THE OFFICIAL MAGAZINE OF UNIT OWNERS ASSOCIATION QLD EDITION DECEMBER 2020
Merry Christmas FROM THE TEAM AT UNIT OWNERS ASSOCIATION QLD
FOR THE LATEST UPDATES
facebook.com/UOAQ.Inc
BECOME A MEMBER TODAY
click to join
FOR MORE ABOUT UOAQ
uoaq.org.au
We need
What is
Taxation
READ MORE
READ MORE
READ MORE
onsite security
a Sinking Fund?
and banking
Shandit Pty Ltd are proudly corporate authorised representatives of Insurance Advisernet Australia Pty Ltd. Authorised representative number 424246
“Would our Committee have been able to achieve what we have over the past 12 months and cope with the work required to get us through? Were it not for the personal interest and dedication of UOAQ then the short answer to that question is ‌ absolutely not!I strongly urge all Queensland unit owners to ensure that their Body Corporate Committee subscribes to an annual membership with the UOAQ - an organisation with a strong voice supporting of all owners in Queensland. Garry Deighton - Chairperson Ocotillo CTS 32327
Shandit Pty Ltd are proudly corporate authorised representatives of Insurance Shandit Pty LtdAustralia are proudly corporate Advisernet Pty Ltd. authorisedrepresentative representatives of Insurance Authorised number 424246
Advisernet Australia Pty Ltd. Authorised representative number 424246
2
UNIT NEWS DECEMBER 2020
Shandit Pty Ltd are proudly corporate authorised representatives of Insurance Advisernet Australia Pty Ltd. Authorised representative number 424246
BECOME A MEMBER TODAY BECOME A MEMBER TODAY uoaq.org.au
ABOUT US Brisbane
(07) 3220 0959 or uoaq.org.au and request to communicate to a particular person. Bob Boundy and Bradley von Xanten.
Advertisers
We appreciate the support of our sponsors to help us do the work we do. To advertise in Unit News, please contact Jana Koutova on (07) 3220 0959 or editor@uoaq.org.au
Gold Coast
Wayne Stevens Mike Murray Greg Melloy Roger Dearing
Help for Members
Members of the UOAQ are welcome to contact committee members of the association for any help on any body corporate matter.
Editor
Jana Koutova - editor@uoaq.org.au
Published by Unit Owners Association Qld 6th Floor. 333 Adelaide St, Brisbane QLD 4000 help@uoaq.org.au (07) 3220 0959
Disclaimer Articles contributed to this newsletter are published as a service to members and do not necessarily reflect the opinion or policy of this Association. To contact the committee of the UOAQ for assistance with a body corporate matter please email help@uoaq.org.au
THE LATEST NEWS facebook.com/uoaq.inc
FROM THE EDITOR
W
e have reached the end of one of the most difficult and unusual years in recent memory. For the remainder of 2020, the UOAQ would like to take this opportunity to wish you and your families a very Merry Christmas and a Happy New Year.
THE OFFICIAL MAGAZINE OF UNIT OWNERS ASSOCIATION QLD EDITION DECEMBER 2020
Merry Christmas FROM THE TEAM AT UNIT OWNERS ASSOCIATION QLD
FOR THE LATEST UPDATES
facebook.com/UOAQ.Inc
Many thanks to all our supporters and members for making UOAQ’s contribution possible. We would not be able to do it without you.
Jana Koutova editor@uoaq.org.au
We fully expect to meet the challenges of 2021 in the same way we surpassed those of 2020. The UOAQ looks forward to assisting and supporting unit owners in the next year and the years to come. Have a safe holiday season and enjoy reading!
"Many thanks to all our supporters and members for making UOAQ’s contribution possible. We would not be able to do it without you. "
Jana Koutova - Editor
BECOME A MEMBER TODAY
click to join
FOR MORE ABOUT UOAQ
Unit News Editor
uoaq.org.au
We need
What is
Taxation
READ MORE
READ MORE
READ MORE
onsite security
a Sinking Fund?
and banking
CONTENTS 4
We need onsite security
9
Taxation and Banking
12
Flood Insurance – A cause for
14
Instructing a lawyer
8
What is a sinking fund?
10
Focus on better budgeting
disagreement in strata buildings
uoaq.org.au facebook.com/uoaq.inc twitter.com/UnitOwnersQld
DECEMBER 2020 UNIT NEWS
3
We need onsite security The title is a phrase that committees will have heard uttered by their manager/caretaker. Often it is the result of multiple security incidents that your manager has advised you off, rowdy tenants, vandalism, bad behaviour, tenants outside of the letting pool not managed and outside of the control of the caretaker.
I
n order to keep the peace, that the body corporate is not held liable, to reduce vandalism etc. you need onsite security and the establishment of a security patrol contractor’s agreement (SPCA). This agreement will be set up between the body corporate and the manger for the manager to provide security services for the scheme. Often your scheme has an onsite manager or resident working manager in place.
