Lot owners from QLD are wondering about a show cause notice or how to deal with the developer after moving into a new building.
Table of Contents:
- QUESTION: In our 67 lot building, the builder owns half the lots and sits on the committee. Is this a conflict of interest?
- QUESTION: During the first AGM, the developer’s director, serving as the original owner’s representative, unilaterally assumed all statutory roles and initiated a 25-year contract with a caretaker linked to their company. Are these actions legal?
- QUESTION: The Power of Attorney clause in our contract for the purchase of our apartment states that, for the first year, the developer can exercise our voting rights. We are concerned about the extent of these rights, eg, can they resolve to not appoint an auditor?
- QUESTION: In our new 20 lot scheme, purchase contracts contains a clause that gives the developer voting rights at general meetings on our behalf for the first 12 months. The developer has ratified levies, insurance cover and decided NOT to appoint an auditor for the first financial year? Does this sound right?
- QUESTION: Our Body Corporate Manager has advised that the developer is not required to pay the levies for the first 12 months. Is this true?
- QUESTION: The roof waterproofing is defective. The developer and builder voted down a motion to lodge a claim with QCAT. Can owners pursue this independently?
- QUESTION: Can the developer ignore the scheme’s bylaws for stages under construction?
- QUESTION: To recover monies used to comply with a Show Cause Notice in our near new building, who files a claim against the developer? The body corporate or the individual lot owners? Also, if it is the latter, do they do it by way of a class action?
- QUESTION: While developing two rental properties, an electrical fault resulted in delay. What is the Body Corporate responsibility here? Can I make a claim for loss of rent due to the delay?
Question: In our 67 lot building, the builder owns half the lots and sits on the committee. Is this a conflict of interest?
Of the 67 units in our two year old body corporate, the builder kept 37 units and is a body corporate committee member.
Is this a conflict of interest? There have been a few relatively minor issues the builder refuses to fix even though they are defects. Can we do anything to limit the builder’s power?
Answer: If defects exist, the body corporate should ensure it obtains the appropriate evidence and directs the demand to the appropriate person.
Relevantly, there is sometimes an important distinction to be made between the developer (who owns the properties) and the builder (who was engaged to construct the properties). On a rare occasion, the builder and the developer are the same.
In circumstances where the developer is separate from the builder, the body corporate does not really have any rights for defect rectification against the developer. Those rights are against the builder (and often, it is the body corporate relying on the developer’s rights to take action against the builder). If the entity is the same, the body corporate still has some rights to exercise, and the developer/builder cannot stop these from being interfered with.
The developer, as the owner of lots in the scheme, would have common interests in a number of ways with other owners and has statutory rights to be involved in the decision making of the body corporate. In relation to decisions made by the body corporate:
- At committee level – when a specific issue arises, members are prevented from voting when a conflict of interest arises; and
- At general meeting level – adjudicators have recognised there is no conflict of interest on owners casting a vote. However, the body corporate remains protected as decisions must be reasonable. In circumstances where a lot owner uses their voting power to force unreasonable decisions, other owners have rights to have the decision overturned.
If defects exist, the body corporate should ensure it obtains the appropriate evidence and directs the demand to the appropriate person. It may need to seek legal advice to identify who that person is.
Todd Garsden Mahoneys E: tgarsden@mahoneys.com.au P: 07 3007 3753
This post appears in the March 2024 edition of The QLD Strata Magazine.
Question: During the first AGM, the developer’s director, serving as the original owner’s representative, unilaterally assumed all statutory roles and initiated a 25-year contract with a caretaker linked to their company. Are these actions legal?
During the first AGM, a director of the developer was appointed as the original owner’s representative. This person nominated and accepted themselves for all statutory positions (chair, secretary and treasurer). They determined they had a quorum and declared that the meeting decisions were not restricted items under the BCCM and, therefore, did not require a secret ballot. They executed agreements with a caretaker who is a subsidiary of the company for which they are a director. The agreement is a 25-year contract that no owners reviewed or considered.
Under the accommodation module, what are the requirements for declaring a ‘conflict of interest’ and voting by committee members who are direct or indirect agents for a proposed service provider? Are these actions legal?
Answer: If the activities are unlawful, there are avenues to unwind the approved agreements.
There are a number of elements to unpack, most of which will depend on certain information and circumstances being investigated. However, to provide initial comments:
Committee composition – if the developer was the only owner of the lots, then section 14(4) of the Accommodation Module contemplates this taking place, which provides:
the committee is a committee of 1 consisting of the individual who is the owner, or the nominee of the owner, of the lots, and the individual holds all the executive positions on the committee
Quorum – if the developer was the only voter at the meeting, a quorum was reached pursuant to section 89(5)(b) of the Accommodation Module.
