Cheetham and Ors v The Body Corporate, Units Plan 503 and Ors (Unit Titles)
[2019] ACAT 90
•8 October 2019
ACT CIVIL & ADMINISTRATIVE TRIBUNAL
CHEETHAM & ORS v THE BODY CORPORATE, UNITS PLAN 503 & ORS (Unit Titles) [2019] ACAT 90
UT 7/2018
Catchwords: UNIT TITLES – merit review – correct and preferable decision – purposes of a sinking fund – purpose of an amendment to a sinking fund plan – meaning of improvements/renewal/maintenance – obligation of an owners corporation to address risk to users – other orders reasonably necessary or convenient to resolve a dispute – composition of an executive committee – power of tribunal to order removal of executive member
Legislation cited: Residential Tenancies Act 1997 s 11B
Strata Schemes Management Act 1996 (NSW) ss 62, 65A
Unit Titles Management Act 2011 ss 15, 24, 81, 82, 83, 84, 85, 86, 88, 89; 90, 129, Division 5.2
Work Health and Safety Act 2011
Cases cited:Brudenall & Ors v Owners Corporation Unit Plan No. 202 [2016] ACAT 101
Clews v The Owners – Unit Plan No 3069 [2018] ACAT 82
Clews v The Owners – Unit Plan No 3069 [2019] ACAT 63Glenquarry Park Investments Pty Ltd v Hegyesi [2019] NSWSC 425
Leonard & Anor v Michie & Anor [2019] ACAT 14
Nash v The Owners – Units Plan 2413 & Ors [2018] ACAT 54
Tribunal:Senior Member E Ferguson
Date of Orders: 8 October 2019
Date of Reasons for Decision: 8 October 2019
AUSTRALIAN CAPITAL TERRITORY )
CIVIL & ADMINISTRATIVE TRIBUNAL ) UT 7/2018
BETWEEN:
JAN SCHOLBERG CHEETHAM
First Applicant
NANCY LEIGH CHEETHAM
Second Applicant
CHRIS OLSEN
Third Applicant
SHAREN BLANCHE MACK
Fourth Applicant
AND:
THE BODY CORPORATE, UNITS PLAN NO 503
First Respondent
CHRIS ERSKINE
Second Respondent
LUKE KERCHEVAL
Third Respondent
TRIBUNAL:Senior Member E Ferguson
DATE:8 October 2019
ORDER
The Tribunal orders that:
1.Pursuant to section 129(1)(f) of the Unit Titles (Management) Act 2011 (UTMA) the Sinking Fund Amendment passed by an ordinary resolution of the general meeting of Unit Plan 503 on 4 March 2019 be amended to read:
The sinking fund plan of Unit Plan 503 be amended pursuant to section 86 of the UTMA as follows:
1. The expected sinking fund expenditure until 30 June 2020 includes:
(a)Repainting exterior of the complex, at an estimated cost of $20,685.50;
(b)Replacement of the back fence, at an estimated cost of $1192
(c)Repair to broken bricks, cracks in concrete paths; addition of a balustrade outside the front entrance of the complex, at an estimated cost of $13,000;
(d)Electrical and asbestos reports in accordance with paragraphs 2 and 3, at an estimated total cost of $4,000.
2. The executive committee shall engage a qualified independent expert to assess and report upon the common electrical infrastructure at an estimated cost of $2,000, the report shall:
(a)Identify and assess risks; recommend actions reasonably necessary to mitigate any such risks;
(b)Pursuant to section 129(2) Identify any works which could reasonably be expected to be required to maintain the electrical infrastructure in good repair for the next 10 year plan period.
3. The executive committee shall engage a qualified independent expert to assess and report on any asbestos risk at an estimated cost of $2,000, the report shall:
(a)Identify and assess risks; recommend actions reasonably necessary to mitigate any such risks;
(b)Pursuant to section 129(2) Identify any works which could reasonably be expected to be required to maintain the electrical infrastructure in good repair for the next 10 year plan period.
4. The Executive Committee shall utilise existing funds in the sinking fund as far as possible.
5. The total sinking fund contributions be increased sufficient to cover anticipated expenditure to 30 June 2020 of $42, 900, including a 10% contingency, as well as provision for a reserve of $6,000.
6. The total sinking fund contribution levied for the 2019/2020 financial be $16,866.
It is noted that, depending in the recommendation in the electrical and asbestos reports, the owners corporation may need to consider either further amending the sinking fund, or establishing a special purposes fund, to undertake urgent remediation.
2.Pursuant to section 129 (2) of the UTMA, the executive committee shall as soon as possible engage a suitably qualified consultant to prepare a sinking fund report for the 10 year period commencing 1 July 2020 to inform approval of a new sinking fund plan pursuant to section 82 of the UTMA. The issues addressed by the report shall include, but not be limited to, the following:
(a)Anticipated expenditure based on age and condition of building and service infrastructure.
(b)Prioritisation of works – based on health and safety of occupants and visitors and protection from further deterioration.
(c)Particular regard shall be given to to plumbing; electricity; external balustrading.
3.The resolution of the general meeting on 8 February 2019 electing Luke Kercheval, Chris Erskine and Chris Olsen to the executive committee is upheld.
………………………………..