4
UNIT NEWS DECEMBER 2020
The lengthy discussions on the need, on how many hours and on how many security guards on what days of the week ensues, followed by negotiating the cost. The body corporate then signs the agreement for a set period, normally at least five years, with the possibility to extend for a further 5 years, sometimes up to 25 years, with the caretaker, who will then look after the security for the complex.
BECOME A MEMBER TODAY uoaq.org.au
Security agreements – the devil is in the details (or lack thereof)
In order for committees to understand what is involved and what are the consequences entering into such an agreement, let us focus on the agreements for two schemes. Both complexes have as part of their caretaking agreement the requirement of an onsite manager. Complex 1 had the following listed under Security Services of their SPCA:
THE LATEST NEWS facebook.com/uoaq.inc
Complex 2 had the following
DECEMBER 2020 UNIT NEWS
5
Agreement 1 was for a scheme of 91 units all investors no owner occupier with an annual charge to the body corporate of $105,000. Agreement 2 was for 132 units all investors no owner occupier with and annual cost of $215,000. Agreement 1 had no mention of times or hours, Agreement 2 had some mention of time and hours:
How the UOAQ can help - Detailed analysis of the agreement reveals the shortcomings
Complex 1 contacted the UOAQ several years ago and took advantage of a financial analysis of its body corporate expenses. Complex 2 is aware of the UOAQ but sees no benefit in becoming a building member. The UOAQ identified the SCPA as a serious issue to be addressed for complex 1. A careful analysis of both agreements shows that they are very bland agreements, neither are detailed or specific, most if not all the services that are to be provided are caretaking functions. In agreement 2, all duties except for the random patrols are already part of the caretaking duties. You will note in agreement 2, more words are spent on rubbish collection than on security. Locking up gym, pool etc also are caretaking duties. Both agreements are not specific in the amount of time that onsite security needs to be present, whilst agreement 2 seems to make mention of time it is undone by the statement: are to be provided up to 120 hours per week. Agreement 1 had no mention of times, therefore it was up to the caretaker to determine how often if at all he/she was going to have onsite security. The services in agreement 2 are easily covered by employing a resident working manager or a night manager with a security license. Having joined the UOAQ and with our organisation drawing attention to the shortcomings in their security agreement complex 1 started to scrutinise the process. They received several pages of the log as part of an incident and quickly calculated that security was only provided for a few hours from Thu – Sun, which was against their expectation of having a uniformed guard on site from 8pm – 6 am during weekdays and two guards on weekends. Where did they get this expectation from? Well it was during the many hours of discussions with the caretaker to work out how much security was required.
"Nevertheless, there is a clear message to all body corporates: do your own research, do not trust at face value what you are being told by a party that has a vested interest. As they say, buyer beware, and like complex 1, do it right and you can save yourself $100,000 per annum." 6
UNIT NEWS DECEMBER 2020
The committee of complex 1 requested to see the security log books (to ascertain how often guards where at the complex). This request was refused by the caretaker with the comment that they (the body corporate) were not entitled to seeing the logbooks. A closer look at their security agreement confirmed that the caretaker was correct in their statement, and that the body corporate had no rights with regards to security as it had engaged in a contract with the caretaker to provide security and it was up to the caretaker how they did this. The same was found to be for agreement 2,where, should the body corporate ever question security it has no rights as per the agreement, but both complexes are obliged to pay the caretaker the extra cost for security $105,000 pa for complex 1 and $215,000 for complex 2 with annual CPI increase.
Security contracts increases managers income
Several years ago, the management rights for complex 1 was for sale and the add read: ‘… The body corporate salary of $170,000 plus additional $100,000 for security is magnificent.’
BECOME A MEMBER TODAY uoaq.org.au
It became evident to the committee of complex 1 that the security agreement was nothing more than another way for the caretaker to increase their income. That it had very little to do with security but everything to do with the caretaker increasing their income and therefore also increasing the sales price of the management rights. Once aware, the committee started to look at alternative options. They realised that they would not be able to cancel the agreement, so the best option was for it to run its course until expiry in three years and not to renew it. The committee was also aware that once the caretaker got wind that the contract would not be renewed, they would be bombarded with a propaganda campaign by the caretaker, insisting why the complex needed onsite security. The committee was correct in its assessment. It had prepared itself appropriately so when the campaign started, they were able to prove that there was no requirement for permanent onsite security, that the existing measures in place were already adequate with some tweaking such as the installation of a CCTV system. The deficiencies in the existing contract, such as the inability to check the logs, the large expense with no oversight were contributing factors in their reasoning that that onsite security was not a requirement and that the onsite manager had themselves an obligation with regards to security. Even though the onsite manager engaged their solicitor, the committee remained steadfast in its approach, having sufficient owner support - by remaining in touch with owners and appraising them of the process - and allowed the security contract to expire.
