Fischer & Ors v Body Corporate for Centrepoint Community Title Scheme 7779 [2004] QCA 214

Fischer & Ors v Body Corporate for Centrepoint Community Title Scheme 7779 [2004] QCA 214 | Case summary | Zoe

[1] McPHERSON JA: I agree with the reasons of Chesterman J, which I have had the advantage of reading.

[2] The appeal should be allowed with costs; the order of the District Court should be set aside; instead, the lot entitlement contribution schedule should be ordered to be adjusted as set out in the reasons of Chesterman J.

[3] CHESTERMAN J: The applicants for leave to appeal are owners of lots in an apartment building known as Centrepoint which is located at 69 Leichhardt Street, Spring Hill. Centrepoint consists of two towers, all the lots in which are residential. One tower contains 20 apartments and the other 31. As well there are three levels of underground car parks. Of the 51 apartments, six have one bedroom, 28 have two and 17 are three bedroomed. They vary in size. The smallest is 81 square metres in extent, and the largest, 241 square metres. The common area contains a number of amenities for lot owners and their guests. These include a sauna, a swimming pool and a games room. The respondent, the body corporate for Centrepoint, was originally incorporated pursuant to the Building Units and Group Titles Act 1980 (Qld) and titles to the lots in the buildings were granted pursuant to that Act. It provided that the owners of the realty comprising the residential lot had an entitlement to 'lots' which determined the proportionate share of the lot owner to the common property and to the contributions to be paid for the costs of maintaining and providing services to the building.

[4] To avoid confusion in use of the word 'lot' - which means both the real property represented by the residential unit and the designated number representing the obligation to contribute to body corporate expenses - I will use the word 'apartment' to refer to the former use and the word 'lot' to refer to numbers in the contribution schedule, which will be described shortly.

[5] The Building Units and Group Titles Act was repealed in 1997 and replaced by the Body Corporate and Community Management Act 1997 (Qld) ('the Act'), which provides that there should be two sets of 'lot entitlements' for each apartment in a community titles scheme, formerly a building units plan. The two sets were 'contribution schedule lots' and 'interest schedule lots'. The former is the means by which the respective contributions of the apartment owners to the maintenance cost of the building are determined. The interest schedule is the means by which the respective owners' interests in the common property are determined. In each case there is a schedule of lot entitlements which consists of a whole number allocated to each apartment.

[6] To determine the amount of an apartment owner's contribution to expenses the total of body corporate expenses is divided by the total number of contribution lots. The quotient is then multiplied by the number of contribution lots in respect of each apartment to arrive at the respective amounts to be paid.

[7] The respondent, having been incorporated under the Building Units and Group Titles Act, has only one schedule of lot entitlements. That schedule is taken to be both the contribution schedule lot entitlement and the interest schedule lot entitlement for the purposes of the Act.

[8] Section 48 of the Act provides that the owner of a lot may apply to the District Court for an order for the adjustment of a lot entitlement schedule.

[9] By an application dated 10 February 2003 the applicants applied for an order varying the contribution entitlement schedule of the respondent. The application was heard on 28 and 29 January 2004 and dismissed on 13 February 2004. The applicants seek leave to appeal against the dismissal of their application.

[10] The Act was amended by the Body Corporate and Community Management and Other Legislation Amendment Act 2003 (Qld) ('the 2003 Act'), which came into effect on 4 March 2003. It was thus the Act as amended which contained the relevant law when the District Court came to decide the application. This is not controversial but some of the amendments made are referred to as assisting in the proper construction of the Act.

[31]

[17] The result of Mr Sheehan's examination of the expenditure of the respondent body corporate, and his categorisation of that expenditure in accordance with the quoted description, produced a table which showed what percentage of the total costs should be allocated to each category. From this analysis Mr Sheehan was able to arrive at a table of appropriate lot entitlements for each lot. The precise mechanism by which this was done was not explained and was not necessary.

[18] Mr Linkhorn, who gave expert evidence for the respondent, adopted the same methodology. He differed only in that he allocated the costs of operating and maintaining the lifts separately between the apartments in each tower, though equally between the apartments in each. This produced a different set of lot entitlements but the difference is quite small.

[19] In reaching their conclusion that the existing contribution lot entitlement schedule is not 'just and equitable,' and that it would not be 'just and equitable' to make the lot entitlements in respect of all apartments equal, both Mr Sheehan and Mr Linkhorn had regard only to the expenses incurred by the respondent in operating and maintaining its buildings and the extent to which the apartments 'consume' those expenses differentially. The exercise undertaken, and the basis for the opinions as to the proper allocation of lot entitlements, did not go beyond identifying and classifying the extent to which different apartments placed greater financial burden on the body corporate than other apartments.

