Facts
Issues
Decision
Comment


A recent Queensland Supreme Court decision in The Proprietors Cathedral Village Building Units Plan No 106957 v Cathedral Place Community Body Corporate(1) highlights the risks to buyers of failing to conduct sufficient due diligence before settling on a purchase.

Facts

The case concerned a mixed-use development known as Cathedral Place in Brisbane's Fortitude Valley. Cathedral Place has a complex structure and includes both residential and commercial units organised under a number of different bodies corporate.

The plaintiff body corporate, Proprietors Cathedral Village Building Units Plan 106957, had been operating a commercial car park in Cathedral Place since 2001. The scheme contained a number of commercial units. The car park was principally the common property of four bodies corporate. One of these was the first plaintiff, which held six car spaces as part of its common property. The remaining 24 plaintiffs owned the other units in the scheme.

The first defendant, Cathedral Place Community Body Corporate (CBC), owned common property associated with the whole development located in the car park area.

There were no car parks allocated to the owners of the units in the plaintiff's scheme. However, during the initial stages of development, representations were made by the developer of the complex to purchasers of the units that at least 55 unallocated car spaces would be made available to them by either exclusive use, easement or other mechanism.

The developer attempted to honour this representation on November 29 2000 by introducing new Bylaw 28, which was approved by a comprehensive resolution. The only voting member to attend the meeting of Cathedral Place CBC at which the bylaw was proposed was Mr Ritchie, an officer of the developer who was also representing all unit owners of Cathedral Place CBC (as all units were then still owned by the developer).

Bylaw 28 provided that the "persons entitled to use the [car park] are the Proprietors [ie, the plaintiff] and any person authorised by them". It also provided that the plaintiff must maintain the car park and ensure that it was used only for purposes ancillary to the mixed-use development of Cathedral Place and in a manner that complied with the bylaws.

In managing the car park, the plaintiff had marked it off from the remainder of Cathedral Place CBC's common property with chains, bollards and fencing.

Cathedral Place CBC passed a comprehensive resolution on June 28 2010 revoking Bylaw 28. Thereafter, it had the chains and bollards removed, effectively disabling the operation of the car park by the plaintiff and enabling users to enter and exit without passing through the boom gate or taking a ticket.

An interlocutory injunction was granted to reinstate the status quo pending the final hearing.

Issues

The chief issues for consideration were:

  • whether the plaintiff had acquired a legal or equitable interest in the area of the car park beyond its own common property, and whether any such interest in the car park had been terminated; and
  • whether the resolution creating Bylaw 28 should be set aside as an improper exercise of power.

Decision

Acquisition of car park spaces
The relevant legislation governing the making of Bylaw 28 was Sections 206 and 206A of the Mixed-Use Development Act 1993 (Qld).

Cathedral Place CBC argued that Bylaw 28 was a 'property bylaw' pursuant to Section 206 of the act, which dealt with the "control, management, administration, use or enjoyment of the community property" and therefore could be made by a comprehensive resolution (ie, a resolution for which the members voting in favour of the resolution possessed no less than 75% of the voting entitlements). Such a bylaw can be repealed by a comprehensive resolution.

Conversely, the plaintiff argued that Bylaw 28 was a 'restrictive bylaw' made under Sections 206 and 206A of the act and that its aim was to "restrict the use of any part of the community property" to use by a nominated entity. To pass or repeal such a bylaw requires a resolution without dissent.

Justice Douglas agreed with Cathedral Place CBC and found that Bylaw 28 was not a restrictive bylaw for the following reasons:

  • The bylaw did not restrict the use of the community property to a nominated entity.
  • The resolution creating the bylaw was a comprehensive resolution.
  • The bylaw was expressed as a grant to use the car park rather than an attempt to restrict the use thereof.

Therefore, Bylaw 28 was revocable by a comprehensive resolution, not a resolution without dissent. The comprehensive resolution revoking Bylaw 28 in 2010 was therefore validly made and Bylaw 28 was deemed to have not been in force since the 2010 resolution.

The plaintiff further argued that it had acquired a legal or equitable interest in the car park or the statutory right of use. The judge held that, at best, the plaintiff had enjoyed a licence which had been validly terminated and it was inappropriate to imply the statutory right of use where there was a complex statutory scheme for the regulation of bodies corporate.

Accordingly, while the judge sympathised with the unit owners who had not obtained what they had been promised by the developer, he held that the only interest that the plaintiff had had in the car park area was in relation to the spaces forming part of its own common property, as any other rights it may have had earlier had been terminated.

Exercise of power
By way of an alternative argument, the defendant held that Bylaw 28 should be set aside as Ritchie (acting for the developer) had, in the exercise of his voting power at the 2010 meeting, preferred the developer's interests under the sale contracts with the original unit owners (without regard to the implications for the other bodies corporate) over the duty of the first defendant to discharge appropriately its power to control the use of its common property.

Although the plaintiff argued that it needed to offer car parking in order to assist the development to work "together in its totality", the court found that this could be achieved by Cathedral Place CBC remaining in control of the car park. Therefore, there was no justification for an appropriation of Cathedral Place CBC's rights to control the car park.

While this issue did not directly affect the outcome of the case, the judge stated that had Bylaw 28 not been validly revoked, he would have set it aside nonetheless as an improper exercise of power.

Comment

This case highlights the importance for purchasers, especially of lots in mixed-use or community titles scheme developments, to conduct sufficient due diligence (including verifying that body corporate resolutions have been properly passed) before completion, in order to ensure that they receive the rights that they have been contracted to acquire.

Developers should also consider whether the resolutions that they pass while in control of a body corporate are in the best interests of such body corporate as it will be constituted once the developer is no longer part of the complex.

For further information on this topic please contact Kerri McElwaine or Ryan Ainscough at Piper Alderman by telephone (+61 2 9253 9999), fax (+61 2 9253 9900) or email (kmcelwaine@piperalderman.com.au or rainscough@piperalderman.com.au).

This article was first published by the International Law Office, a premium online legal update service for major companies and law firms worldwide. Register for a free subscription.

Endnotes

(1) [2012] QSC 301.