Committee doing its own research saves money and delivers results
Six months after expiry and having done their own research, the committee engaged their own security contractor to provide three nightly visits/foot patrols and assist with the CCTV at a cost of $370 per month. A saving of $100,000. This system has been in place now for numerous years, the committee has greater oversight of what occurs at the complex, the security firm reports
THE LATEST NEWS facebook.com/uoaq.inc
directly to the committee and is employed by the body corporate. Through the security firm the committee has been made aware of additional inadequacies by its service contractors that they were previously unaware of. Complex 2 still has their onsite security in place @$215,000. The committee/body corporate have no control over it. At the 2018 AGM they decided to agree to a further 5 year term, except their agreement is in line with the caretaking agreement which was also extended for a further 5 years and is not due to expire until July 2043.
The risk of long- term binding contracts when faced with an unplanned event
Complex 2 has bigger problems now too because of COVID. As mentioned, both complexes are 100% investors. The tenancy in complex 2 since March 2020 has dropped from approx. 90% occupancy to 47%. And in January 2021 there is likely to be a further drop as they are heavily reliant on overseas arrivals and it is likely occupancy will drop to 25%. Many owners are now having difficulty paying their body corporate levies. The caretaker salary of $250,000 plus $215,000 for security are close to 50% of the body corporate levies. If only complex 2 could extract itself from its security agreement and duplicate what complex 1 has done, owners would save about 20% on their levies. Alas it is not possible because the committee there has supported a further extension in 2018 for an additional five years to expiry in 2043. How many owners by that time would have had to sell their investment at a loss because of their inability to pay their levies? Already there has been an increase in owners requesting reinstatement of the discount on levies. Units that sold two years ago for $250,000 can be now purchased for $200,000. So next time your onsite manager says we need onsite security, make sure you as a committee do your due diligence. If you do decide you need increased security, make sure you the body corporate have control and that there is no involvement from the caretaker. There is no need for a middleman.
Do your research, complex 1 did and discovered that many similar complexes did not have onsite security, they had an onsite manager, they had security locks, they had gates and fences, some had CCTV and some had a security firm providing regular patrols at night at irregular intervals, but none had full onsite security.
What to do when your managers says: “you need additional security in place”
Recently we have been made aware of another complex, in this case the caretaker wants to place a gate to block of the entrance to the resort. As he says “vagrants/criminals are driving onto the complex and tenants from off-site real estate agents are troublemakers”. This resort is out of the way, it is not inner city, it has a very large beach front (you can actually walk onto the complex from the beach front and use the pool – especially on the weekend as the caretaker does not reside on site and is absent during the weekend. The busiest two days for a tourist resort. You can also jump the wooden fence, but somehow, according to the caretaker, it needs a car access gate. No mention who is going to open it when its faulty, or how guests on the weekend can access the complex when there is no one onsite or arrivals looking for a place to stay. Nevertheless, the manager is adamant he needs a gate. We can only speculate about the reasons. Nevertheless, there is a clear message to all body corporates: do your own research, do not trust at face value what you are being told by a party that has a vested interest. As they say, buyer beware, and like complex 1, do it right and you can save yourself $100,000 per annum. Do it wrong and you are stuck with a contract for 25 years costing you $250,000 per year to pick up rubbish, put the bins out and open and lock up a few facilities.
DECEMBER 2020 UNIT NEWS
7
What is a Sinking Fund?
the body corporate can utilise the report for up to 5 years prior to updating the report.
A
It is very important to keep clear records of works undertaken to the property in between the preparation of Sinking Fund Forecasts. If the end of year sinking fund balance is 10-20% out compared to the projected balance in your sinking fund forecast, you should get the schedule re-done. This will pick up any unexpected works which weren’t forecasted for or any works which were forecasted for which haven’t yet been completed. In this instance Lot Owners are either paying too much in Sinking Fund levies or too little.
How are Sinking Fund monies raised?
What costs are raised for and met by monies within the Sinking Fund?
By Zac Gleeson. Director GQS – Gleeson Quantity Surveyors
s per the Body Corporate and Community Management Act 1997 (The Act), a Sinking Fund is monies which are raised to allow for necessary and reasonable spending by the Body Corporate to maintain and replace capital items.
These monies are typically raised through Owner levy contributions (Sinking Fund levies), interest received from monies within the fund, interest received from the Fund’s investments (for example - term deposits) and monies received from insurance (for capital works required which are covered by insurance).
When is a body corporate committee required to provide a budget or forecast for the Sinking Fund and who prepares the forecast?
As per The Act, allowances must be made for the current financial year, and also to reserve an amount to meet likely spending for at least the next nine years into the future. This forecast can be prepared by an independent, professional Quantity Surveying firm (such as GQS) or by the Committee / Lot Owners themselves. Preparing a Sinking Fund Forecast requires extensive experience and knowledge in property and the costing of works required to property throughout its life cycle. Many capital replacements and repairs can be forecasted for with a high level of accuracy through knowing the average life span of particular items, knowing the average cost of these works now and being able to forecast for suspected cost movements during the budgeting period. Most independent reputable Quantity Surveying firms provide a 15 year forecast which is in excess of the regulations so that 8
UNIT NEWS DECEMBER 2020
In accordance with The Act, Sinking Fund monies are used for: • Likely spending of a capital or non-recurrent nature; • Replacement of major capital items; and, • Other costs that should reasonably be met from capital. The largest typical expenses a Body Corporate’s Sinking Fund will be required to pay for is to re-paint the previously painted external surfaces and common area internal surfaces, as well as any major works required to passenger lifts. Painting and lifts are the two most common causes for the need to raise Special Sinking Fund Levies.