Senior Member E Ferguson
REASONS FOR DECISION
Introduction
1.This is a dispute between owners in an older style six unit residential complex in Downer, a suburb in the inner north of Canberra, which is undergoing rapid gentrification. The protagonists are all longstanding owners who rent out their units. The properties occupy the lower end of the rental market. The applicants between them own three units. Mr Erskine and his business partner Mr Kercheval, who is a builder, jointly own the other three units. Mr Erskine and Mr Kercheval want the owners to invest in an extensive program of renewal for the complex; the other owners support a much more limited program of maintenance.
2.Although the owners corporation was formally joined as a party to proceedings it did not prosecute a position. The protagonists to the dispute are the applicants on one side and the second and third respondents on the other. Accordingly in this decision I have referred to the second and third respondents either by name or collectively as the respondents.
3.Since buying their third unit in August 2017 Mr Erskine and Mr Kercheval have jointly held a bare majority (50.5%) of voting entitlements. Around this time they began advocating an ambitious program of renewal for the complex, to both address what they described as long neglected maintenance issues and to increase the rental and resale value of the units.[1] The other owners were sceptical and discussions throughout 2017 failed to result in a consensus.
[1] Mr Kercheval first raised it at the AGM on 27 July 2017
4.The current 10 year sinking fund plan was adopted by the owners in 2010 and covers anticipated expenditure on maintenance of the common property for the period from 1 July 2010 to 30 June 2020.
5.In early 2018 Mr Erskine circulated a proposed motion for the upcoming AGM to amend the plan to enable a list of proposed works to be undertaken as soon as possible (the first proposal). The works were to be funded by contributions to the sinking fund totalling $300,000 to be levied against owners over a period of three years commencing 1 July 2019.[2]
[2] Application filed 14 March 2018, Annexure C
6.The other owners agreed that some of the proposed works were warranted (the agreed works) but opposed the respondents’ proposal on the basis that most of the works (the disputed works) were either not needed; not within the purposes of a sinking fund prescribed by section 83(1); or the estimated cost of the works was either excessive and/or not supported by evidence. They also argued that the staging of contributions to fund the works over three years was unduly burdensome.
7.An amendment to a sinking fund plan can be enacted by an ordinary resolution. Therefore Mr Erskine and Mr Kercheval were in a position use their majority to ensure passage of the first proposal at the upcoming AGM on 5 March 2018. After some discussion of the proposal, but no decision, the AGM was adjourned to 3 April 2018.
8.On 14 March 2018 Mr and Mrs Cheetham applied to the tribunal to forestall the otherwise inevitable enactment of the respondents’ proposal when the AGM re-convened. The Cheethams’ application to the ACAT was tabled at the subsequent meeting and the owners decided to suspend further consideration of the matter pending the outcome of the ACAT proceedings. It is not necessary to recount the full history of these proceedings. It is sufficient to observe that:
(a)during 2018 the remaining unit owners joined the proceedings;
(b)on 12 February 2019 the tribunal adjourned proceedings and noted that a general meeting of the owners corporation on 4 March 2019 would consider a range of motions notified to all members by email;
(c)on or about 16 February 2019 Mr Erskine emailed a slightly amended sinking fund plan proposal to the owners (the revised proposal), which passed with a minor amendment as an ordinary resolution, with the respondents’ support, at the general meeting on 4 March 2019;
(d)during April 2019 the applicants filed an amended joint application, to which the respondents responded. Further submissions and evidence were filed; and
(e)the amended application was heard on 2 July 2019. At the hearing the owners corporation was represented by the strata manager Mr Bowditch; and all other parties represented themselves. After hearing evidence and submissions I reserved my decision.
The application
9.The applicants sought the following orders:
(a)An order under section 129(1)(f) of the Unit Titles (Management) Act 2011 (UTMA) to repeal or amend, based on a merit review, an ordinary resolution of the general meeting on 4 March 2019 approving the revised proposal put by Mr Erskine to amend the Sinking Fund Plan (the Sinking Fund Amendment)[3] to fund specified work to the common property (the proposed works).
[3] Dated 16 February 2019 which was sent to the owners by email
(b)An order under section 129(1)(f) of the UTMA to repeal or amend, based on a merit review, an ordinary resolution of the general meeting on 8 February 2019 electing Luke Kercheval, Chris Eskine and Chris Olsen to the executive committee.[4] The applicants sought an order to the effect that all the owners be appointed to the executive committee; or in the alternative that Mr Kercheval be excluded from the executive committee.[5]
[4] Applicants’ submissions filed 17 April 2019 page 3
[5] Transcript of proceedings 2 July 2019 page 5, lines 40-45. Mr Cheetham confirms the effect of the order sought.
(c)An order that:
To avoid real or perceived conflict of interest, The Tribunal is requested to direct that any work undertaken at [the complex] for the Body Corporate be undertaken by businesses or individuals that have no association with the respondents.[6]
[6] Applicants’ submissions filed 17 April 2019 page 20 at [20]
10.At the hearing the applicants did not press the third order.
