The Law Relating to Management Rights in Queensland

14 June 10

This article looks at the legislation in Queensland dealing with the constraints and obligations imposed on developers whilst they control the Body Corporate, particularly when it comes to entering into caretaking and letting agreements.
I also look at the legislative requirements in Queensland applying to the term of these agreements and the ability of caretakers and letting agents to “top up” the term.
It is estimated that there are approximately 2,500 management rights complexes in Queensland.


DEVELOPERS’ OBLIGATIONS TO OWNERS
• Under the Body Corporate and Community Management Act 1997 (Act) the
“Original Owner” (or Developer) control period means the period in which:
 the body corporate is constituted solely by the developer; or
 the developer owns, or has an interest in, the majority of lots in the scheme, or in any other way, controls the voting of the body corporate.
• The Act sets out the developer’s obligations about engagements and authorisations of caretakers and letting agents made in the Developer control period. The Developer must exercise reasonable skill, care and diligence and act in the best interests of the body corporate in ensuring each of the following:
 the terms of the engagement achieve a fair and reasonable balance between the interests of the contracted party and the body corporate;
 the terms of the engagement are appropriate for the scheme;
 the powers able to be exercised, and functions required to be performed, by the contracted party under the engagement are appropriate for the scheme and do not adversely affect the body corporate’s ability to carry out its functions.
• A breach of these obligations renders the Developer liable to a maximum penalty of $30,000. Furthermore, if the body corporate or an owner of a lot included in the scheme incurs loss or damage because of the Developer’s contravention of the section, the body corporate or owner may claim compensation from the Developer in a proceeding brought in a court of competent jurisdiction.
• The Developer must also hold the first AGM of the body corporate within 2 months after the first of the following to happen:
 more than 50% of the lots included in the scheme are no longer in the ownership of the Developer;
 six months have elapsed after registration of the plan for the scheme.
• Importantly, Section 113 of the Act prohibits a body corporate from seeking or accepting the payment of an amount, or the conferral of a benefit, for the engagement of a person as a service contractor or the authorisation of a person as a letting agent. The prohibition extends to any replacement or renewal of the engagement or authorisation or any extension or ‘top-up’ of the agreement. However, these provisions do not apply to the Developer and, accordingly, a Developer is entitled to sell the management rights for the scheme to a third party.


TERM OF AGREEMENTS
• The Act sets up a regime whereby various regulation modules apply to different schemes depending on the nature and characteristics of the scheme in question. The community management statement for each scheme will identify the particular regulation module applying to the scheme. The body corporate may change the regulation module applying to the scheme at any time by way of a special resolution.
There are four different regulation modules which may apply to a scheme:
 Standard;
 Accommodation;
 Commercial; and
 Small Schemes.
The regulation modules prescribe the maximum term of any engagement of a person as a caretaker or letting agent.
• Under the Standard Module the term of an engagement of a person as a service contractor or the authorisation of a person as a letting agent (including any rights of option or renewal) must not be longer than 10 years. If the term purports to be longer than 10 years, it is taken to be 10 years. Under the Accommodation Module, the maximum term is 25 years.
• For the Accommodation Module to apply:
 the lots included in the scheme must be predominantly accommodation lots; or
 the lots included in the scheme are not predominantly accommodation lots and when the first community management statement identifying the accommodation module was recorded, the lots were intended to be predominantly accommodation lots; or
 the lots included in the scheme have previously been, but are no longer, predominantly accommodation lots and when the lots last stopped being predominantly accommodation lots the community management statement identified the Accommodation Module as applying to the scheme and since the lots last stopped being predominantly accommodation lots, each subsequent community management statement has identified the Accommodation Module as applying to the scheme.
Accommodation lot means a lot that is either or both of the following:
 the subject of a lease or letting for accommodation for long or short term residential purposes (or immediately available to be the subject of a lease for such purposes);
 part of a hotel.
Hotel means an establishment organised and operated principally for providing accommodation in guest rooms or suites and offering food and drink.


THE ABILITY TO TOP UP AGREEMENTS
• The Act provides that the body corporate may amend the engagement of a person as service contractor or the authorisation of a person as letting agent to include a right or option of extension or renewal only if:
 the subsequent right or option is not longer than 5 years; and
 the unexpired term of the engagement or authorisation (from the day the resolution approving the subsequent right or option is approved by the body corporate) is not more than 10 years for Standard Module complexes or 25 years for Accommodation Module complexes; and
 the body corporate passes an ordinary resolution;
 no votes are exercised by proxy;
 the motion is decided by secret ballot; and
 the material forwarded to members of the body corporate for the general meeting includes an explanatory note in the approved form explaining the nature of the amendment.
• The approved form containing an explanatory note for the amendment of an engagement or authorisation is BCCM Form 20.
• From a practical perspective, if the term of caretaking and/or letting agreement is running particularly low, it may be more prudent to top-up by way of re-engagement, where the new agreement can have a term up to the maximum permitted under the regulation module applying to the scheme.


FINANCIERS’ RIGHTS
• The Act specifically recognises financiers of management rights and sets out in detail the rights and obligations of the body corporate and financiers in relation to a financed contract.
• The body corporate must give the financier written notice of any change or arrangement agreed to by the body corporate and the contractor that affects the contract.


PROXIES
Caretakers / Letting Agents

The Act prohibits the use of proxies in relation to the body corporate entering into or amending the engagement of a service contractor or the authorisation of a person as a letting agent.
Also, the Act provides general limitations on the number of proxies a person may hold in relation to a general meeting of the body corporate. For complexes under the Standard Module, a person must not hold proxies greater in number than 5% of the lots where there are 20 or more lots in the scheme or more than 1 proxy where there are fewer than 20 lots. This percentage is increased to 10% of the number of lots where there are 20 or more lots under the Accommodation Module.
Developers
The Act provides that the Developer may only exercise a proxy for a person in accordance with the proxy if:
(a) a contract under which the Developer sells a lot to the person makes the Developer the person’s proxy for voting on issues stated in the contract; and
(b) the issues mentioned in paragraph (a) are limited to 1 or more of the following:
• engaging a person as a body corporate manager or service contractor or authorising a person as a letting agent;
• authorising a service contractor or letting agent to occupy a part of the common property
• consenting to the recording of a new community management statement to include a by-law.
In relation to all of the matters listed in paragraph (b) above, details of the engagement or authorisation or by-law/s must be disclosed to the person before the person entered into the contract to buy the lot. Any proxy given under the section must not end later than 1 year after establishment of the scheme.
  

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