What are Special Sinking Fund Levies?
If it is deemed that there is not enough funds within the Sinking Fund to carry out necessary works, Lot Owners must agree to and raise what is called Special Sinking Fund Levies (or special contributions). Special Sinking Find Levies are raised in addition to regular Sinking Fund Levies so that adequate funds are available to carry out the required works. The requirement to raise Special Sinking Fund Levies typically only occurs when the Sinking Fund Forecast, or budget, has been underprepared or not prepared by a suitably qualified and experienced Quantity Surveying professional or monies out of
the Sinking Fund have been previously used for improvements or unnecessary spending.
Final Remarks
The correct administration and planning of a Sinking Fund can make or break the financial viability of your investment in stratatitled property. It is important to consider the engagement of a suitably qualified and experienced Quantity Surveyor who can help you plan for upcoming major expenses, without the need for raising Special Sinking Fund Levies. At GQS in 2019 we consulted to 490 bodies corporate, from new developments to properties decades old, rely on our experience to ensure your Sinking Fund is ready for upcoming expenses.
Article supplied by Gleeson Quantity Surveyors Website gqs.com.au Phone 1300 290 235 BECOME A MEMBER TODAY uoaq.org.au
Taxation and banking
for dealing with all matters related to state and federal government departments.
By Ross Utting, Tracsafe
T
his is the eighth and last article in a series about simple schemes. Most simple schemes can be characterised as being either a low height apartment complex or a collection of independent dwellings. Complexity increases with the number of lots and the variety and extent of infrastructure on the common property. There is no strict cutoff to our definition of simple.
Bank interest and bank fees.
I recommend selecting a bank account that pays no bank interest. Usually, these bank accounts also have little or no bank fees. One benefit for self-managed committees is that there are less transactions to enter into your financial accounting system so less work. The real reason for the recommendation is so that the body corporate may not need to lodge a tax return. The Australian taxation office has finalised their ruling on how to assess taxation for bodies corporate. You can read the ruling by googling ‘Taxation Ruling TR 2015/3’. Below is an extract from that ruling that
may be applicable for many simple schemes –
Generally, where the only income derived by a strata title body is mutual in nature, that is, consists solely of proprietors’ levies or contributions, there is no assessable income, so the strata title body is not required to lodge a return. In cases where income is derived from non-mutual sources, that is, interest and dividends from invested funds, fees from nonproprietors for access to books etcetera; a return is usually required to be furnished.
When to start earning income.
If a scheme has large amounts of funds and the interest rate is sufficient, there is a time when it becomes appropriate to invest a proportion of the funds in an interest bearing account. Suppose an accountant will charge $250 for a tax return to be prepared and the body corporate has funds of $10,000 that could be invested to return 3%. In this case, the interest earned is $300 which is offset by the $250 charged by the accountant – net income is
THE LATEST NEWS facebook.com/uoaq.inc
$50. The tax office will want 30% (company tax rate) – leaving the body corporate with $35 to show for the effort. The tax office has made it easier for committees that are comfortable preparing their own tax return. There is now a two page simplified strata title body corporate tax return that can be downloaded from the tax office web site. If you do not intend to prepare the tax return yourself, by law, only a qualified accountant may do so. A body corporate manager may not do that task ... although they may charge for preparing information for consideration by an accountant.
Record inspections and information certificate monies.
The BCCM regulations prescribe amounts that must be paid to the body corporate when a record inspection is undertaken or when an information certificate is requested. If you take these monies and bank them into the scheme’s bank account, you will now be obliged to complete a tax return because this is income derived from a nonmutual source. If you do not want this encumbrance, one
option is to simply rip up the cheque and provide the service free of charge. Another option, with committee consent, would be to request that the cheque be made out to the secretary/ treasurer who is providing the service. It is small recompense for your unpaid volunteering. A small note of caution would be that you could be held personally accountable for the service you have provided.
ABN and TFN.
I often assist developers to establish bodies corporate. For simple schemes, I do not register the body corporate for an ABN and TFN. If there comes a time when registration is needed, it is done at that time. It can be very difficult to deal with the taxation office. The usual reason to talk with them is to establish yourself as the public officer for the body corporate. Only the public officer can sign the completed tax return. To become the public officer, pass a committee or general motion -
That the secretary, (Rex Tillerson) be the authorised contact person and additionally hold the position of public officer
If you are using a tax agent to submit your tax return, they will be able to modify the record in the taxation system and record the current public officer. They should ask to sight the minutes where the appointment was made.If you are dealing with the taxation office directly, you will need to submit a form NAT2943 to get the change of public officer details recorded. Often, committees have no idea of who is authorised to deal with the tax office or if they do then they are possibly no longer owners in the scheme. You will need to enclose certified minutes where the public officer motion was passed and additionally attach the seal of the body corporate.