Summary of decision
11.On considering the evidence and arguments before me I decided, pursuant to section 129(1)(f), to amend the current sinking fund plan resolution to enable works, which the parties agreed were necessary, to be undertaken and to address unresolved safety issues raised by the evidence. However, as this order did not resolve the underlying dispute between the owners about future maintenance I also ordered, pursuant to section 129(2), that the executive committee engage a suitably qualified consultant to prepare a 10 year sinking fund plan for the period commencing 1 July 2020.
12.I upheld the resolution of 8 February 2019 electing Mr Kercheval, Mr Erskine and Mr Olsen to the executive committee. I found that while both the resolution and the applicants’ alternative proposal to join all owners on the executive committee were legally correct options, the resolution was the preferable option. I further found that the applicants’ alternative proposal, that Mr Kercheval be removed from the executive commitee, was not available to me under the legislation.
Merits review under section 129(1)(f) — general approach
13.The ACAT may make an order pursuant to section 129(1)(f):
repealing or amending a resolution of a general meeting or executive committee based on a merits review of the resolution by the ACAT.
14.I followed the process for merits review under the UTMA established in previous decisions of the ACAT. Presidential Member Daniel, in Brudenall & Ors v Owners Corporation Unit Plan No. 202[7] at [20]-[24], explained the approach usually taken by the tribunal as follows:
[7] Brudenall & Ors v Owners Corporation Unit Plan No. 202 [2016] ACAT 101
The approach is often summarised as requiring the tribunal to stand in the shoes of the decision maker and make the correct or preferable decision. In this case, the decision-maker is the owners corporation and the Tribunal after conducting merits review is empowered to repeal or amend Motion 5.
There are a number of features of merits review which are worth noting.
First, the review is essentially de novo, that is, the tribunal is able to consider issues of both fact and law anew. The tribunal does not simply review the reasons for decision or the process followed by the original decision-maker. Secondly, the tribunal considers and determines the issues as at the date of the hearing, not as at the time of the original decision, and is usually able to have regard to the most up to date information.
The concept of the ‘correct or preferable decision’ is significant. The term recognises that in the exercise of a discretionary power there may be more than one possible decision which is correct at law, and the task for the decision-maker in such a case is to decide which of the available decisions is to be preferred.
When conducting merits review the tribunal is not obliged to choose either the position adopted by the applicant, or that of respondent. Instead, subject to ensuring that the requirements of natural justice are met in the hearing process, the tribunal is required to make the correct or preferable decision on the merits of the case. In some rare cases, this may involve the tribunal making a decision which was not advocated for by any party.
15.Senior Member Robinson observed in Clews v The Owners- Unit Plan No 3069[8] at [54]:
[8] Clews v The Owners- Unit Plan No 3069 [2018] ACAT 82, upheld on appeal [2019] ACAT 63
A ‘correct’ decision is a decision that it without legal error or other fundamental problems.
16.Senior Member Orr added, in Nash v The Owners – Units Plan 2413 & Ors at [59]:
As to preferable, developing the comments by Senior Member Robinson in Rampala v The Owners – Units Plan 1330 at [60], having regard to the framework of the Unit Titles Management Act the preferable decision is one that will ensure the efficient and effective management of the complex, protect and advance the interests of the owners corporation as a whole, and protect the interests of the individual unit holders.[9]
[9] Nash v The Owners – Units Plan 2413 & Ors [2018] ACAT 54
First order sought: The Sinking Fund Plan Amendment
17.The parties agree that the resolution passed at the general meeting on 4 March 2019, and recorded in the minutes as follows, had the effect of approving the respondents’ revised proposal dated 16 February 2019 to amend the Sinking Fund Plan (the current sinking fund plan) pursuant to section 86 of the UTMA, and set out at appendix 1 to this decision.
A Motion by Mr Erskine their proposal be accepted. Unit owners 1 & 6 opposed the proposal.[10]
[10] Minutes of the Adjourned General Meeting held 4 March 2019, applicant’s submissions filed 17 April 2019 at Annexure E
18.The motion passed as an ordinary resolution with Mr Erskine and Mr Kercheval’s support, with one amendment. The other owners present opposed the motion.
19.The resolution amended the current sinking fund plan to enable an extensive program of works to be carried out as soon as possible. It proposed that contributions to the fund be increased to $325,000, to be levied on the owners over a period of three years commencing on 1 July 2019.
20.The options available to me under section 129(f) were to:
(a)uphold the resolution;
(b)uphold the resolution in an amended form; or
(c)repeal the resolution.
Issues
21.The issues I needed to answer to review the resolution were:
(a)In relation to the agreed works:
(i) What works are agreed?
(ii) Is an amendment required to enable the agreed works?
(b)In relation to the disputed works:
(i) What are the purposes of a sinking fund?
(ii) What is the purpose of an amendment, and how is it different from a new plan?
(iii) What work is disputed;
(iv) In relation to each aspect of the disputed works:
(A)Does the proposed work fall within the purposes of an amendment to a sinking fund plan?; and if so
(B)Are the estimated cost of such works reasonable and/or supported by evidence?
(c)In conclusion:
(i) What is the correct and preferable decision in relation to amending the sinking fund plan?
(d)To the extent that an order under section 129(1)(f) does/did not fully resolve the substance of the dispute between the parties; I also considered
(i) Are there any other orders I could make under section 129(2) which are reasonably necessary or convenient to resolve a dispute?
