Strata titles ­ Works on common property ­ Nature of works ­ Nature of resolution required to authorise works ­ Annual budget containing item for cost of works ­ Whether unanimous resolution or resolution without dissent required

Strata Titles Act 1985 (WA), s 7, s 35, s 35(1), s 36(1), s 82, s 83(1)

Rucci & Anor v The Owners of 95 Mandurah Terrace, Mandurah - Strata Plan 20610 [2002] WADC 33

Velovski and The Owners of Hector Gardens - Strata Plan 6448 [2004] WASTR 12

1 Ms Sisto applied to the Tribunal for orders preventing certain works to be carried out on the common property of the home unit complex in which she owns a unit. There are 117 units in the complex. She alleged that the strata company required a unanimous resolution, or a resolution without dissent, before it was entitled to undertake the work, which she described as improvements to the common property. The strata company relied upon the fact that an item for expenditure on the work was included in the annual budget for 2004. The budget had been passed by an ordinary resolution of the company at the 2003 Annual General Meeting.

2 The Tribunal analysed the nature of the work being undertaken, which comprised the erection of a wall and pedestrian gate, the erection of a new bin enclosure, replacement of certain parking areas and other incidental work. The Tribunal concluded that the work was properly characterised as work required for the control and management of the common property, or, in relation to some aspects, as repairs and maintenance of the common property. On that basis, it was sufficient for the budget, including that item, to be passed by ordinary resolution.

3 On that basis, the strata company was authorised to carry out the works, and Ms Sisto's applications were dismissed.

4 The applicant, Ms Sisto, is the proprietor of Lot 30 on strata plan 2720 being part of a complex known as Glenway Gardens Apartments which is situated on Manning Terrace in South Perth. There are 117 lots in the strata plan.

5 On the afternoon of 22 June 2005, Ms Sisto observed workmen excavating trenches in an area of the common property of the Glenway Gardens complex, and observed pallets of bricks near the excavations. On making enquiries of the strata manager that day, Ms Sisto was told that the workmen had signed contracts with the respondent to build structures including a brick fence on the common property.

6 The question of construction of a brick wall at the entrance to the complex, and certain other works on the common property had been the subject of discussion at various meetings of the body corporate since 2003. The applicant is of the view that no proper resolution authorising the strata company to undertake these works had ever been passed at any meeting of the body corporate. She is opposed to at least some aspects of the proposed work, but also has concerns about the manner in which the body corporate has been managed and, in particular, with the approach taken at meetings of the body corporate.

7 In response to the advice that works on the common property were intended to proceed, Ms Sisto issued two applications to the Tribunal. One was an application for interim orders pursuant to s 82 of the Strata Titles Act 1985 (WA) (the Act). That application sought several orders. Only one of those was an appropriate order to be made on an interim basis, that being an order that building work on the common property cease pending the hearing and adjudication of the matter by the Tribunal. The other application was a substantive application for relief pursuant to s 83(1) of the Act. The orders sought included orders invalidating various resolutions of the strata company, adjusting levies imposed through the budget in the 2003-04 financial year, terminating any building contracts between the strata company and the builder concerned in relation to the work on the common property, seeking rectification of various minutes of meetings, and seeking the audit of the strata company's financial statements for the 2004-05 financial year, and on an ongoing basis.

8 The applicant obtained a listing of the interim application on 28 June 2005, the day after the applications were filed. Although the strata manager attended the Tribunal on that day, she had had no proper opportunity to consider the applications and the volume of material lodged in support of them. Accordingly, the matter was adjourned to 1 July 2005 for consideration of the interim application. The strata manager was directed to provide copies of the application to members of the committee of management.

9 On 1 July 2005, after hearing from the parties, the Tribunal made an interim order requiring the respondent to forthwith cause the building work, then being undertaken on the common property, to cease until further order of the Tribunal or finalisation of the applicant's application. The matter was then programmed through to a hearing on 28 July 2005, with a requirement for certain documents to be filed by the parties in the interim and for all proprietors of lots within the strata plan to be served with copies of the applications.