GST.
The financial turnover threshold for mandatory reporting of GST ($150,000) is very high compared to the mutual income received by a simple scheme.
In simple schemes, the majority of expenses will have GST credits attached since most payments are to contractors (and not employees) and most contractors would be exceeding the GST reporting criteria ($75,000). So over time, the impact for a body corporate that is in the GST system should be neutral since GST credits should closely match GST supplies. However, the majority of lot owners are often individuals who cannot benefit from GST credits should the body corporate enter the GST system. Additionally, the increased administrative expense of GST reporting is not desirable. Lastly, the lumpy nature of sinking fund expenditure means that the body corporate will pay GST to the tax office nearly every year and then every year of major expenditure will most likely get a GST tax rebate. When taking all these considerations together, a simple scheme is best placed to stay out of the GST system.
Article supplied by Tracsafe Ross is a body corporate manager and director of Tracsafe, offering services from DYI to full management. He also volunteers with UOAQ. Website www.tracsafe.com.au Email contact@tracsafe.com.au Phone 07 31143198 DECEMBER 2020 UNIT NEWS
9
Focus on Better Budgeting By The Thinker
A
recent case study at a Gold Coast Strata Title Complex produced savings for 2020 of almost $ 50,000, with levy reductions of around 20% over an 8 month period. A resident manager and a committee Treasurer produced a budget at the start of the year which included some of these savings and others became apparent as the year progressed. Then the Body Corporate Committee dodged a bullet by not accepting a major quote for a maintenance project which proved to be greatly over-stated. So why is it important to continue monitoring spending against budget? There are many reasons, all related to good management. Confidence in knowing exactly what went according to plan, what did not do so and why things turned out differently is the essence of good managing and savings delivery for owners, via better budgets and monitoring of financial performance.
This is the first of a series of articles about Better Budgeting to highlight its importance for apartment owners, across the Gold Coast. Perhaps this can be a wake up call to owners who face the challenge of balancing unpaid volunteer efforts with the paid services provided by strata plan managers. Unfortunately, many bodies corporate pay little attention to accurate measurement of Work in Progress that is not fully billed or reported. Why is that important? It is important because the apparent Under Budget Saving at the end of a given period of months can be reduced or wiped out, by sudden unbudgeted bursts of spending. Furthermore, understanding how expenses can be better controlled is critical to the creation of future budgets with maximum levy reductions. Can we trust financial 10
UNIT NEWS DECEMBER 2020
reporting? It may be accurate as far as it goes, but it often does not go far enough. In the above case study, we mentioned large savings by a body corporate committee. Their ambition continued in their current year Admin Fund Budget designed to lock in the savings previously secured and some others planned. Beating the budget became the challenge for the committee ... please read on. This chart is supposed to show progress against Budget in the 8 months to end October. The problem with this chart is that it may be wrong. Previously we pointed out that all bills for the period may not have been paid. Not only actual bills, but also unfinished unbilled work ... namely work in progress. Everything depends on the quality of the accounting system and the capacity of Resident Managers to track progress of all site activities. Knowing the cost of unfinished work in progress can have a major effect on the green savings column in the chart. In a large complex work in progress could even wipe out “reported� but fictitious savings, or significantly reduce the savings as seen in a chart like the above. Everything depends on the willingness of the complex to obtain accurate reports and the willingness of the
reporting to engage in solving this problem. Quality of accounting is everything and without appropriate quality committees can be flying blind in knowing where they stand in producing savings for owners. In our next issue we will discuss the varying quality of accounting software in the body corporate services industry, including the varying willingness of software providers to support owners and committees with reporting improvements, via system changes. We will also be suggesting a major savings opportunity in your systems and reporting. How happy are you with your reporting systems? All owners receive financial statements, and we welcome contact from owners and their committee members who are keen to analyse their Body Corporate results so as to produce savings opportunities. Focus Body Corporate Advisory wishes to help all unit owners understand where their budgets need analysis and improvement ... potentially leading to major savings. We are keen to work with individual owners and with committee members who are seeking better budgets and bigger savings. Options include (1) a No Savings No Fee agreement (2) a one-off fee for new budget design support (3) a Monthly or Quarterly Fee for help to monitor actual v budget performance. BECOME A MEMBER TODAY uoaq.org.au
Article supplied by Focus Body Corporate Advisory
Focus Body Corporate Advisory Pty Ltd. Call Amanda or Alan on or an initial free discussion of your reporting software.