Restricted items – restricted issues can be considered at a general meeting rather than by the committee.
Secret ballot – some motions may require a secret ballot, but this depends on the topic of the motion.
Execution of agreements – if new agreements were approved at the meeting, it would be appropriate for them to be entered into.
Conflict of interest – there is no conflict of interest in voting at a general meeting.
Committee eligibility – there are committee eligibility issues for caretaking associations.
Caretaking agreement – usually these are disclosed to buyers as part of any off-the-plan sales arrangements.
Are the arrangements lawful – it is not possible to confirm without a detailed review of all the relevant information. In the past, we have been engaged to review and advise bodies corporate and have found some circumstances to be lawful and others to be unlawful. If it is unlawful, there are avenues to unwind the agreements that were approved.
Todd Garsden Mahoneys E: tgarsden@mahoneys.com.au P: 07 3007 3753
This post appears in the February 2024 edition of The QLD Strata Magazine.
Question: The Power of Attorney clause in our contract for the purchase of our apartment states that, for the first year, the developer can exercise our voting rights. We are concerned about the extent of these rights, eg, can they resolve to not appoint an auditor?
The Power of Attorney clause in our contract for the purchase of our apartment states: “You will for a period of 1 year after the scheme is established permit us to exercise as your proxy to your exclusion all your voting rights at general meetings of the Body Corporate to the fullest extent permitted by law.”
Under a further clause “Grant to us a power of attorney to exercise all your voting rights at general meetings that deals with”
Followed by a list of the specific matters to be dealt with.
Does the initial overriding clause give the developer voting rights in relation to matters not specified in the subsequent clause?
Specifically, can the developer resolve not to appoint an auditor when that matter is not contained in the schedule of specific matters?
Answer: The crux of this question is whether the general description of what the power of attorney is allowed to do for the buyer is ‘enough’ when the attorney wants to do something which is not contained in the detailed list of things the attorney can do.
The limits on a developer’s power of attorney, given under an ‘off the plan’ sales contract, are contained in Section 219 of the Body Corporate and Community Management Act 1997. Crucially, a compliant power of attorney can last only until the earlier of 1 year after the scheme is established or changed, or expiry for some other reason (for example, the power of attorney itself specifies expiry 6 months after establishment of the scheme). ‘Changed’ in this context, relates to a staged development. An already established scheme ‘changes’ when a new stage is added. The power of attorney given by a buyer of a lot in stage 2 of a scheme, can only last up to 12 months after stage 2 is created.
Now, for a power of attorney to be compliant with s219, there are two key criteria. The first is a statement about the power and how it may be exercised must be given to the buyer, before the power is given. That means that ‘off the plan’ disclosure statements almost always contain a section devoted to the power of attorney, which is granted in the purchase contract.
The second requirement is that the written statement (given as disclosure), must include a detailed description of the circumstances in which the power may be exercised. To satisfy this requirement, most developers (or more correctly their lawyers) will provide a detailed list of all of the circumstances where the developer may want to use the power of attorney. Mostly, that will be where an owner’s vote is required at a meeting, but it can extend to other things like signing BCCM or other forms, on behalf of the lot owner.
The crux of this question is whether the general description of what the power of attorney is allowed to do for the buyer is ‘enough’ when the attorney wants to do something which is not contained in the detailed list of things the attorney can do.
On balance, it would be hard to see a Judge or Adjudicator upholding a developer’s rights to vote, in place of a buyer, for ‘everything’, when:
- there is a detailed list and the issue in question is not in the detailed list; and
- one of the secondary objects of the BCCM Act is…‘to provide an appropriate level of consumer protection for owners and intending buyers of lots included in community titles schemes’
It’s hardly protective of a buyer to require a developer to give a ‘detailed description of the circumstances in which the power may be exercised’ and then to allow the same developer to rely on a general right (to vote at all matters at a general meeting for the buyer).
If you dig a little deeper, you see in this case that the general right to vote is as the buyers ‘proxy’. Arguably then, when exercising this general right to vote, the attorney is acting as a proxy and not an attorney.
This might be used by the developer as an argument as to why they don’t need to have the auditor issue, in the list of matters that the power of attorney can be used for.