10 Following service of the application on owners of units within the development, 16 response statements were received from owners. Fifteen of those opposed the application, and one consented to the making of the orders sought on the application on the grounds that the owner "would like the independent assessment of the situation to be completed".

11 The directions made on 1 July 2005 required each of the applicant and respondent to file and serve a statement of issues, facts and contentions and a bundle of relevant documents. The applicant was to do that by Monday, 11 July 2005, and the respondent was to respond. The applicant did not comply with that direction. By letter dated 18 July 2005 and received at the Tribunal on 20 July 2005, the respondent endeavoured to identify the issues which it anticipated would arise for determination. In essence, the respondent's contention was that the works the subject of the building contract were the subject of valid resolutions of the body corporate.

12 Despite a number of assurances that her documents would be filed "first thing" on 12 July, then 13 July, then 22 July, and then 25 July, the applicant's documents were only finally produced shortly before the hearing set down for 28 July 2005. The applicant's statement of issues, facts and contentions occupies 17 densely typed pages, and has 33 annexures. It was obviously impossible for the respondent to consider those materials and make meaningful submissions in relation to them at the hearing on 28 July 2005. That was a most regrettable situation given that it had been brought about by the applicant who had received the benefit of interim relief which had interfered with the building operations, undoubtedly caused expense to the body corporate and left the works in an unsatisfactory state of partial completion.

13 In the circumstances, it was clear that fairness demanded that the respondent have an opportunity to consider and respond to the materials provided so late by the applicant. Accordingly, directions were given that the respondent have time to provide a written response to the applicant's statement of issues, facts and contentions, and the parties agreed that the matter could then be dealt with on the papers.

14 The statement of issues, facts and contentions provided by the applicant is somewhat repetitive. Having considered the manner in which the parties have identified the issues, it is clear that this application turns on one central issue. That is whether the strata company had the authority to enter the contracts for the works to be done on the common property. That question involves a number of sub-issues. They are:

(1) What is the proper characterisation of the work being undertaken?

(2) Is it within the powers of the strata company to undertake the work?

(3) What is the nature of any resolution of the strata company that is required to authorise the work to be undertaken?

(4) Was the required resolution obtained in this case?

(5) If the appropriate resolution was not obtained, what are the proper consequences?

15 The principal application commenced by the applicant also involves a claim for orders that past and future accounts of the strata company be audited. That is an issue only tangentially related to the matters which have brought the parties before the Tribunal, but is a separate issue to be dealt with in these reasons.

16 There are essentially two components to the work the subject of this dispute. The first relates to the construction of masonry walls, and a pedestrian gate, at the Manning Terrace entry to the complex. To the left of the vehicle entry, the wall consists of a continuous masonry either side of a pedestrian gate. The vehicle entry consists of a gap wide enough for two-way vehicular access. To the right of that access is a masonry wall some 12 metres wide abutting an existing fibro-fence. It is apparent that the wall is designed to serve the purpose of an entrance statement, a screen to a car park area, and possibly to separate vehicular and pedestrian access points at the Manning Terrace entrance.

17 The second aspect of the development is the relocation of a bin enclosure that involves the removal of an existing concrete up stand and some lattice and the construction of new masonry walls on either side of the new bin enclosure. Gates will be attached to the walls so as to enable the bin enclosure to be closed off.

18 The works also involve repaving certain areas around the proposed new walls and the bin enclosure, new curbing, remarking certain car bays, the erection of a new sign and various other associated works.

19 Ms Sisto describes the works as the "upgrade to the common property". The site plans describe the works as "Glenway Gardens refurbishment". The respondent describes the works variously as an upgrade or improvement. Those expressions were used by various owners who lodged responses with the Tribunal. One owner described the works as a "facelift and entrance statement" and described the entrance as "outdated" and an "eyesore". Dr R Christie and Ms B Christie, in their response, expressed the view that:

"Further improvements are urgently needed for the car park bitumen and also the walk way and we would also support rendering of all the buildings to bring them up to 21st century appearances."

20 Ms C Russell and Mr N Kenny expressed the opinion in their response, that:

"... Glenway Gardens has already deteriorated to a state of severe disrepair with a lot of the common areas needing urgent attention. The entrance in its present state is seriously rundown with dilapidated fences etc and urgently needs upgrading. It has been in this condition for several years."