Website focusbca.com.au Email info@focusbca.com.au Phone 1300 038 219 THE LATEST NEWS facebook.com/uoaq.inc
DECEMBER 2020 UNIT NEWS
11
Flood Insurance – A cause for disagreement in strata buildings By Tyrone Shandiman, Strata Insurance Solutions
Take the example of a three-storey building whereby only the ground floor has an exposure to flood and the second and third floors do not. An insurance motion at a general meeting for flood cover with a higher premium may have lower prospects of success over a motion without flood cover for a lower premium, because a majority of owners (i.e. the second and third floors) don’t believe they need flood cover. This can leave the ground floor exposed to a major uninsured loss. Lot owners are responsible for damage inside their lot and notwithstanding, the body corporate is responsible for damage of a structural nature and utility services that do not service one lot. Based on Queensland legislation, lot owners in strata buildings with common walls do not have the option to insure property defined as “building” under the BCCM Act outside of an insurance policy arranged by the body corporate. This is because of the basic principal that insurers will not insure part of a building. A common question we get asked is - What can ground floor owners that want flood cover do to protect their investment? A dispute in relation to whether a body corporate should have flood cover has been before the Body Corporate Commissioner - Winnipeg Grange [2013] and may provide some guidance. In this case two owners in a duplex could not reach an agreement on whether to insure for flood cover. The issues considered by the commissioner was whether not taking out flood insurance was: a. Contrary to the legislative requirements; or b. Unreasonable We will explore both of these items in more detail.
Legislative Requirements
Applicable strata regulation states that damage, for coverage under strata insurance should include “...earthquake, explosion, fire, lightning, storm, tempest and water damage...” While flood cover is not specifically mentioned in the definition of damage, in Winnipeg Grange [2013], the commissioner stated that they “were satisfied “water damage” covers damage from water in different ways and includes flooding.
T
he need for flood cover in multi-storey strata buildings can be a source of dispute within strata communities. Generally, the definition of flood in an insurance policy is the covering of normally dry land with water released or that has escaped from the normal confines of any watercourse, river, lake, creek, reservoir, canal or dam. Australia is currently in a La Nina weather pattern and this brings a higher risk of flooding. Ground floor apartments have a much higher exposure to flood damage and therefore have a greater need for flood cover than apartments in upper levels. 12
UNIT NEWS DECEMBER 2020
Applicable strata legislation also has a provision that “the body corporate may put in place ... additional insurance ... it is required to put in place under the regulation module ...” which allows the body corporate some flexibility in obtaining more than the minimum level of insurance necessary for its particular requirements. For the reasons above the commissioners view was “The legislation requires the body corporate to have sufficient insurance to rectify any damage to the relevant areas to the condition that they were in when new. On the material presented by the parties I do not consider that there is sufficient BECOME A MEMBER TODAY uoaq.org.au
insurance in place to achieve these results in the circumstances of a future flood event.”
-
Raise your concerns with the body corporate – this might include discussing concerns with the committee and owners and submitting motions for flood insurance at general meetings. Irrespective of whether upper floors have a flood exposure, there is a commercial argument that not having flood insurance may devalue units and furthermore, the body corporate is responsible for damage of a structural nature and for utility services not servicing one lot. There may also be issues with access to building and/or common facilities (lifts, basements, garage doors etc) and this may have some effect on owners of upper floor units and can be a cause for loss of rent or accommodation expense;
-
Get more ground floor units owners elected on the committee – if a majority of committee members are ground floor owners with a desire to insure flood cover, being on the committee allows for a higher level of influence over the insurance policy that is taken out. This may become more relevant as the new regulations recently released takes effect, which allows the committee to affect an insurance proposal above relevant spending limits;
-
Lodge a dispute in the commissioner’s office – An owner can lodge a dispute in with the commissioner and in the case of Winnipeg Grange [2013], the owner was successful in obtaining orders in favour of flood insurance;
Strata Insurance Solutions takes a contrary view to the commissioner’s position of requiring that all water damage events are covered, without the opportunity to exclude specific events. This is because there are other water events that no insurer covers such as actions by the sea & damage from faulty workmanship. It would in essence mean not a single strata policy in Australia could comply with legislation. But putting our own views aside on this one point, the commissioner has looked at a number of other considerations in totality and given the commissioner has made orders in this regard, these arguments are available to lot owners seeking to run arguments in favour of including flood cover on their policy.
Reasonable Considerations
The BCCM Act requires the body corporate to “act reasonably in anything it does ... including making, or not making, a decision ...” This in essence means an owner may run an argument that it is not reasonable for the body corporate to not obtain flood insurance. What is “reasonable” is always subjective, but Strata Insurance Solutions believes there are considerations that may support an argument that not having flood insurance is not a reasonable act, including: -
Evidence of the buildings flood exposure such as flood mapping provided by council, hydrological advice or proximity to a body of water such as a watercourse, river, lake, creek, reservoir, canal or dam
-
Insuring without flood may devalue the units if buyers cannot secure a loan because the financier has a requirement for flood cover. Lower values on ground floor units would have a flow on effect to the upper level units.
-
If you were the owner of the entire building and knew there was a flood exposure, it would be a reasonable act to insure for flood cover;
-
Premium & excess may also be a factor that supports or weakens the argument of whether flood insurance is reasonable depending on the costs associated with flood cover.