1. What works are agreed?
22.The parties agreed that:
(a)The exterior of the building needed painting.[11] The respondents filed a quote for $28,732.00. The applicants obtained a separate quote for $20,685.50 which was not in evidence, but which was not disputed by the respondents at the hearing.[12] Neither quote included removal of asbestos eaves. I have allowed an estimate of $20,685.50 for this item.
(b)The back fence needed replacement – two quotes obtained by executive committee were in evidence one for $1,192;[13] and the other for $1,250.[14] I have allowed an estimate of $1,250 for this item.
(c)While there was general agreement that something needed to be done to the laundry, the scope of works and estimated costs were not agreed upon. The respondents did not produce a quote to support their allowance of $25,000 for this item[15] and discussion at the hearing suggested that an estimate of $15,000-20,000 may be more accurate, but no consensus was reached. Renovations to the laundry are not within the current plan and there is currently insufficient information to determine the scope and costs of works required. I am not satisfied that work is necessary before the expiration of the current plan and therefore the issue of the laundry can be more appropriately addressed either by the next plan, or by the owners through a special purposes fund.
(d)Item (a)(vii) of the resolution included the following proposed works :[16]
(i) Installation of a handrail on the back landing to promote safety because the placement of the stormwater sump reduced the effective width of the walk-way.
(ii) Installation of a balustrade at the front entrance of the building to improve safety at night.
(iii) Repairs to brickwork at the entrance to the building.
(iv) Repairs to cracks in footpaths.
(v) Repairs to broken kerb in carport area.
[11] Item (a)(x) of the proposal
[12] From Tuggeranong painting service, applicant’s submissions filed 17 April 2019 at Annexure S
[13] From WR Engineering, applicant’s submissions filed 17 April 2019 at Annexure O
[14] From Clear Line Fencing, applicant’s submissions filed 17 April 2019 at Annexure O
[15] Item (e) of the proposal
[16] Item(a)(vii) of the proposal
22.The applicants supported the proposed works in Item (a)(vii), with the exception of the installation of a new hand rail at the rear of the building. Mr Kercheval estimated the cost of all works at this item at $15,000 but did not produce a quote. He told the tribunal that the hand rail in dispute was only a small portion of the total cost, which he estimated to be $1,800-2,000.[17] In view of the general support for this item I have allowed an estimate of $13,000 to complete the works (excluding the handrail).
2. Is an amendment required to enable the agreed works?
[17] Transcript of proceedings 2 July 2019 page 84
23.An owners corporation may only make payments from its sinking fund if the payments are consistent with the sinking fund plan.[18] The agreed works are consistent with the current plan which includes an allowance for the following maintenance:
(a)repairing pathways around the complex;
(b)repainting of building exterior; and
(c)replacing deteriorated fencing.[19]
[18] UTMA section 88
[19] Under the heading “Notable Items”
24.The current plan estimated total expenditure on maintenance for the 10 year period at approximately $58,000. An additional contingency allowance of 10% was made for unforeseen expenses, and it was recommended that $6,000 be retained in reserve at the end of the 10 year period. As at 1 July 2018 the balance of the sinking fund was $32,014.[20]
[20] Respondents’ submissions filed 23 May 2019 page 54
25.The estimated cost of the agreed works, based on the evidence, is likely to be at least $35,000, which is $3,000 more than the amount currently held in the sinking fund. In my view it is advisable to maintain an additional buffer of $9,350 for contingencies and reserves in accordance the with the sinking fund plan.
26.At the time of the hearing an AGM had not been held for the year 2019-20, if that remains the case then it is open to the owners corporation[21] to determine a sinking fund contribution for this financial year from the owners in accordance with the current plan. The sinking fund contribution required for the agreed works plus buffer is $12,350, similar to the total contribution envisaged by the current plan for the final year of this plan ($10,859.30).
[21] UTMA sections 89(1); 90(1) & (2) prescribe notice requirements
27.I am satisfied on the evidence that the owners have over a number of years chosen to contribute less to the sinking fund, and spent less of its accumulated funds, than proposed in the plan. Accordingly, it seems likely that if a further amount of $35,000 is expended this financial year on the agreed works the total sinking fund expenditure over 10 years would still be well within the plan’s estimate.
28.I concluded that the agreed works could be achieved without an amendment to the current plan. I will now turn to whether an amendment was needed to enable other maintenance not agreed.
3. What are the purposes of the sinking fund?
The legislative framework — sinking funds
29.An owners corporation’s existence, functions and powers are determined by statute. A central obligation of an owners corporation is to maintain the common property, including utility services provided for the benefit of all owners, and manage the finances required to do so.[22] A sinking fund plays an important role in this scheme as its purpose is to cover anticipated expenditure on maintenance during a designated 10 year period.
[22] UTMA section 16(1)(b). Among the statutory functions of the owners corporation is the control, management and administration of the common property; section 24 requires the owners corporation to maintain the common property.
30.An owners corporation may establish three types of funds to meet costs of maintaining the common property: administrative and special purpose (which together form the general fund); and, in plans comprised of more than three units, a sinking fund.
31.Each fund serves a specific purpose and the process for making decisions in regard to each differs. Significantly in this case, approval and amendment of a sinking fund plan only requires an ordinary resolution, something which is within the voting power of the respondents to achieve.
