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Origin of lot entitlements
The schedule of lot entitlement allocation for a scheme is prepared by or on behalf of the original owner prior to registration of the plan of subdivision that establishes the scheme. If the scheme pre-dates 1997 it would have been established under the Building Units and Group Titles Act 1980 (Building Units and Group Titles Act). Under this legislation there was only one schedule of entitlements, not two as under current legislation. The Body Corporate and Community Management Act commenced on 13 July 1997, replacing the Building Units and Group Titles Act. The Body Corporate and Community Management Act established 2 schedules of entitlement (an interest schedule and a contribution schedule) in place of the single lot entitlement schedule.
Section 46 of the Body Corporate and Community Management Act defines lot entitlements as follows:
A “lot entitlement”, for a lot included in a community titles scheme, is the number allocated to the lot in the contribution schedule or interest schedule in the community management statement.
The “contribution schedule” is the schedule in a community management statement containing each lot’s contribution schedule lot entitlement.
The “interest schedule” is the schedule in a community management statement containing each lot’s interest schedule lot entitlement.
The “contribution schedule lot entitlement” for a lot, is the number allocated to the lot in the contribution schedule.
The “interest schedule lot entitlement” for a lot, is the number allocated to the lot in the interest schedule.
For all schemes existing at 13 July 1997 the Body Corporate and Community Management Act devised an interim community management statement comprising an interest schedule and contribution schedule. Entitlements for each lot recorded in the two new schedules were the same as the entitlements in the single schedule under the Building Units and Group Titles Act.
For this reason many schemes have a current schedule that requires some adjustment.
Principles for adjustment of contribution lot entitlement
Section 48(1) of the Body Corporate and Community Management Act provides for the owner of a lot to apply to the District Court for adjustment of a lot entitlement schedule. If an application is made under subsection 1, the order of the court must be consistent with subsection 5, which states:
“For the contribution schedule, the respective lot entitlements should be equal, except to the extent to which it is just and equitable for them not to be equal.”
Section 49(4) states the court may have regard to the following matters:
- how the community titles scheme is structured; and
- the nature, features and characteristics of the lots included in the scheme; and
- the purposes for which the lots are used.
Please note the court is not limited to considering these matters alone.
Section 49(5) states the court may not have regard to any knowledge or understanding the applicant had, or any lack of knowledge or misunderstanding on the part of the applicant, at the relevant time (i.e. the time the applicant entered into a contract to buy the subject lot), about the lot entitlement for the subject lot or other lots included in the community titles scheme, or the purpose for which a lot entitlement is used.
Application of the contribution schedule lot entitlements
Subsection 47(2) sets out the applications for the contribution schedule lot entitlements. That section states:
The contribution schedule for a lot is the basis for calculating the lot owner’s share of amounts levied by the body corporate, unless the extent of the lot owner’s obligation to contribute to a levy for a particular purpose is specifically provided for in this Act; and the value of the lot owner’s vote for voting on an ordinary resolution if a poll is conducted for voting on the resolution.
Necessarily, both components must be examined to determine, whether just and equitable circumstances exist requiring the contribution schedule to be other than equal for each lot in the scheme.
Basis for lots to contribute to costs
From these Sections of the Body Corporate and Community Management Act it is reasonable to presume that lot owners should contribute to the costs of their body corporate in a proportion equivalent to the share of the costs that are:
- incurred by the body corporate because of their particular lot, or
benefiting the lot.
The approach requires a line-by-line analysis of costs in the financial statements and an assessment as to whether benefit or causation is the most appropriate factor.
To comply with the intent of Section 47(2)(a) of the Body Corporate and Community Management Act, the historical and budgeted expenditure from the administrative and sinking funds are examined on a line-by-line basis and a just and equitable share of each item of expenditure is attributed to each lot. The amount attributed to each lot provides the basis for determining a just and equitable contribution schedule lot entitlement for each individual lot in the scheme.
The premium for an insurance policy is an example of an expenditure item specifically excluded by the Body Corporate and Community Management Act from proportionate collection in accordance with the contribution schedule. It is collected on the basis of interest entitlements for a building format plan and insurable value for a standard format plan. Consequently, this expense is excluded from the analysis of the body corporate’s expenditure.
Equal Entitlements
There are many instances where community titles schemes throughout Queensland should, and do, have equal contribution schedule lot entitlements.
These schemes typically, but not necessarily, contain lots –
- with similar usage possibilities (e.g. all commercial or all residential), • of similar size,
- with equivalent needs of and access to common property, and • of consistent exterior building materials.
Every scheme however should be examined with reference to all relevant facts and circumstances to arrive at a schedule that satisfies the principle in Section 48(4) of the Body Corporate and Community Management Act.
Categorisation of costs
In order to comply with the principle in the Body Corporate and Community Management Act for the calculation of lot entitlements in the contribution schedule, it is necessary to identify any just and equitable circumstances requiring a departure from the allocation of costs equally between each lot.
There are certain administrative and sinking fund items that should be shared amongst all lots on an equal basis. These items of expense are directly proportional to the number of lots in the scheme (e.g. body corporate administration contract) or are fixed without reference to the number of lots but from which all lots either benefit equally (e.g. security contract or fee for preparation of a tax return) or are costs which the lots cause equally. The common characteristic of these items is that no particular lot places any greater or lesser demand on the underlying expense item.
Unequally shared costs
Some administrative and sinking fund items should not be shared on an equal basis amongst all lots when determining just and equitable contribution lot entitlements. Certain lots within the scheme impose a greater demand for the underlying service than other lots or receive a greater benefit from the expenditure.
Unequally shared costs are influenced by several characteristics. These include potential use of common property facilities by each lot’s occupants and visitors, and support and shelter provided to the lot by the common property.
Some costs are directly related to the use of common property. Certain maintenance costs of the common property depend predominantly on the number of people who use it. The most logical determinant of the potential use a lot’s owner, occupants and visitors make of the common property is to examine the number of bedrooms in each lot to determine a potential accommodation factor for each lot.
The purpose of the structure of the building is to provide support and shelter to the lots. Typical support and shelter costs include exterior painting. The nature of the construction makes it appropriate to share the support and shelter costs based on the area of the lot in proportion to the total area of all lots. Intuitively, if lot A is twice as big as lot B then it requires twice the support and shelter.
By-laws contained in the community management statement may include obligations on the part of either the lot owner or the body corporate to pay certain costs, usually where exclusive use of a part of the common property has been granted to a particular lot. Exclusive use bylaws impact on body corporate’s costs and subsequently on the calculation of the contribution schedule lot entitlements.
