You will recall that in his article published in the last edition of our newsletter, Mr Jerome Quinn, Solicitor, gave an outline of the additional obligations on a seller of Titles Scheme Lots due to the amendment of the Body Corporate and Community Management Act (BCCMA) with particular reference to the obligations of disclosure under the amendments to that Act.
The Act also made amendments of particular significance in relation to the provision of a new lot entitlement system. The new lot entitlement system provides principles for the setting of Contribution Schedule Lot Entitlements and the Interest Schedule Lot Entitlements.
The amendments are fundamental to the interests of a buyer of a property in a Community Titles Scheme because:
- the Interest Schedule Lot Entitlement is relevant for determining the share of common property, the interest on termination of the Scheme, the unimproved value of the Lot for the purposes of any charge, levy, rate or tax that is payable directly to a local government, the Commissioner of Land Tax or other authority and that is calculated and imposed on the basis of unimproved value, and the contribution to the body corporate insurances for the building;
- the Contribution Schedule Lot Entitlement is relevant for determining each owner’s share of the amounts to be levied by the body corporate with respect to the administrative and sinking funds maintained by the body corporate and any special levies issued by the body corporate in the event that there are insufficient funds available to the body corporate to undertake works of an unusual nature which may be required.
The respective Contribution Schedule Lot Entitlements for each Lot must be proportionate to the unimproved value of the Lots (the unimproved value principle) or equal except to the extent to which it is just and equitable in the circumstances for them not to be equal (the equality principle).
For a typical unit in a multi storey development, the Contribution Schedule Lot Entitlements must be in accordance with the equality principle or there must be a demonstrated relationship between the Lots by reference to one or more relevant factors such as how the scheme is structured, the nature, features and characteristics of the Lots, the purposes for which the Lots are used, the impact the Lots may have on the cost of maintaining the common property and/or market values of the Lots.
Interest Schedule Lot Entitlements must reflect the respective market values of the Lots except to the extent to which it is just and equitable in the circumstances for the individual lot entitlements to not reflect those values.
These amendments are particularly relevant in two respects:
- The amendment to the BCCMA requires that the Community Management Statement (CMS) which details the Contribution Schedule Lot Entitlements and the Interest Schedule Lot Entitlements is attached to the Disclosure Statement which must be given to buyers prior to entering into the contract. The legislation gives buyers the right to terminate the contract if the contract has not already settled and the buyer would be materially prejudiced if compelled to complete the contract given the extent to which the CMS disclosed is different from the CMS which is recorded with respect to the Community Title Scheme.
- There have been a number of instances where the owners of units or Lots in unit developments have applied for adjustment of Contribution Schedule Lot Entitlements as the Contribution Schedule Lot Entitlements were equal but the size, location and services provided to units were not considered to be equal.
The new legislation sets a process where, when an adjustment action including an application for adjustment of Contribution Schedule Lot Entitlements took place prior to the commencement of BCCMA, an owner or body corporate can seek to revert the Contribution Schedule Lot Entitlement to the original Contribution Schedule Lot Entitlements. The amendments to BCCMA enable a Lot owner to submit a motion to be considered at a General Meeting of a body corporate proposing to revert to the Contribution Schedule Lot Entitlements to their original settings prior to any adjustment order which may have been made.
Application to revert back to pre adjustment contribution schedule lot entitlements is only available for 3 years.
It is for these reasons that the CMS and, in particular, the Contribution Schedule Lot Entitlements and Interest Schedule Lot Entitlements be investigated and that buyers of Lots in community titles schemes fully appreciate the effect these entitlements will have on the financial obligations of being the owner of a Lot in a Community Title Scheme (typically units in multi storey residential developments) and whether it is likely the Contribution Schedule Lot Entitlements will change.