32.As this unit plan is comprised of more than three units the owners corporation was required to establish and maintain a sinking fund[23] to cover expenditure on works that it “reasonably expects will be necessary to maintain in good condition the common property and any other property it holds.”[24]
[23] UTMA section 81
[24] UTMA section 83
33.Section 82, set out below, stipulates the procedure for establishing a sinking fund[25] and what it is required to contain:
[25] UTMA section 82(1)
(1) This section applies to an owners corporation for a units plan if the corporation is required to establish and maintain a sinking fund.
(2) The owners corporation must approve, by ordinary resolution, a plan for the sinking fund (a sinking fund plan) for the 10-year period beginning on the first day of the financial year following the approval.
Note A sinking fund plan of an existing owners corporation that was current immediately before the commencement of this division is taken to be a sinking fund plan under this Act (see s 157 (2)). The day the existing sinking fund plan is approved for this Act is the day the existing sinking fund plan was approved by the owners corporation for the Unit Titles Act 2001 (see s 157 (3) and (4)).
(3) The sinking fund plan must state—
(a)the expected sinking fund expenditure for at least the 10-year period of the plan; and
(b)for each financial year of the plan—the total contributions (the total sinking fund contribution) required from members of the owners corporation necessary to—
(i)meet the expected sinking fund expenditure for the financial year; and
(ii)reserve an appropriate amount necessary to be accumulated to meet expected sinking fund expenditure over at least the remaining years of the plan.
34.In turn section 83(1) defines expected sinking fund expenditure as follows:
For this division, expected sinking fund expenditure means expenditure for the following purposes that the owners corporation reasonably expects will be necessary to maintain in good condition the common property and any other property it holds:
(a) the painting or repainting of any building (or any part of a building) that forms part of the common property;
(b) the acquisition of new property or renewal or replacement of property that it holds;
(c) the renewal, replacement or repair of fixtures and fittings that are part of the common property;
(d) the renewal, replacement or repair of anything else on the common property;
(e) for a building containing class A units—any purpose mentioned in paragraph (b), (c) or (d) that relates to defined parts of the building;
(f) for a building on a class B unit—any maintenance mentioned in paragraph (b), (c) or (d) that is authorised by a special resolution under section 24 (1) (g);
4. What is the purpose of an amendment?
35.Although a sinking plan anticipates spending for the following 10 years the UTMA provides for periodic reviews at set intervals; and amendments as required. With regard to amendments section 86 provides that:
An owners corporation for a units plan may at any time, by ordinary resolution, amend its sinking fund plan to ensure that—
(a) the plan reflects expected sinking fund expenditure; and
(b) the total sinking fund contributions are sufficient to meet the expected sinking fund expenditure stated in the plan.
36.For each new 10 year plan the relevant period of anticipated expenditure is at least 10 years beginning on the first day of the financial year following approval of the plan.[26] A new plan must be approved not later than 12 months before the end of the 10 year period to which the existing plan relates.[27]
[26] UTMA section 82(3)(a)
[27] UTMA section 84(2)
37.In this case, as the current plan ends on 30 June 2020, therefore the owners corporation should have approved a new plan by 30 June 2019. However instead of seeking approval of a new plan for 2020 the respondents sought to amend the current sinking fund pursuant to section 86.
38.The meaning of section 86 is unambiguous – the purpose of an amendment is to adjust a current plan to cover revised estimated expenditure within the life of the current plan, in this case until 31 June 2020.
39.It follows that the respondents proposed amendments to the 2010 sinking fund plan can only be for the purpose of enabling works, which are currently necessary, or which can be reasonably expected to become necessary, before 31 June 2020. Such an interpretation is supported by the following example provided in the legislation:
Example
An owners corporation for a units plan approves a sinking fund plan that sets a total sinking fund contribution of $15 000 for each year of the plan. Three years after approving the plan, the owners corporation finds out that major work is required to water and sewerage pipes in the common property at an estimated cost of $60 000. The owners corporation, by ordinary resolution, amends the sinking fund plan to include the additional expected sinking fund expenditure and require additional contributions of $10 000 a year for the remaining years in the plan. The total sinking fund contribution for each financial year after the amendment is $25 000.
40.The legislation does not allow for a ‘rolling’ plan, which never ends but instead pursues, by a series of amendments, an ever-receding end point.
41.Although the motion put to the meeting on 4 March 2019 was framed as an amendment pursuant to section 86, it had elements of both an amendment and a longer-term plan. One stated purpose of the amendment was to enable works to commence as soon as possible, and it was proposed that additional contributions be levied starting 30 June 2019. However, the works proposed were so extensive that it could not have been intended that all would commence before the end of the current plan, and indeed the recommended schedule of contributions extended beyond the end of the current plan.
42.A new plan is now overdue for approval, I will therefore consider not just what the correct and preferable decision is regarding amendments to the current plan, but also whether any other orders might assist the resolution of the underlying dispute between the parties regarding ongoing maintenance beyond the term of the current plan.
Improvement or renewal?
43.The applicants submitted that much of the disputed works were ‘improvements,’ or even ‘alterations,’ and thus fell outside the purposes prescribed by section 83(1).
