Lot entitlement adjustments – here we go again!
25 Sep 2012
The LNP government introduced a bill to parliament at 2:30pm on Friday 14 September that changes the rules for lot entitlements again.
To understand the significance of this new bill, we need to start with a little history.
From 1980 community living was for the most part regulated by the Building Units and Group Titles Act (BUGTA). Lot entitlements under group title (now standard format) plans had to be calculated by reference to the proportionate value of each lot. There was no set basis for calculation of lot entitlements for building units (now building format) plans, which were basically high rise buildings. Most developers used the proportionate value of lots by default although there were other methodologies.
The BUGTA did not provide any ability to change lot entitlements unless all owners agreed. Accordingly, the onus was on a prospective purchaser to take into account the burden of the lots entitlements when agreeing to a purchase price. The purchaser could be reasonably certain that this burden would remain unchanged.
The Body Corporate and Community Management Act (BCCMA) came into force in 1997. This created two different sets of entitlements – as opposed to the singular set under the BUGTA. These were the ‘contribution’ and ‘interest’ schedules.
The interest schedule remains tied to the proportionate value of the lot (and is used for things like insurance premiums).
The game changer was the inclusion of a new principle for contribution schedule lot entitlements that they “should be equal, except to the extent to which it is just and equitable in the circumstances for them not to be equal.”
The starting point was equality – every lot that has access to the building’s swimming pool should contribute to its maintenance equally unless it is just and equitable for it to be otherwise.
This change meant that the market value of a lot would not be a just and equitable argument to raise against equality of contribution schedule lot entitlements. Instead, the focus was on whether any particular lot caused greater expense to the body corporate. For example, if a lot in a building had a greater area of external walls, that lot should make a greater contribution to the building’s external painting.
What happened next?
The floodgates opened with a raft of challenges to existing contribution schedule lot entitlements. The changes were largely driven by owners of more expensive lots because these were the lots with the larger entitlements, as most were originally referenced to the value of the lot.
If contribution schedule lot entitlements were not equal and it was not just and equitable for them to be that way, lot owners could apply to the court/tribunal/specialist adjudicator to make them equal.
A new breed of expert report came into existence to argue what was just and equitable and the law settled into a relatively regular rhythm. Lots of old entitlements, particularly for high rise buildings were successfully challenged. The only issue was which report the Court preferred – the owner’s or the body corporates.
The ALP changes
In 2011 the then Minister for Fair Trading, Peter Lawlor, introduced a new bill into parliament (‘the 2011 Amendments’). That bill became law and allowed anyone affected by a change of entitlements under the BCCMA to force the body corporate to re-adopt what the entitlements originally were.
This favoured the owners of lesser value lots who were then able to force bodies corporate back to shifting larger entitlements to higher value lots.
Naturally, the disaffected owners whose levies had increased charged back into the readjustments with a vengeance. Unfortunately, due to some technical wording in the amending act about whether a body corporate consented to a readjustment or a court ordered it, there have been quite a few disputes about the ability to make the changes back.
What happened on Friday?
A new bill was introduced to parliament. For more information, click here.
What the bill does is terminate incomplete applications to reverse adjusted entitlements immediately. It also puts in place a process for owners to have entitlements which were reversed under the 2011 Amendments to be adjusted back to what they were first equitably adjusted to. That section has not commenced yet, but will very shortly. We will advise when we know the date.
The bill does not open the door to adjustments of lot entitlements as used to happen under the BCCMA before the 2011 Amendments. The attorney-general has acknowledged that there are buildings with manifestly unequal lot entitlements and that the government will put some thought into how owners should have the ability to force changes of those. How that happens is yet to be seen.
We see buildings falling into the following classes:
Buildings which have never had an adjustment
The status quo remains. It seems likely that there will be an ability to adjust entitlements at some stage in the future with further amending legislation, but for the time being the only way to force an adjustment is if there has been a material change to the scheme.
Buildings which have had an adjustment which was not challenged under the 2011 Amendments
The adjusted entitlements will stand as made.
Buildings which have had an adjustment which has been reversed under the 2011 Amendments
When the changes commence, an affected owner will be able to lodge a motion with the committee to have the entitlements adjusted back to what they were first equitably adjusted to. The adjustment process effectively mirrors that which allowed affected owners to challenge entitlements under the 2011 Amendments.
Buildings which are part way through reversal of an adjustment under the 2011 Amendments
All incomplete adjustment actions are no longer of any lawful effect as at Friday 14 September. An incomplete adjustment action is one where a body corporate is going through the process to reverse entitlements to what they were before an adjustment under the 2011 amendments. While the definitions are very extensive, a short summary is that unless the body corporate has lodged a CMS to record the change of lot entitlements already, all action on reversals should stop immediately.
There are now buildings out there that had original entitlements set up by a developer, that were changed to what was equitable through the 2000’s, were adjusted back to what the developer set after the 2011 Amendments, and who will now be reverting to what was adjusted equitably in the 2000’s.