21 It is clear that the works proposed are designed to result in an aesthetic and functional improvement to the common areas. They involve the erection of structures, the replacement of some existing paving and curbing, some new signage and certain other minor modifications.

The strata company power to undertake the works

22 Section 35 of the Act imposes duties upon the strata company. Section 35 reads:

(b) control and manage the common property for the benefit of all the proprietors;

(c) keep in good and serviceable repair, properly maintain and, where necessary, renew and replace-

(i) the common property, including the fittings, fixtures and lifts used in connection with the common property; and

(ii) any personal property vested in the strata company,

and [sic] to do so whether damage or deterioration arises from fair wear and tear, inherent defect or any other cause;

23 The applicant contends that the building works cannot be classified as controlling or managing the common property, nor maintenance or renewal or replacement of the common property. Rather, the applicant contends the works comprise upgrade or improvements to the common property and are outside of the powers conferred by s 35.

24 The proposed works do involve an element of renewal or replacement of existing fixtures on the common property, such as the resurfacing of a reasonably substantial area of the driveway and parking area at the Manning Terrace entrance, and the removal of existing asphalt paving and its replacement with a brick paved pedestrian walkway. It also involves the construction of new structures being the entrance walls and the bin enclosure. Those aspects of the proposed development involving new structures cannot be brought within s 35(1)(c), but some of the work is within that paragraph.

25 For the new construction to be justified under s 35, it must comprise an element of the "control and management" of the common property. There is no clear dividing line between what constitutes works undertaken as part of the control and management of common property, and what comprises works which are improvements to the common property going beyond control and management. The latter type of works is outside the duty imposed upon the strata company by s 35. The Act is strangely silent as to the circumstances in which a strata company can affect improvements to the common property. Section 7 of the Act regulates the erection of structures by a proprietor on the proprietor's own lot, but the Act does not contain any similar provision in relation to erection of structures on common property by the strata company.

26 That issue does not arise in this case if the works proposed are within the concept of control and management under s 35(1). In Rucci & Anor v The Owners of 95 Mandurah Terrace, Mandurah - Strata Plan 20610 [2002] WADC 33, Groves DCJ, in an appeal from the Strata Titles Referee agreed with the Referee that works undertaken to raise the height of a wall, and attach fence panels to it could reasonably be categorised as coming within the obligation to control and manage the common property where the additions were necessary on the grounds of safety and security.

27 The same approach was taken by the Strata Titles Referee in Velovski and The Owners of Hector Gardens - Strata Plan 6448 [2004] WASTR 12 which involved expenditure for the construction of a brick fence with metal gates, lighting and remote controls and some additional parking. The Referee observed in that case, that whether the proposed wall came within the powers to control and manage the common property is a question of fact, and although he did not decide the question in that case, he contemplated that where additions to the wall were necessary on the grounds of safety or security, then they could be categorised as coming within the obligation to control and manage the common property for the benefit of all proprietors. He observed, in that case that

"If the proposal had been sufficiently detailed and the expenditure was contained in a budget accepted at the Annual General Meeting, then only an ordinary resolution would have been required to allow the works to proceed, if they could be properly categorised as coming within the power to control and manage the common property."

28 We agree with the former Referee's observation.

29 Some of the owners who provided response statements suggested that the proposed refurbishments would provide added security. Ms Sisto, in her submissions to the Tribunal, maintained the firm view that the fence would provide no additional security given that it does not surround the complex, and has an open vehicular gate. It is obvious that the proposed works will not provide security of the type that might be achieved by a complete perimeter wall and lockable gates. The wall does however screen a section of the perimeter and car park from a public area. Although access can still be gained from that area through the driveway, the narrowing of the point of ingress and egress can have some benefit from the point of view of security. There is an element of improvement of security in the proposed development, although we find that that is an incidental, rather than a primary, purpose of the proposed works.