44.The respondents countered that the disputed works could be characterised as ‘renewal’ within the meaning of section 83 and submitted:
They [the applicants] have failed to address the fact that a building nearly 60 years old needs to have essential utilities renewed, and to renew the exterior of the building to meet the competition from newer and more attractive developments all around the area. The proposed work will, of course, make the building less prone to repairs and maintenance in the immediate future; but a major reason for the work lies in the pressing need to renew key aspects of a building that has not had any renewal work done on it in over half a century. (emphasis in original)[28]
[28] Respondent’s submissions filed 23 May 2019 at [102]
45.The respondents argued that the term ‘renewal’ in both 83(1)(c) and (d) connoted a broader purpose than simply repair: “…It is plain beyond argument that a sinking fund is for the purpose of not just repairing things that go wrong from time to time, but to renew things that are still working adequately.”[29]
[29] Respondent’s submissions filed 23 May 2019 at [39]
46.The respondents submitted that the ordinary meaning of renewal was:
Repairs leaving what is there largely intact, and just fixing a part of it that has gone wrong. Renewal, however, involves extensive replacement or upgrading of something (see Merriam Webster) to “make it new” or as Cambridge suggests, “to make it more successful”.[30]
[30] Respondent’s submissions filed 23 May 2019 at [46]
47.I agree with the respondents to the extent that the legislature must have intended ‘renewal’ to mean something other than just repair – otherwise it would add nothing to the section. I do not agree that its meaning is obvious. The first place to look for meaning is in the provision itself, read as a whole.
48.The specific purposes listed at section 83(1)(c) to (f) are subservient to the overriding purpose of the fund, which is to enable the owners corporation to “maintain in good condition the common property and any other property it holds.” The amount dedicated must be that which is “reasonably expected to be necessary to achieve that purpose.” It follows that, in the context of the section, renewal is only an approved purpose if it is reasonably necessary to ‘maintain’ the common property in good condition.
49.What are the limits of maintenance? The definition of maintenance in the UTMA, set out below, is reflected by section 83(1)
maintenance, of a building, a facility for a utility service or a utility conduit, means maintenance in good repair and working order, and includes—
(a) repair; and
(b) replacement; and
(c) renewal; and
(d) restoration.
50.Neither ‘renewal’ nor “replacement” are defined and the UTMA makes no mention of improvements.
51.The ordinary meaning of ‘maintain’ as it applies to a condition of a thing is, according to the Merriam-Webster online dictionary, “to keep in an existing state (as of repair, efficiency, or validity): preserve from failure or decline maintain machinery.”[31]
[31] Merriam-Webster Dictionary online
52.The meaning of ‘maintenance’ in the context of the UTMA has not been judicially considered.
53.However, the Supreme Court of NSW, on appeal from the NCAT, in Glenquarry Park Investments Pty Ltd v Hegyesi (Glenquarry),[32] recently considered whether proposed works to renew and replace fixtures or fittings comprised in the common property of a unit plan were maintenance, or instead amounted to improvements. In that case the question related to the interpretation of, sections 62, 65A of the NSW Strata Schemes Management Act 1996,[33] which have since been repealed.[34]
[32] [2019] NSWSC 425
[33] Repealed since the decision under review was made but replaced by similar provisions
[34] The Act was repealed by the Strata Schemes Management Act 2015 No 50
54.Section 62, like section 24 of the UTMA, imposed an obligation on an owners corporations to maintain and repair the common property. It provided that, unless the corporation by special resolution determined it unnecessary:
(1) An owners corporation must properly maintain and keep in a state of good and serviceable repair the common property and any personal property vested in the owners corporation.
(2) An owners corporation must renew or replace any fixtures or fittings comprised in the common property and any personal property vested in the owners corporation.[35]
[35] Section 62(3) Strata Schemes Management Act 1996
55.Unlike section 24, in section 62 the renewal and replacement of fixtures and fittings comprised in the common property is expressed as a separate obligation. However Parker J[36] followed the interpretation of Hodgson JA in Ridis[37] who concluded that:[38]
…it would be absurd to read s 62(2) as imposing on the owners’ corporation some sort of obligation constantly and perpetually to renew or replace fixtures and fittings forming part of the common property. The obligation in sub-section (2) must be read down by reference to the obligation in sub-section (1).
[36] Glenquarry Park Investments Pty Ltd v Hegyesi [2019] NSWSC 425 at [62]
[37] Ridis v Strata Plan 10308 [2005] NSWCA 246
[38] Glenquarry Park Investments Pty Ltd v Hegyesi [2019] NSWSC 425 at [62]
On this interpretation section 62 of the Strata Management Act 1996 was broadly equivalent in effect to section 24 of the UTMA.
56.Section 65A provided that “an owners corporation may, for the purposes of improving or enhancing the common property, add to or alter it; or erect structures upon it”, provided such action is authorised by a special resolution. Parker J described section 62 as looking back; and section 65A as looking forward. The UTMA has no equivalent provision to section 65A but at section 74 allows an owners corporation to:
by special resolution, to establish funds for particular purposes (a special purpose fund). The purposes for which a special purposes fund may be used may only be changed by special resolution of the owners corporation.
