Farming in strata schemes

by Jason Carlson, Grace Lawyers

Proxy farming may be a thing of the past; but power of attorney farming will be replacing it in Queensland.

 

This article has nothing to do with agricultural practices in rural schemes. 

The term “proxy farming” refers to the practice of a person collecting a significant number of proxies in order to control voting at general meetings.  It caused so much controversy that the practice was banned in Queensland’s community titles scheme with the introduction of the Body Corporate and Community Management Act 1997 (Qld) (BCCM Act).  Most of the BCCM regulation modules impose limits on the number of proxies that can be held by a person – i.e. 5% of the numbers of lots in a scheme regulated by the Standard Module. 

The legislature took the issue even further by banning the use of proxies altogether on certain motions, such as on a motion for the engagement of a caretaking service contractor or a body corporate manager.  The rationale is that limiting the number or use of proxies would mitigate the risk of the strata-equivalent of a Beer Hall Putsch.

Proxy farming is not banned altogether in Queensland.  It still persists in bodies corporate that remain governed by the BCCM Act’s predecessor: the Building Units and Group Titles Act 1980 (Qld) (BUGTA), which still applies to integrated resorts or purpose-built developments.  We will not name those resorts or developments.  They know who they are and we are confident they all hold strong views about proxy farming because the practice is still not banned or limited under the BUGTA.

New South Wales has only just caught up with Queensland on this issue.  The reforms to its strata legislation that take effect on 30 November 2016 include limits on the number of proxies that can be held, which mirror the Standard Module.

A recent decision from the Office of the Commissioner for Body Corporate and Community Management has illustrated that powers of attorney can now be “farmed” and used without the same limitations of proxies: Williahra Tower [2016] QBCCMmr 368.

Power of attorney v proxy

In general terms, a person is a voter for a general meeting if they are:

  • the lot owner or the representative of the lot owner; or
  • a corporate owner nominee.

The term representative is quite broad.  It could be a guardian, trustee, receiver or (importantly) a person acting under the authority of a power of attorney given by the lot owner.

It is then the voter who appoints a proxy; not necessarily the lot owner.  So, hypothetically, a representative of the lot owner (ie a trustee in bankruptcy or a power of attorney) can appoint a proxy to vote for them in a general meeting.

We have seen a rise in the use of powers of attorney to increase a person’s voting power.  The powers will be used to appoint a single person as a representative of numerous lot owners.  A representative is a voter in their own right; not a proxy. 

The legislation does not impose any limits on the number of powers of attorney that may be held or the types of motions they may be used to vote on.  A person holding a power of attorney can vote for that lot owner on any motion: a committee election, a secret ballot, a variation of management rights and the engagement of a body corporate manager.

So from the ashes of “proxy farming” comes “power of attorney farming”. 

Williahra Tower

There are 108 lots in Williahra Tower.  The body corporate management for the scheme was being reconsidered at the AGM.  Three different management companies were put forward, including the incumbent.  In the lead up to the AGM, a person presented 27 powers of attorney. 

47 votes were ultimately cast on the motion for the engagement of a body corporate manager.  The bloc of powers of attorney therefore represented 25% of the lots in the scheme, and 57% of the votes cast.  The incumbent manager received 10 votes, and a different body corporate manager received 33.  The use of that voting power by the person holding the powers of attorney decided the result and the body corporate management changed hands.

The former manager decided to challenge the result, primarily on the basis that the use of the powers of attorney was inconsistent with, and an attempt to circumvent, the proxy provisions in the BCCM Act and the Accommodation Module.

The former manager’s interim order application was dismissed.  The adjudicator considered the argument to be a “long shot” of establishing a serious legal issue simply because the appointment and use of a proxy is different to the appointment and use of a power of attorney.

The set back at the interim stage did not deter the former manager – they filed what the adjudicator described as a “verbose reply” and pressed for a final decision.  The result did not change.

The basis for the former manager’s challenge is perhaps understandable, but the adjudicator found it to be misconceived.  It was argued that the use of powers of attorney in that way went against “democratic decision making” and promulgated a practice long removed from Queensland when proxy farming was legislated against. 

The adjudicator refused to read into the legislation a limitation on the appointment and use of powers of attorney that simply was not there.  She reaffirmed a long-standing authority: a body corporate operates on property rights, not democratic or moral principles, and an adjudicator’s power to make an order that is just and equitable is necessarily one made in accordance with the law rather than notions of pure democracy.

Lessons to be learnt

  • Power of attorney farming is a loophole in the legislation that only the government can close; not an adjudicator.
  • The Queensland government needs to put strata law reform back on its agenda, which industry leading organisations such as Strata Community Australia (Qld) are advocating for.

 

  • Body corporate managers should exercise caution in challenging decisions that go against their reappointment and should ensure they take expert advice before doing so to ensure there is a sound legal basis to any challenge.

 

Posted 2016-10-24