The problem with that is that there are very strict limits on a developer being a buyer’s proxy. Under section 131 of the Standard Module, the developer can only act as a proxy for a buyer if the ‘off the plan’ contract provides for it, only for a maximum of 1 year after the scheme is established and where the proxy is used to vote on 3 things. They are, in summary, appointing a body corporate manager or management rights operator, granting an occupation authority or recording a new CMS that contains a new by-law (but only if the by-law was disclosed to the buyer, before they entered into their contract).
This is only a general summary of the relevant legislative provisions. As always, it’s best to get legal advice tailored to your needs and situation.
Michael Kleinschmidt Stratum Legal E: info@stratumlegal.com.au P: 07 5406 1282
This post appears in Strata News #601.
Question: In our new 20 lot scheme, purchase contracts contains a clause that gives the developer voting rights at general meetings on our behalf for the first 12 months. The developer has ratified levies, insurance cover and decided NOT to appoint an auditor for the first financial year? Does this sound right?
Our scheme has 20 lots and our purchase contracts contain a clause giving the developer voting rights at general meetings on our behalf for the first 12 months. Was the developer in order in conducting an Inaugural General Meeting upon the set up of the scheme at which the developer ratified levies and the insurance cover as well as for deciding NOT to appoint an auditor for the first financial year? These were motions additional to what the developer would generally do upon the establishment of the scheme.
Our body corporate manager states that the Inaugural General Meeting is the first General Meeting and that the second General Meeting will take place twelve months from that date. This opinion doesn’t seem to accord with section 94 of the BCCM Act.
Is it correct that, when all lots have been sold, an EGM is called and a committee elected?
Answer: It is very common for the developer to hold a power of attorney for the first 12 months of the scheme’s operation.
Power of attorney
It is very common for the developer to hold a power of attorney for the first 12 months of the scheme’s operation. This is contemplated in sections 211 and 219 of the Body Corporate and Community Management Act 1997 (Qld) (BCCMA).
That power of attorney will give the developer the ability to pass through certain resolutions at general meeting. Whether the power of attorney has the power to extend to the specific types of resolutions depends on the precise wording of the power of attorney. Relevantly, the above sections of the BCCMA provide as follows:
…the power may be exercised only in ways, and only for purposes, disclosed in a written statement given to the buyer before the power is given.
The statement must include a detailed description of the circumstances in which the power may be exercised.
To confirm if the votes were cast properly, the power of attorney should be examined to confirm it included reference to those resolutions.
Timing of AGM
The module provides that:
An annual general meeting, other than the first annual general meeting, must be called and held within 3 months after the end of each of the community titles scheme’s financial years.
This means that the AGM is held yearly and usually around the same date on each year.
Choosing of committee
The committee is chosen at each AGM. This requirement is irrespective of when all of the lots are sold.
Todd Garsden Mahoneys E: tgarsden@mahoneys.com.au P: 07 3007 3753
This post appears in Strata News #565.
Question: Our Body Corporate Manager has advised that the developer is not required to pay the levies for the first 12 months. Is this true?
I purchased a new apartment block.
The developer has decided to retain the commercial lot (paid admin/sinking levies) but he also has retained and is renting out another unit and has for over 6 months, however has not paid the admin/sinking levies.
Our Body Corporate Manager has advised that the developer is not required to pay the levies for the first 12 months. Is this true?
Answer: The obligation to pay levies comes from the ownership of a lot. There is literally no way to exempt anyone from paying them at all. If someone doesn’t pay the other owners have to carry an increased levy burden, which is simply not fair!
Frank Higginson Hynes Legal E: frank.higginson@hyneslegal.com.au P: 07 3193 0500
This post appears in Strata News #470.
Question: The roof waterproofing is defective. The developer and builder voted down a motion to lodge a claim with QCAT. Can owners pursue this independently?
Our builder installed a roof and self certified waterproofing which has been found to be defective. The developer and builder recently voted down a motion by the owners to lodge a claim with QCAT to have outstanding DTRs ordered by QBCC, completed.
Can we as owners lodge a claim with QCAT, independent of the committee, to recoup the costs associated with getting the building compliant, including independent reports and defect rectifications that should have been covered by the builder’s warranty? And if we can, should the claim be lodged against both the developer and builder, as they were both on the sales contracts?
Answer: It is highly likely that individual owners have rights not only in relation to the defect issues, but also the voting down of the proposed action by the developer and builder.
This question involves a number of technical issues and important principles. I do strongly recommend that the group of owners, or at least a representative of them, obtains independent legal advice as soon as possible.