30 The thrust of most of the responses from other owners was that the common areas of the complex are somewhat run down and in need of general refurbishment in order to meet the standards appropriate to a development occupying, as this one does, a prime location near the river. In our view, the proper control and management of the common property, includes taking reasonable steps, possibly including the erection of new structures, to ensure that it is maintained and presented in a way which accords with the reasonable expectations of the proprietors as a whole. It is a question of fact and a matter of degree as to when the erection of new structures on the common property goes beyond control and management.

31 In this case there are aspects of the work which we consider to be comfortably within the ambit of control and management of the common property. The bin enclosure is one example. If the council of the respondent considers that rubbish storage and disposal is better facilitated by use of an enclosed space rather than the existing arrangement, then we have little difficulty in concluding that works undertaken to achieve that end are properly within control and management. Similarly, the resurfacing of parking areas and the driveway may come within that category, although those aspects of the work are also capable of being repairs or maintenance.

32 The wall at the Manning Terrace frontage is perhaps less clear, but, in our view, is properly categorised as work which maintains the common property to a standard consistent with the reasonable expectations of the proprietors, and can be categorised as falling within the control and management of the common property.

33 We are mindful that the total contract price for the works is just under $50 000. That is a significant sum. It must be borne in mind, however, that there are 117 units in this strata plan. It is a major complex occupying a large site. The contract price must be seen in that context, and itself is not indicative of the works going beyond the function of control and management.

34 Once it is concluded that the proposed works fall within control and management of the common property, it is open to the strata company to raise funds by levy on proprietors in proportion to their unit entitlements pursuant to s 36(1) of the Act. That subsection requires a strata company to

"Establish a fund for administrative expenses that is sufficient in the opinion of the company for the control and management of the common property, for the payment of any premiums of insurance and the discharge of any other obligation of the strata company."

35 The applicant contended that the levy for these works could not be said to be for "administrative expenses", and accordingly could not constitute a budget item forming the basis of a levy of contributions. It is clear that the expression "administrative expenses" must incorporate expenses for work done in the control and management of the common property. That is the very nature of budgets routinely adopted in accordance with s 36(1).

36 As the former Referee observed in the passage from Velovski and The Owners of Hector Gardens - Strata Plan 6448 (supra) (above) only an ordinary resolution is required to adopt a budget at an Annual General Meeting for works which can be properly categorised as coming within the power to control and manage the common property or keep it maintained and repaired.

37 The respondent relies upon the adoption of the budget at the Annual General Meeting in 2003 as the authority for it to undertake the works. In her submissions in support of her applications, the applicant canvassed events at two earlier meetings, the 2002 Annual General Meeting and an Extraordinary General Meeting in 2003. It is not necessary to examine the events occurring at either of those meetings, because it is clear that, at neither of them, was there any formal resolution for the respondent to undertake the works the subject of the applicant's complaint. The only relevance of the earlier meetings is that they evidence the fact that the question of improvement of the common areas was under discussion for at least 12 months prior to the 2003 Annual General Meeting.

38 Notice of the Annual General Meeting to be held on 11 September 2003 was dated 25 August 2003. No complaint is made by the applicant as to the timing of the notice. The notice identified amongst the items of special business to be dealt with a proposed motion "to receive and adopt proposed budget and setting of annual administration levy". Attached to the notice of the meeting was a proposed budget for the year ending 30 June 2004. It contained a number of items of budgeted expenditure including an item "upgrade/improvement fund - $50 000". The total budgeted expenditure for 2003-04 was $283 618.06. The recommended levy for each unit was set out in the proposed budget.

39 It is apparent from the documents submitted by Ms Sisto that attached to the proposed budget was some explanatory material in relation to the budget item for "upgrade/improvement of common areas". That material contained eight sketches of alternative treatments for the Manning Terrace entrance wall. There was also a covering note which read:

"The Council of Owners propose that NO special levy will be required to be raised for the recommended upgrade/improvement of common areas.

The proposed budget figure of $50,000.00 is anticipated to be utilised for the following items:

New brick screen wall/balustrade at front entry, and possible option of an arch.

Possible consideration of bi-parting gates across the driveway and a new steel gate for pedestrian access (now or in the future).

Removal of existing 'Glenway Gardens' sign from transformer compound and replace with new Glenway Gardens sign on proposed front entrance wall. Replace freestanding 'Glenway Gardens' sign and street address on verge.

