QLD: Is it a conflict of interest if a builder owns lots and sits on the committee?

This article discusses whether a builder owning lots and serving on the committee creates a conflict of interest and what owners can do about defects.

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:

1. At committee level – when a specific issue arises, members are prevented from voting when a conflict of interest arises; and
2. 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.

This post appears in the March 2024 edition of The QLD Strata Magazine.

Todd Garsden
Mahoneys
E: tgarsden@mahoneys.com.au
P: 07 3007 3753