57.The factual background of the dispute in Glenquarry is similar to this case, albeit on a grander scale, and was succinctly summarised by Parker J as follows:[39]
9. For more than a decade, the majority owners have wished to have the property refurbished at a cost of several million dollars. This has been opposed by the minority owners. The minority owners acknowledge that some building work is desirable, but have opposed the majority owners’plan. They consider that the works proposed by the majority owners are too extensive (and expensive).
10. The litigation was triggered by a series of Strata Corporation resolutions passed in 2016 by the majority owners over the opposition of the minority owners. The resolutions purported to authorise the Strata Corporation to undertake extensive building works which I will describe in more detail below. The resolutions did not attract a sufficient majority to pass as special resolutions but passed as ordinary resolutions. A resolution was also passed for the lot owners to pay a special levy, totalling about $1.9 million, to fund the works.
[39] At [9]-[10]
Upon reviewing relevant NSW case law Parker J observed that the obligation of an owners corporation to repair and maintain common property only arises once the relevant item of common property has deteriorated, is damaged, or is operating inadequately. However, once the obligation to maintain is triggered an owners corporation may take action, including renewing or replacing the item, which is reasonably necessary or incidental to the discharge of its obligation.
58.I was persuaded by the logic and relevance of Parker J’s approach and applied it to the consideration of whether the disputed works in this case are reasonably necessary to maintain the common property in good condition during the term of the current plan.
5. What work is disputed
59.The disputed works were as follows:
(a)Replacement of the roof with Colorbond, with associated renewal of roof battens and supports.
(b)Replacement of all windows with aluminium-framed windows.
(c)Rendering of the external walls.
(d)Repair or replacement of the carports, including providing security doors for each (carport).
(e)Replacement of all electrical wiring and the circuit board.
(f)Replacement of all internal plumbing pipeworks.
(g)Replacement of the current asbestos eaves, and repair and repainting of the eaves, fascias and gutters.
(h)Replacement of asbestos lagging to pipes in units 1 and 2.
5.1 Replacement of the roof with Colorbond, with associated renewal of roof battens and supports
60.The respondents proposed replacing the tiled roof with Colorbond, and renewing the roof battens and supports. Mr Kercheval told the Tribunal that the estimated cost of such work was $30,000 based on a quote from Canberra Metal Roofing dated 18 August 2017.[40]
[40] Transcript of proceedings 2 July 2019 page 24
61.The applicants filed a roofing report dated 30 June 2018 from Stephen Thackeray who inspected the roof and reported:
It was noted on that occasion that the roof showed no signs of broken tiles or damage. It was also noted that the hardwood battens under the tiles are in good condition (see attached photos).[41]
[41] Applicant’s submissions materials filed 17 April 2019 at Annexure K
62.The respondents conceded at the hearing that the current roof was still functional. However they claimed that the concrete tiles, which were more than 50 years old, were not in keeping with newer units in the area. They argued that replacing the tiles with Colorbond would improve the appearance of the complex, and consequently increase its value in terms of rental and resale. The applicants argued that the character, age and size of the units limited their rental and sale value, and that the works intended to change the appearance of the exterior of the building would be a waste of money. They also pointed out that as the complex was two storeys high, the appearance of the roof was not obvious to an observer at ground level. Each produced evidence from real estate agents to support their respective arguments.
63.Mr Kercheval also argued that Colorbond was easier to maintain than concrete tiles – but since tiles were still functional after more than 50 years I am not convinced of the necessity to upgrade to a more durable material.
64.I found that the existing roof had not significantly deteriorated or been damaged and was operating adequately. Accordingly, the proposal to replace the roof cannot be characterised as maintenance and is thus outside the purposes of a sinking fund.
65.The question of whether enhancing the appearance of the roof would increase the value of the units is irrelevant as such works constitute improvements not maintenance and thus are outside the purposes of a sinking fund.
66.I concluded on the balance of evidence that replacement of the roof was not reasonably necessary to maintain the common property in good repair.
5.2 Replacement of all windows with aluminium-framed window
67.The respondents proposed replacing all the original metal framed windows with new double glazed aluminium-framed windows at an estimated cost of $51,405 (excluding scaffolding) based on the window schedule from Solace Creations in evidence. At hearing the applicants adduced an alternative quote for $25,000, but argued nevertheless that replacement was not necessary.
Alteration
68.The applicants argued that the replacement of the windows would constitute an alteration of structures in or on the common property, and thus pursuant to Rule 4 of the default rules was only possible with the express permission of the owners corporation by unopposed resolution.[42] They relied on material from the ACT Planning and Land Authority (ACTPLA) website which, they argued, established that the installation of a window is regarded as an ‘alteration’ for planning purposes.[43]
[42] Default Rule 4 provides:
(1)A unit owner may erect or alter any structure in or on the unit or the common property only—
(a) in accordance with the express permission of the owners corporation by unopposed resolution; and
(b) in accordance with the requirements of any applicable territory law (for example, a law requiring development approval to be obtained for the erection or alteration).
(2)Permission may be given subject to conditions stated in the resolution.
[43] Transcript of proceedings 2 July 2019 page 36; applicant’s submissions filed 17 April 2019 Annexure T
69.Mr Erskine responded to the applicants at the hearing by saying:[44]
This is an application, or a proposal being put forward by the owners corporation. So item 4 of schedule 4 is completely irrelevant.