[20] The learned District Court judge thought that this approach was too narrow. His Honour considered that a determination of lot entitlements among apartment owners could take other factors into account. Having considered other factors his Honour concluded that it was just and equitable to depart from the principle that all apartment owners should contribute equally to the expenses. He rejected the proposition, advanced by the experts, that any departure from the principle of equality should be determined only by ascertaining the extent to which the apartments differed in the consumption, and therefore cost of services, or the extent to which they gave rise to differing levels of expenditure by the body corporate.

[33]

[22] The first observation is not entirely accurate. The evidence showed that there was a degree of arbitrariness in the original allocation of lot entitlements. There was no distinct pattern though it could be said that, generally speaking, the higher an apartment was in the buildings the greater its entitlement. This probably reflects a connection between the value of the units and their lot entitlements.

[23] The learned judge also pointed out that an adjustment to the schedule of lot entitlements would probably have an effect on the value of apartments. No valuation had in fact been conducted, but an indicative approach to valuation put before his Honour showed that if apartments were valued by reference to rental income only, an increase in contributions to body corporate expenses would result in a loss of value, assuming that the required rate of return on investment remained the same.

[24] The point in issue is a narrow one. It is whether in determining an application for the adjustment of a contribution lot entitlement schedule and, in particular, in determining the extent to which it is just and equitable that respective lot entitlements not be equal, the enquiry is at large (save for the matter described in s 49(5)) or whether it is limited to matters which show how apartments differently affect the cost of running and maintaining a community titles scheme. The learned trial judge took the first view and thought it appropriate to consider the application by reference to the affect of the change on the value of apartments, and the amenity of the apartments. His Honour did so because of the terms of s 49(4), which provides that the court may have regard to the structure of the community titles scheme and the nature, features and characteristics of the apartments in the scheme. His Honour took the view, not unnaturally, that amenity and location were features or characteristics of apartments.

[25] The submission for the applicants is that this part of the Act is concerned with the just and equitable distribution of body corporate expenses among apartment owners and that in making an adjustment of a lot entitlement schedule the court must pay regard only to the origin and allocation of body corporate expenditure.

[26] Although the Act gives no clear indication one way or the other, the preferable view is that a contribution schedule should provide for equal contributions by apartment owners, except insofar as some apartments can be shown to give rise to particular costs to the body corporate which other apartments do not. That question, whether a schedule should be adjusted, is to be answered with regard to the demand made on the services and amenities provided by a body corporate to the respective apartments, or their contribution to the costs incurred by the body corporate. More general considerations of amenity, value or history are to be disregarded. What is at issue is the 'equitable' distribution of the costs.

[27] There are a number of reasons for this conclusion. The first is to be found in the terms of the Explanatory Notes which accompanied the 2003 Act and the content of the Second Reading Speech when the Bill for it was debated. Because the meaning of the Act is unclear it is permissible to consult these materials.

[40]

[30] These materials make it tolerably plain that the Act is intended to produce a contribution lot entitlement schedule which divides body corporate expenses equally except to the extent that the apartments disproportionately give rise to those expenses, or disproportionately consume services. That determination can only be made by reference to factors which have a financial impact or consequence on the body corporate. It cannot be affected by factors which go to an apartment's value or amenity.

[31] Secondly, the nature of a contribution lot entitlement schedule itself suggests that the allocation of lot entitlements is to be made on the basis of the impact that individual apartments make upon the costs of operating and running a community titles scheme. Contribution lot entitlements determine the apartment's share of the outgoings. The starting point is that the entitlements should be equal. A departure from that principle is allowable only where it is just, or fair, to recognise inequality. The departure must take as its reference point the proposition, from which it departs, that apartment owners should contribute equally to the costs of the building. The focus of the inquiry is the extent to which an apartment unequally causes costs to the body corporate.

[32] The third consideration is that if this principle not be the applicable one then there is no basis on which applications for adjustment of contribution lot entitlement schedules can consistently be made. As the evidence in this application shows, if the inquiry is limited to the extent to which an apartment creates costs, or consumes services, above or below the average, one can readily determine what the contribution lot entitlement should be. The high degree of similarity in the reports of Mr Sheehan and Mr Linkhorn demonstrates this. If the inquiry be wider and include such nebulous criteria as the structure of the scheme, or the nature, features and characteristics of the apartments in the scheme, and the purposes for which they are used, there is no intelligible basis on which there could be a consistent and coherent determination of applications for adjustment of lot entitlements. Each case would be determined idiosyncratically and a vast variety of circumstances might be relied upon to depart from, and therefore erode, the principle said to be paramount, that there should be an equality of entitlements.

[33] Accordingly I would construe s 49 of the Act, and in particular subsection (4), as meaning that those identified matters to which a court may have regard are to be regarded only to the extent, if any, that they affect the cost of operating a community titles scheme.

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