Create a new brick paved walkway, raised 100 mm above the level of the existing asphalt paving.

Lighting to entrance.

Existing speed hump at entrance to be removed and new raised speed plateau to be installed.

Treat Manning Terrace side of transformer compound to match new entrance.

Possible resurface of asphalt paving to extent suggested by Hodge and Collard as shown on plan 05.01.

Replace existing concrete kerbing as suggested by Hodge and Collard and shown on plan 05.01.

Provisions for new bin compound."

40 The meeting was duly convened on 11 September 2003. Fifty-five proprietors were present or represented by proxy. There is no suggestion that there was not an adequate quoram for the meeting. The applicant was one of those present. In relation to the motion to adopt the proposed budget and setting the annual levy, the minutes record that Ms Sisto enquired on the allocation in the budget of $50 000 for the entrance work and what the proposed expenditure was for. It is then recorded that

"At this point of the meeting the meeting adjourned to view the 8 different sketches of the proposed entrance works and it was suggested by the meeting that each sketch be identified with a alpha being A through to H, this was for the purpose of gauging which option was most preferred by the owners and to establish if the allowance of $50,000.00 in the budget for was a reasonable figure. Based on feedback for each of the sketches, sketch A was the most preferred with more consideration to be given to the signage and lighting."

41 The motion was then passed resolving to adopt the proposed budget and set the proposed levies.

42 The reference in the minutes of the meeting to "sketch A" is clearly a reference to the first of the sketches circulated prior to the meeting. It broadly reflects the wall construction shown on the plans for the work that has been commenced on site.

43 The applicant's primary contention in relation to the 2003 Annual General Meeting is that it was not open to the meeting to adopt the budget incorporating an item of $50 000 for the proposed works until such time as the owners had passed either a unanimous resolution or a resolution without dissent authorising the work to be done. As we have already concluded, that proposition is not correct. Given that the works come within the control and management of common property, it was open to the strata company to include in its budget an item to enable the works to be done, and it was sufficient to adopt that budget for the resolution to be passed by simple majority.

44 In our view, there was sufficient detail disclosed in the notice of the meeting, and discussed at the meeting, to identify the work which was to be undertaken. The covering note and the sketches attached to the proposed budget were sufficiently detailed to enable owners to understand the essential nature of what was proposed. The fact that final details and plans were not formally adopted at the meeting does not derogate from the authority conferred on the council of owners to proceed with the work as a result of the adoption of the budget containing the item for upgrade or improvement of the common property.

45 In view of our conclusions as to the adequacy of the resolution obtained to authorise the work, it is not necessary for us to consider the issue of the proper consequences if that resolution had not been obtained.

46 As already observed, the applicant also sought orders that "The Strata Company's Financial Statements be audited by an independent auditor selected by the Tribunal for the 2004-2005 financial year and for each forthcoming financial year for so long as the Strata Company exists".

47 In response to that application, the respondent points out that strata funds of the owners of Glenway Gardens are kept in a trust account which is audited annually by Page Kirk Jennings, Chartered Accountants, and the audit certificate forms part of the books and records of Glenway Gardens.

48 The basis for the application for these orders appears to be that the applicant considers that the conduct of the council of owners and the strata manager in relation to issuing notices of meetings, compiling minutes of meetings, and conducting meetings and voting processes is such as to suggest that the members of the strata company cannot rely on the management of the company. It is asserted that the history of the company's management is such that members cannot place their trust in the accuracy of the accounts presented to them at a general meeting. In our view, the materials which we have reviewed give no substance to the concerns expressed by the applicant. Whether the company should incur the expense of any audit above and beyond the existing audit of the trust accounts, which holds the strata company's funds, is a matter entirely for the members of the company to determine in general meeting. There is no basis for the Tribunal to interfere with the operations of the strata company even if it has power to do so which is a matter we do not need to consider.

49 In the circumstances, the Tribunal orders that the applicant's applications filed 27 June 2005 are dismissed.

I certify that this and the preceding [49] paragraphs comprise the reasons for decision of the State Administrative Tribunal.

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JUDGE J CHANEY, DEPUTY PRESIDENT