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The Carmel by the Sea decision – what does it actually mean?

By Frank Higginson12 Sep 2012

The management rights and body corporate industries have been waiting with anticipation for the first formal legal decision in the dispute between the resident manager and body corporate at Carmel by the Sea.

Despite what many headlines are saying, we very much doubt the matter is settled.  We would be surprised if one (or both parties) do not lodge appeals.

The dispute relates to what happens when the existing management rights agreements expire in October 2012.  This is one of those rare buildings that has to date chosen to let their management rights agreements run down.  The committee includes some very strong willed individuals who clearly do not believe in the continued existence of management rights at the building in the current form.

No doubt knowing that an appeal would be likely, the adjudicator produced a very detailed statement for their decision.  It is very well reasoned, but unlikely to really satisfy either party.

So what are the lessons learned from this dispute for the time being?

Who are the grinners?

The Commissioner’s decision was really 50/50.  Both side won a bit and lost a bit.  The only sure fire winner (as always in litigation) were the lawyers.

The letting exclusivity by-law

The resident manager had the usual protective by-laws relating to the exclusive right to let lots in the scheme.  The body corporate sought to revoke this and grant it to another party.

The body corporate was allowed to change the by-law to allow another party to use a lot for letting purposes, but it was not allowed to remove the right of the resident manager to continue to conduct lettings from its lot after expiry of the management rights agreements.

This was really decided on what the adjudicator thought was ‘reasonable.’

This is a true example of a 50/50 decision and no doubt a source of pending confusion for prospective guests in the scheme.  Where do they check in?

The signage by-law

There was the usual right to the resident manager to erect signs on common property advertising its letting services.  The body corporate wanted this by-law removed.

The adjudicator held that this grant of a special right was one that was similar to a grant of exclusive use.  This means it cannot be taken away without the consent of the party entitled to it.

On this basis, the by-law remains.

This was really a question of characterisation of the nature of the right granted to the resident manager.

Conferral of a benefit

This was a very interesting discussion, and to our knowledge the first time it has ever been properly litigated in a management rights context.

Under the BCCM Act a body corporate must not seek or accept the payment of an amount, or the conferral of a benefit for the granting or extending of a management rights agreement.

The successful tenderer for the new caretaking agreement offered to do it for no remuneration.  Yes – that’s right.  It offered to caretake for free.  Commercial suicide that may be, but that was the tender.  Clearly, there would seem to be some other income the tenderer thought they would pick up, which more than likely would be from lettings.

Would the body corporate be conferred a benefit from the granting of the caretaking agreement for no remuneration?

The adjudicator said no.  It was held that while the body corporate would obviously receive a benefit:

(a) That the benefit was not actually related to the entry into the caretaking agreement itself;

(b) The adjudicator interpreted this has being a prohibition against receiving a premium (i.e. payment in exchanging for entering into an agreement), rather than the indirect benefit of not having to pay anything for the services; and

(c) The adjudicator did not want to interfere with the market. After all, if multiple tenderers are willing to do the job for nothing, isn’t that a reflection of market value?

This will surely be a very hot topic on any appeal.

Occupation authority 

The body corporate wanted to grant certain parts of common property under an occupation authority to the new caretaker.  There were arguments about whether the grant of that right would physically interfere with the rights of the resident manager as the owner of a lot.  This was decided in favour of the body corporate for the time being.

Reception desk

The body corporate wanted to spend $70,000 building a new reception desk.  Its spending limit was $50,000.  The body corporate had not sought quotes or complied with other statutory requirements around major spending.

This was an easy win for the resident manager.

Information available to owners

In a separate but related matter – owners wanted access to the tender documents concerning the new caretaking and letting agreements. The issue was whether owners had a right to access this information from the body corporate record.

It was held that a committee cannot hide information from lot owners.  The committee are there as representatives of all owners.  They must account to owners for the information they act on in taking decisions (in this case the tenders for the management rights business).