The decision in a recent tribunal case is a cautionary tale for bodies corporate considering terminating management rights agreements.
In Seed v Renaissance Golden Beach CTS 31880 a QCAT member delivered a decision relating to the validity of a code contravention notice (CCN). Whilst the case was in respect of a CCN, the same principles apply to validity of a remedial action notice (RAN).
If a CCN is valid pursuant to s139 of the Body Corporate and Community Management Act and not complied with by a building manager, a body corporate may, without further notice, give the building manager a transfer notice leading to a compulsory sale of the management rights business. If the RAN is valid, and not complied with, the body corporate may, call a general meeting to pass a resolution by secret ballot to terminate the allegedly breached caretaking agreement.
A Body Corporate can also give an RAN, relying upon a breach of the code of conduct, as distinct from giving a CCN. An RAN reliant upon a breach of the code will, similarly lead to an entitlement, if the notice is valid, and not complied with, to the holding of a general meeting seeking an ordinary resolution by secret ballot to terminate the allegedly breached agreement.
There were two issues considered in Seed relevant to owners of management rights, which are:
• What validly constitutes a breach of the code; and
• How long should a recipient have to respond to the notice
Seed demonstrates that a body corporate must provide full particulars of the breach of the code.
In Seed it was held that provisions of s139(2) of the BCCM Act were mandatory and failure to meet any of the mandated requirements will result in invalidity.
Importantly the reasons for the decision state:
“Whether the issue involves a building contract, forfeiture of a lease, loss of contractual rights, or (as here) the loss of both contractual and real property rights, the authorities consistently hold that validity of the notice of default is to be determined objectively on the basis of what would be conveyed to a reasonable recipient with his or her background knowledge.”
and that a notice must “fix a reasonable time to permit the contraventions to be remedied and that the statutory context is that a reasonable period must be specified for the remedying of the contravention.”
It was also made clear that general statements, devoid of full particulars will render the notice invalid, where the recipient is not able to “understand with reasonable certainty what statements are alleged” and consequently what the recipient must do to remedy the alleged breach.
This is relevant to management rights operators because the nature of the alleged breaches in the Seed case involved a variety of matters such as, the building manager had a lack of working knowledge of the BCCM Act, had failed to act honestly, fairly, or with professionalism, had engaged in unconscionable conduct because the building manager instigated proceedings as a means of negotiating amendments to the management rights agreements to the detriment of the body corporate.
In each of the instances in Seed it was ruled that the CCN lacked full particulars and therefore did not satisfy the mandatory requirements of s139 BCCM Act.
Most draftspersons apply the minimum statutory compliance period when drafting RANs. Though no minimum statutory period applies to the CCNs, the draftsperson in Seed applied the same 14-day compliance period. Seed establishes that whilst a 14-day compliance period may be prescribed, one must consider the nature of the alleged breach when assessing what is a reasonable period for compliance.
The point was made that “if a specified contravention is the failure to perform a task such as cleaning a particular area, the reasonable time could be very short, defined by the time in which it could reasonably be expected to be done. In other cases where major works would need to be undertaken it may be necessary to allow a substantial period to rectify a default, and a reasonably substantial time would have to be given.”
The decision in Seed highlights the need for considerable care in drafting CCNs and RANs, to ensure:
• Full particulars of the alleged default provided so that the recipient knows the nature of the breach and what must be done to remedy it; and
• Reasonable time is provided for the recipient to remedy the alleged default – it may be more than 14 days, being the statutory minimum period for RANs pursuant to the applicable BCCM module.
A failure to provide full particulars or provide a reasonable time will render a CCN or RAN invalid and ineffective.