision
In President [2024] QBCCMCmr 221, the adjudicator ultimately made these findings:
“The economic viability of undertaking repairs does not displace the obligation for the body corporate to fulfil its maintenance obligations. It is entirely inappropriate to allow a building to deteriorate to such an extent that it has become a safety risk to both residents and the general public.”
“The body corporate’s maintenance obligations continue even where a developer has made an offer to purchase the lots in a scheme with the ultimate intention of terminating the scheme and demolishing the building. The desire or potential for termination is not a reasonable justification to fail to maintain the building or undertake critical work.”
These are the orders that were made:
I declare that the body corporate’s decision not to pass Motion 6 of the extraordinary general meeting (EGM) held on 18 May 2023 was unreasonable.
In accordance with Motion 6, the Body Corporate for President must undertake the remedial works set out in the tender report prepared by Robin H Wright Pty Ltd (RHW) and engage Building Rectification Services (BRS) to carry out the works.
To account for events having progressed since Motion 6 was put forward on 18 May 2023, the Body Corporate for President must: a. within 14 days of this order, engage an appropriately qualified structural engineer to provide an updated report on the condition of the President building; b. within 3 days of obtaining the report from the structural engineer, request BRS to provide an updated quote to include any further remedial works identified by the structural engineer’s report not already included in the tender report prepared by RHW; c. concurrently with the above actions, obtain quotes from alternative project managers to manage the remedial works project with BRS undertaking the work; d. within 7 days of obtaining the updated quote from BRS, engage an alternative project manager to manage the remedial works set out in the updated BRS quote; e. implement Motion 6 of the EGM held on 18 May 2023, as varied to reflect the updated quote from BRS and the change in project manager.
The remedial works must begin as soon as practicable and must be scheduled for the soonest date BRS and the project manager are available.
The remedial works will be funded by the money available in the scheme’s sinking fund. If the sinking fund has insufficient funds to cover all the required remedial works, the Body Corporate for President must raise a special levy to cover any shortfall.
Within one month of the date of this order, the Body Corporate for President must obtain quotes to carry out the remedial works to restore the common property facilities at the scheme including the scheme’s car park and swimming pool. The necessary works must be scheduled to commence within three months of the date of this order and the facilities fully restored within six months of thedate of this order.
Our Analysis
Prior to 1 May 2024, there were two ways to terminate a scheme to enable a redevelopment:
A resolution without dissent must pass, and an agreement about ‘termination issues’ must be reached between all lot owners and other important stakeholders; or
Legal proceedings had to be commenced in the District Court in an attempt to convince a judge that the termination should occur.
Amendments to the scheme termination provisions of the Body Corporate and Community Management Act 1997 (Qld) took effect on 1 May 2024. When the amendments were first introduced the Attorney-General’s office made these statements:
“We have listened to the concerns of unit owners who are facing excessive and exorbitant costs for maintaining, repairing, and rectifying buildings in their schemes.
For these owners, a collective sale of the whole community titles scheme makes economic sense but cannot be achieved if a small number of lot owners are not agreeable to a sale.
Often, these uneconomic schemes are located on sites that could provide an opportunity for potentially opening-up more housing and investment opportunities for Queenslanders.
Our new laws recognise that it might not make economic sense for lot owners to have to pay large body corporate levies to repair and maintain their buildings, when a significant majority of the lot owners would rather the scheme be sold for redevelopment.”
In the President case - the motion to authorise the repairs failed at a general meeting held in May 2023, the adjudication application was filed on 22 September 2023. On the committee’s submission only 9% of the owners of the 34 lots in the scheme (so, 3 lots) had not agreed to sell. The new scheme termination provisions came into force on 1 May 2024, and the adjudicator handed down their decision on 17 June 2024.
Superficially, it seems that the circumstances at the President fall within the scope of what the Government intended with the new scheme termination provisions, but the adjudicator’s reasons do not critically analyse whether “a collective sale makes economic sense” having regard to the costs of remediating the building.
Perhaps they didn’t need to?
It was the adjudicator’s view that: “the desire or potential for termination is not a reasonable justification to fail to maintain the building or undertake critical work” and “until the scheme is terminated and wound up the body corporate must discharge its maintenance obligations”.
More of these types of disputes will likely arise as many bodies corporate may think it will be easy enough to terminate and redevelop their building under the new scheme termination provisions, without being proactive or organised enough to actually progress a redevelopment (in accordance with the significant requirements under the Act). They may then get caught in an adjudication such as this while they sit idle on the fence.
The responsibility for self-management?
Committees of aged buildings that have redevelopment potential need to be proactive and organised. Moreover, they need to engage with all owners – even those who may be in a minority that is against a sale / redevelopment. The President decision may provide that aggrieved minority with a path to take to apply pressure for remediation works to occur when the committee may prefer to invest its time, resources and energy into exploring a sale or redevelopment.
One of the realities of a dispute escalating into adjudication is that it takes the problem solving/ dispute resolution out of the hands of the strata community and into the hands of an adjudicator.
In the President decision, it is apparent that the body corporate did not want to carry out the repairs under any circumstances. Their response to the application appears to have been an “all-or-nothing” approach:
they would either win by convincing the adjudicator of the prudence of their strategy to neglect the repairs until they able to terminate the scheme to enable redevelopment; or
they would lose and important factors regarding the remedial works would be taken out of their hands, such as the scope, timing, funding and selection of the builder carrying out the works.
The orders made by the adjudicator require the engagement of a particular builder, after the builder receives an updated structural engineering report on the condition of the building and updates their quotation to include any further remedial works not already included in its original quotation.
The adjudicator’s reasons acknowledge that there was a tender on the original scope of works, but there doesn’t appear to be any limits on what further remedial works could be included in the updated engineering report nor a competitive tender for those further works. A single builder will be given the opportunity to quote for those further works, and the body corporate has been ordered to proceed with the entire project with that builder.
The risks inherent with the process this body corporate has been ordered to follow are obvious. Unless there is a stay of the decision and then a successful appeal, the body corporate may have to bear those risks now that the issue has been largely taken out of its hands.
Concluding thought
A responsibility for self-management is an inherent aspect of a community titles scheme. But as the President decision demonstrates, that responsibility can be taken away, so it shouldn’t be taken for granted.
If you require legal advice in respect of these matters, please contact Chambers Russell Lawyers by email at info@chambersrussell.com.au.
We sincerely thank our Platinum Partners Chambers Russell Lawyers for this editorial.
1 The lot owner described them as “delaying tactics”.