Dispute over Lot Entitlements

It is often the case that the current schedule of lot entitlement applicable to a community titles scheme is not appropriate. Where an owner believes the current schedule of lot entitlements is not appropriate, that owner may propose a change to the community management statement to adjust the schedule. Such a change requires a resolution without dissent.  It is usually difficult to achieve a resolution without dissent to change entitlements because the change will always impact negatively upon one or more owners. Sometimes this impact can be significant.

Where a resolution without dissent to change lot entitlements will not pass, and one or more owners still desires the change, those owners may apply to either the District Court or for specialist adjudication. Both the Court and the specialist adjudicator may make an order to change the entitlements.

It is interesting to note that even where an order is made by the Court or by a specialist adjudicator the body corporate must still consent to the recording of a new community management statement by passing a special resolution (Body Corporate and Community Management Act Section 62(4)).  We at believe that this is inappropriate, and poor legislation. We note that in Schedule 5, Section 2 of the Body Corporate and Community Management Act, the powers of the specialist adjudicator appear wider than the powers of the District Court Judge, but this is inconsistent with Body Corporate and Community Management Act Section 62(4).

Where there is a change to lot entitlements for a scheme the body corporate has an obligation to provide to the relevant local authority a copy of the new community management statement. (Body Corporate and Community Management Act Section 61).

Lot entitlement disputes have been attracting substantial press recently, and a large number of our clients have asked us about the background to the recent uproar.

The legislation under which the vast majority of Queensland lot entitlements were set was the Building Units and Group Titles Act 1980 and those entitlements governed voting, special levies, share of ownership of common property and the like.

 There was no statutory basis for calculating entitlements under BUGTA. Developers could simply do as they pleased. Generally entitlements were set by reference to the proportionate value of the lot compared to other lots, although this varied from developer to developer.

When the Body Corporate and Community Management Act 1997 commenced, a new era for lot entitlements was ushered in. The BCCMA created two separate lot entitlement schedules. These are the contribution schedule and the interest schedule.

Amongst other things, the contribution schedule is used for determining a lot owner’s proportion of the body corporate’s costs. The interest schedule is used for setting out each lot’s share of insurance premiums and proceeds from any insurance claim, and the rates and land tax for the scheme.

Most importantly, for the first time, the BCCMA also provided statutory requirements as to the creation of the entitlements themselves.

For the interest schedule, the entitlement should be proportionate to the relative market value of the lot. This was not revolutionary. For the contribution schedule however, the entitlements should be equal, unless there were just and equitable grounds for them not to be equal. This is where the controversy lies. The argument is that the body corporate costs should be borne in proportion to the benefit that each lot has with respect to the common property, not in proportion to the unit’s value. Ultimately, the view the legislators took was that the costs to be borne should be assessed with reference to the impact that the individual lots have upon the costs of operating and running the scheme. This has nothing to do with the value of the lot.

A new breed of expert came into existence – being the lot entitlement report writer, whose job was always bound to cause conflict, because any adjustment of lot entitlements means that the costs of running the body corporate are shared differently amongst the owners. The basis for levies that people relied upon when purchasing could be changed without their input.

The expert’s lot entitlement report generally identifies the typical annual costs and then categorises the costs to assist in determining the entitlements. The three different categories are operational and maintenance costs that can be shared equally; costs shared on the basis of area; and extraordinary costs.

The disputes arise primarily from the fact that owners of lots who had entitlements set under the old BUGTA scheme by reference to value are now able to have those entitlements adjusted to almost equal with everyone else. The owner of the penthouse, whose unit is worth five times everyone else’s, and was paying five times their levies can now have those levies reduced so they are essentially equal.

That has been the law since 1997. The state government issued a discussion paper late last year on the issue. It will be a very interesting process to see if and how the Bligh government reviews the laws now that they have been elected for a further three year term. Changing the law, no matter what form that may take, will almost certainly allow owners to revisit every adjustment made since 1997.