Resolving Conflict The following options may be available to owners that have a desire to have flood insurance in their policy:
A question was posed to Strata Insurance Solutions about whether the ground floor apartments can offer to pay a higher portion of premium to ensure there is coverage. We would recommend seeking legal advice as to whether this contravenes regulation, for example, section 182 of Body Corporate and Community Management (Standard Module) Regulation 2008. We always suggest aggrieved lot owners first try to resolve any issue with the body corporate amicably and without it being a “dispute”. Sometimes, the outcome of a disagreement within a body corporate does not always depend on what the dispute it about, but how the lot owner goes about resolving the issue. If all else fails, and you believe the risk associated with not having flood insurance is unacceptable to you – although not desirable, there is always the option of selling your apartment and removing this exposure all together.
Article supplied by Strata Insurance Solutions Website www.stratainsurancesolutions.com.au Email info@stratainsurancesolutions.com.au Phone 1300 554 165
This information is of a general nature only and neither represents nor is intended to be personal advice on any particular matter. Shandit Pty Ltd T/as Strata Insurance Solutions strongly suggests that no person should act specifically on the basis of the information in this document, but should obtain appropriate professional advice based on their own personal circumstances and the specific coverage afforded under their policy wording. Shandit Pty Ltd T/As Strata Insurance Solutions is a Corporate Authorised Representative (No. 404246) of Insurance Advisernet Australia AFSL No 240549, ABN 15 003 886 687.
THE LATEST NEWS facebook.com/uoaq.inc
DECEMBER 2020 UNIT NEWS
13
Instructing a Lawyer
The Body Corporate and Community Management Act 1997 and the various regulation modules under the Act, contain a number of provisions relevant to what a body corporate needs to do to properly instruct a lawyer to act for the body corporate. This Tool Kit highlights the main issues which need to be considered by a body corporate wishing to instruct a lawyer.
Importance
lawyer’s fees;
(b) legal proceedings commenced by the lawyer may be held to have not been properly authorised; and (c) other action taken by the lawyer on behalf of the body corporate may not be effective. This Tool Kit will highlight the main issues which need to be considered by a body corporate wishing to instruct a lawyer. Where the issues differ between the various regulation modules, the differences will be highlighted.
The Body Corporate and Community Management Act 1997 (“Act”) and the various regulation modules under the Act contain a number of provisions relevant to what a body corporate needs to do to properly instruct a lawyer to act for the body corporate. If the lawyer is not properly instructed the consequences can include:
The issues
(a) the body corporate manager, committee member or owner purporting to instruct the lawyer on behalf of the body corporate may incur a personal liability for the
• Who should deal with the lawyer?
14
UNIT NEWS DECEMBER 2020
The issues which need to be considered are: • How should the decision be made? • Is the decision reasonable?
• What should the lawyer tell the body corporate?
• Should there be an agreement with the lawyer? • Payments on account of legal fees and disbursements. • Rights about legal bills.
How should the decision be made?
Unless the committee can legally make the decision to instruct the lawyer, that decision will need to be made by a general meeting. Restricted issues
Any decision the committee makes is legally a decision of the body corporate, provided the decision does not involve a “restricted issue”.2 For all bodies corporate (irrespective of the regulation module under which they operate)3 a restricted issue includes: (d) an issue reserved for decision by a general meeting; (e) a decision to start a proceeding, other than – (i) a proceeding to recover a
liquidated debt against the owner of a lot; (ii) a counterclaim, third party proceeding or other proceeding in relation to a proceeding to which the body corporate is already a party; (iii) a proceeding for certain offences under the Act; or (iv) a “prescribed proceeding”.
Prescribed proceedings
A “prescribed proceeding” includes: (a) a proceeding, including a proceeding for an adjudicator’s order, under chapter 6 of the Act; (b) a proceeding to enforce an adjudication order; and (c) an appeal against an adjudicator’s order.
Committee spending limit
Any decision of the committee involving the spending of money must not involve spending above the “relevant limit for committee spending”. That limit is:
(a) the limit last set by ordinary resolution of the body corporate; or (b) if no limit is set, an amount worked out by multiplying $200.00 by – (i) for a principal scheme in a layered arrangement – the number of layered lots for the scheme; or (ii) for other schemes – the number of lots included in the scheme. The limit has no application to a body corporate regulated under the Commercial Module. If proposed spending is above the limit it can only be undertaken by the committee if: • it is specifically authorised by ordinary resolution of the body corporate; • the owners of all lots have given written consent; • an adjudicator authorizes the spending in an emergency; • the spending is necessary to comply with certain orders specified in the Module4; or • in the case of the Small
Schemes Module only, the spending is for the payment of an account of a routine, administrative nature. The spending limit cannot be circumvented by breaking a single project into a series of proposals.
