Termination of schemes is becoming a topical issue in the community titles sector, particularly as building stock ages.
It is important that any debate on this issue is founded on a clear understanding of the current legislative provisions. As buildings age owners may be increasingly faced with the alternatives of rising maintenance costs and decreasing property values or significant redevelopment. For some the option to sell an entire building to a developer, perhaps with the opportunity to buy into the new development, is attractive. For others, the prospect of being pressured to sell their home or significant investment is daunting.
At the centre of the debate about termination of schemes is the question of the level of acceptance necessary for a resolution to terminate a scheme. Should ‘majority rules’ be sufficient or must everyone agree?
Some commentators raise concerns about the requirement for a resolution without dissent to approve a termination, objecting to a single owner being able to stymie the interests of the majority. The process of trying to get everyone to agree can be time-consuming, and so less attractive to developers. There is also concern that buildings are left to fall into disrepair while a termination is contemplated.
Many in the industry point to alternative regimes in other countries such as Singapore. Its threshold is 80% acceptance of a termination resolution for older buildings and 90% for newer buildings, with a tribunal to safeguard minority rights. However the Singapore regime has not been without dispute.
While there are undoubtedly complex issues involved in the termination debate, it is important to fully appreciate the processes currently available in Queensland. Sections 76 to 81 of the Body Corporate and Community Management Act 1997 provide for the termination of schemes in Queensland. There are two mechanisms for the termination of a scheme.
The first is that the body corporate resolves to terminate the scheme by a resolution without dissent. The owners and lessees must also enter into an agreement about termination issues, if it is necessary for the effective termination of the scheme.
A scheme may also be terminated if the district court decides it is just and equitable to make a termination order. A body corporate, an owner or an administrator may apply to the court for a termination order and the court may take into account the views of owners, local government and any urban land development authority.
While there may be some concern about the time and cost involved in applying to the court, it is not evident that would necessarily be a more difficult process than, for example, the multi-stage Singaporean process. The lack of cases also means there is little guidance on the circumstances in which the court would consider a termination to be ‘just and equitable’.
In New South Wales, where the alternative to a unanimous resolution is supreme court proceedings, there is similarly little case law. Arguably, until the process of court ordered terminations are properly tested, there is no reason to believe the current legislative provisions are inadequate.
The extent to which there are schemes where a majority of owners want to terminate but are unable to under the current legislation, is unclear. Termination issues are rarely mentioned in dispute resolution applications in the Commissioner’s Office. Similarly, enquiries to the commissioner’s information service seldom ask about termination. Moreover, a search of reported Queensland District Court decisions reveals no cases about attempts to terminate a scheme. So, there is little evidence of a current problem, although it is an issue that may become more prominent with time.
Regardless of the approach to termination and redevelopment, it is important for all community titles schemes – and particularly older schemes – to be proactive in maintenance. This will assist in maximising the longevity of buildings.
The Queensland legislation establishes the maintenance obligations of both owners and bodies corporate. It requires schemes to have a sinking fund for non-recurrent expenditure including the body corporate’s maintenance obligations and to set contributions based on an assessment of the scheme’s predicted non-recurrent expenditure requirements for the following 10 years. The requirement for 10 year planning creates an expectation of independent forecasting that is regularly reviewed.
Of course, the extent to which these provisions ensure that buildings are properly maintained depends on compliance. It is incumbent on all involved with a community titles scheme to ensure maintenance is undertaken and that the sinking funds are adequate. If individuals are concerned about non-compliance in this regard they should take action to challenge their body corporate.
For further information on the legislative provisions regarding termination or maintenance, contact the Commissioner’s Office information service on freecall 1800 060 119 or www.justice.qld.gov.au/bccm .