It is highly likely that individual owners have rights not only in relation to the defect issues, but also the voting down of the proposed action by the developer and builder. There is also a potential pathway for the work to be rectified by the Body Corporate, at worst case, and for the costs of so doing being recovered from the builder and / or the developer. The issues are complex, time is of the essence and detailed advice is required.
Michael Kleinschmidt Stratum Legal E: info@stratumlegal.com.au P: 07 5406 1282
This post appears in the April 2021 edition of The QLD Strata Magazine.
Question: Can the developer ignore the scheme’s bylaws for stages under construction?
I am a committee member at my townhouse development which is currently in stages 3 of the planned 6 stage development.
The situation is that the developer has allowed additions to lots that are in contravention of our by-laws which is now resulting in other lot owners wanting these same additions.
Can the developer ignore the scheme’s bylaws for stages under construction?
Answer: There is a distinction between the by-laws and any architectural code that may apply.
There is a distinction between the by-laws (in Schedule C) and any architectural code that may apply (in Schedule D).
If we are talking about by-laws that are being contravened, the developer (in that capacity) would not have any authority to permit owners or occupiers committing by-law breaches. The committee on behalf of the body corporate is the only entity that can enforce by-laws or give approval pursuant to the by-laws for any exceptions.
Todd Garsden Mahoneys E: tgarsden@mahoneys.com.au P: 07 3007 3753
This post appears in Strata News #395.
Question: To recover monies used to comply with a Show Cause Notice in our near new building, who files a claim against the developer? The body corporate or the individual lot owners? Also, if it is the latter, do they do it by way of a class action?
Our body corporate, which is less than 12 months old, has received a Show Cause notice relating to a violation of the DA by the developer.
To rectify the position and comply with the approved DA, body corporate will be required to spend a substantial amount of money. A special levy will then be required to fund this expenditure.
Owners will want to recover this money from the developer and the question is “who files a claim against the developer? The body corporate or the individual lot owners? Also, if it is the latter, do they do it by way of a class action?”
Answer: A body corporate doesn’t have to act urgently. It has to act reasonably. If the show cause has been issued to the body corporate then the body corporate would be obliged to deal with the issues and would also then be the plaintiff.
The body corporate would also probably need a special resolution to sue along with the raising of a special levy for the anticipated costs.
To me (and obviously very subjectively) this is one that legal advice should be sought on very early.
Frank Higginson Hynes Legal E: frank.higginson@hyneslegal.com.au P: 07 3193 0500
This post appears in Strata News #198.
Question: While developing two rental properties, an electrical fault resulted in delay. What is the Body Corporate responsibility here? Can I make a claim for loss of rent due to the delay?
I have been building two rental properties in a community title scheme in Queensland. Halfway through the construction process, it was found that 3 phase power (although available at the Transformer) was not available to my new properties from the common conduit as one of the wires showed a fault. It appears that a fault was found previously but “worked around” for another owner by not using the faulty phase.
The problem was finally rectified 5 months later after much effort by the project manager and the Body Corporate. This caused a 12 to 15 week delay in the certification and hand-over of the constructed rental properties from the builder. This meant that expected rental for the properties during that period have been lost.
I cannot claim from the builder, as State Building contract excludes lack of access to electrical supply as a cause for compensation. I, therefore, sought “goodwill” compensation from the Body Corporate for loss of 3 months net rental due to this power issue for those properties. While they acted as fast as they could, this fault caused the long delay.
The Body Corporate responded to say that single phase was available at my property the whole time (not 3 phase) and they are not responsible for providing 3 phase power, therefore they will not provide relief in the form of lost rental reimbursement.
What is the Body Corporate responsibility here? They did not treat the matter as “urgent” and applied regular process to eventual remediation (in other words followed the process rulebook) that caused the delay.
Arguably, the Body Corporate may not have given this issue the level of urgency to protect an owners income / amenity.
Am I entitled to claim and what is reasonable?
Answer: A body corporate doesn’t have to act urgently. It has to act reasonably.
I think the key thing there was that the body corporate acted ‘as fast as it could’.
The body corporate seems to have been an innocent third party and the victim of the same arguably defective work that the lot owner was. In circumstances where it has done all it needed to do to restore the power when it became aware of it, I don’t see how a court would hold the body corporate responsible for any loss. More than anything else it is probably the seller of the properties who should bear the loss, as it was their product.
A body corporate doesn’t have to act urgently.
It has to act reasonably.
Frank Higginson Hynes Legal E: frank.higginson@hyneslegal.com.au P: 07 3193 0500
This post appears in Strata News #172.
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