Major spending
Where the spending is “major spending”, additional restrictions apply, unless the body corporate is regulated by the Commercial Module.5 Major spending is spending above: (a) the limit last set by ordinary resolution of the body corporate; or (b) if no limit is set, an amount worked out by multiplying $1,100.00 by – (i) for a principal scheme in a layered arrangement – the number of layered lots for the scheme; or (ii) for other schemes – the number of lots included in the scheme. To undertake major spending 2 quotations are required for the general meeting approval, unless it is impractical to do so; in which event a single
BECOME A MEMBER TODAY uoaq.org.au
quotation will suffice. If a proposal to engage a lawyer does not involve a fixed fee, there may be an argument in the case of some legal work that the nature of the work, the background to the matter and the difficulty in obtaining a meaningful fee estimate makes it impractical to obtain 2 “quotations” within the meaning of the law.
Commencement of legal proceedings
A body corporate (irrespective of its regulating module) must not commence a legal proceeding (other than a “prescribed proceeding”) unless it is authorised by: (a) in the case of a two-lot scheme – a lot owner agreement; or (b) otherwise – special resolution of the body corporate.6 A “prescribed proceeding” is: (a) a proceeding to recover a liquidated debt (e.g. levy arrears) against the owner of a lot; (b) a counterclaim, third party proceeding or other proceeding in relation to a proceeding to which the body corporate is already a party;
(c) a proceeding for an offence under Chapter 3, Part 5, Division 4 of the Act; or (d) a proceeding, including a proceeding for an adjudicator’s order or an appeal against an adjudicator’s order, under Chapter 6 of the Act. It is important to note that an application to the Commissioner’s Office for an Adjudicator’s order is not caught by this restriction, nor is an appeal to QCAT from an order made by an Adjudicator. However, the commencement of a prescribed proceeding will still need to be authorised by a general meeting or committee resolution, depending on the applicable spending limit.
Is the decision reasonable?
Both the body corporate in general meeting and the committee are required by the Act to “act reasonably” in the performance of their functions.7 Therefore, when a decision is made to engage a lawyer consideration should be given to whether that is a reasonable thing for the body corporate to do under all the circumstances. If the
THE LATEST NEWS facebook.com/uoaq.inc
action is likely to impose an obligation on a lot owner to pay for the lawyer (e.g. if levy arrears are being recovered), then consideration should be given to alternatives that may resolve the problem (e.g. the levy arrears being paid). It is therefore likely that a “standing authority” in the minutes which automatically authorises the instruction of a lawyer to recover levy arrears may be unreasonable if other less expensive options are available in the circumstances.
What the lawyer should tell the body corporate
If the cost of the legal work is unlikely to exceed $1,500.00 (excluding disbursements and GST) then the lawyer is entitled to take instructions and proceed with the work without providing any estimate of the likely costs. If that amount is likely to be exceeded, the solicitor must furnish an estimate of the likely costs, as well as make disclosure to the body corporate of a range of information. This commonly takes the form of a letter accompanied by a consumer warning document provided by the Queensland Law Society.
Should there be an agreement with the lawyer?
Engagements of lawyers are usually evidenced by a “costs agreement” which complies with the Legal Profession Act 2007. A costs agreement is not essential and in the case of small matters lawyers often choose not to require a costs agreement. If the matter does not involve Court proceedings and the costs are likely to exceed $1,500.00 the lawyer may ask to enter into a short-form costs agreement. However, if the matter involves litigation the lawyer will usually require a comprehensive costs agreement which will be accompanied by very detailed disclosure of the likely legal fees and disbursements.
Payment on account of legal fees and disbursements
Most law firms require clients to pay an amount of money into their trust account as security for likely legal costs. That money remains the property of the body corporate until the law firm issues an invoice for the legal work undertaken. Despite that, payment of the money
There is a ‘fact sheet’ entitled “Your right to challenge legal costs”. A body corporate can obtain a copy of that sheet from the law firm or from the Queensland Law Society.
should be authorised by a resolution of the committee. Because the money being paid is not being “spent” it is unlikely to be caught by the spending or major spending limit restrictions. However, if the payment is accompanied by any form of pre-approval to transfer funds in satisfaction of legal costs when invoiced, then those spending limits would apply. That is, the spending limit restrictions would apply to any authority to the law firm to apply the funds towards payment of an invoice.
This article is a part of the Tool Kit for Instructing a Lawyer. The complete Tool Kit contains additional forms as follows: -
Form A sets out the wording of a motion for a committee resolution authorising the commencement of a prescribed proceeding
-
Form B is a similar motion for use where general meeting approval is required by special resolution.
-
(h) have the costs assessed; or
Form C - Check List to make sure the body corporate has considered everything it needs to consider when instructing a lawyer.
(i) apply to set aside the costs agreement.
You can obtain the full toolkit in print or electronically here.
Rights about legal bills
If a body corporate is unhappy about a law firm’s legal bill it may: (f) request an itemised bill (if the bill provided has not already been itemised); (g) contact the law firm and discuss the concerns;
Article supplied by Bugden Allen Lawyers
For more information visit bugdenallenlawyers.com.au DECEMBER 2020 UNIT NEWS
15