[44] Transcript of proceedings 2 July 2019 page 37
70.I do not need to consider whether the replacement of the windows would amount to an alteration for the purposes of Rule 4. The windows are affixed to the common property and so form part of it. Section 83(1)(c) expressly contemplates that the replacement of a fixture can amount to maintenance, and thus be within the scope of a sinking fund plan. I concluded, following reasoning in Glenquarry, that Rule 4 does not prevent the owners corporation from altering, including upgrading, the common property where it is necessary or incidental to an activated maintenance obligation.
Function
71.The respondents argued that replacement of the windows was necessary because it would, in summary:
(a)rectify inadequate functioning of the current windows. Mr Erskine told the Tribunal that, “some of them [the windows] don’t close properly, spare parts getting very difficult to obtain and so forth” and it is difficult to find replacement parts given ether age.”;[45]
(b)reduce the need for ongoing maintenance; and
(c)improve the appearance of the complex resulting in an increase in rental return and property value.
[45] Transcript of proceedings 2 July 2019 page 34
72.For the reasons previously stated in relation to the roof, the effect of the proposed works on rental return or property value is irrelevant.
73.The applicants denied that there was any functional reason to replace the windows. Mr Cheetham and Mr Olsen told the Tribunal that they had received no complaints about the functioning of the windows from tenants; Ms Copeman, joint owner of Unit 6, added that when they lived in their unit, prior to letting it, they experienced no problems.[46]
[46] Transcript of proceedings 2 July 2019 page 99
74.Mr Kercheval said that:
So every one of our units has complained about the windows to the point where, if you look inside one of them, which I couldn't in in time, one of the tenants actually had to run tape all the way down and not able to open the window because of the air gap that's in it, which is one of the ones in the photos, I think, where there's a one centimetre gap at the bottom. They're not repairable. The glazing's so thin and all the seals around the perimeter are completely gone so by the time you re-putty, let's call it, and try and - I don't know how you bend back a steel window without breaking glass but assuming you could do it, that's going to cost more than replacing the window (errors in original).[47]
[47] Transcript of proceedings 2 July 2019 page 99
75.Ms Copeman observed that they had recently replaced a broken windowpane in their unit easily and at minimal cost.[48]
[48] Transcript of proceedings 2 July 2019 page 99
76.The respondents relied on the following documents in evidence:
(a)An unsigned letter titled “Helen McKenzies letter” dated 18 June 2018[49] in which the writer said she had, “previously managed two of the studio apartments in the complex however not in the last two years and referred to a number of issues including, windows that wouldn’t close and allow cold air in.”
(b)A letter dated 23 July 2018 from Kirsty Hawking from Civium Property Group, who is the current property manager for two of the respondents units. They referred to past maintenance issues including reports of window operation failing.
(c)Exterior photographs of some of the windows which Mr Kercheval said showed a gap between window and frame, distortion of the window frames, and an inability to fully close.
[49] Respondent’s submission filed 23 May 2019 page 11
77.Neither Ms McKenzie nor Ms Hawking gave a sworn statement and neither were called to give evidence and be tested on cross examination. Accordingly, I found the letters of limited probative value and preferred the evidence of the witnesses present at the hearing.
78.It was not clear from the evidence whether, and if so how, the reported past failure of the window mechanism was resolved. The gaps were not obvious from the photographs.
79.The parties’ descriptions of the state of the windows in their respective units differs. To the extent it is based on personal experience, I accept that it is accurate. I am not convinced on the balance of evidence that there is currently any problem with the window opening mechanisms or that there is an issue replacing windowpanes, or opening mechanisms if they are broken.
80.Mr Kercheval’s evidence supports a finding that, at least in the units he and Mr Erskine own, there is an issue with the windows being airtight. This is an important functional issue as it potentially impacts on the comfort and electricity costs of the respondents’ tenants.
81.In the absence of any objective evidence as to condition of windows as a whole, I concluded that some might need some remedial work but the extent of that work, and whether it is necessary to replace all windows is not established on the evidence.
82.The proposed substitution of single glazed with double glazed windows does not address any of the functional issues raised by the respondents, and in my view is an enhancement unrelated to maintenance and thus outside the purposes of a sinking fund.
83.I concluded on the balance of evidence that replacement of all the windows with double glazed was not reasonably necessary to maintain the common property in good repair during the currency of this plan.
84.However given the problems experienced by Mr Kercheval’s tenants, the next plan should consider what works will be reasonably necessary to maintain the windows in good repair over the coming decade.
5.3 Rendering of the external walls
85.The respondents proposed rendering the brick exterior of the building. Two estimates for rendering the exterior of the building were in evidence: $30,646 (Besselink Master Painters) and $15,708 (Canberra Acrylic Rendering).
86.The brick exterior is original and completely functional. Photographs show some minor cracking in the walls. Mr Kercheval conceded at the hearing that the purpose of rendering was solely aesthetic, that is to cover cracks and also to enhance the overall appearance of the building. He submitted that, if the windows were replaced it would be more important to render the walls to disguise damage to surrounding brickwork resulting from the removal of the old windows and installation of the new ones.
87.The appearance of the exterior is dated and rendering would give the complex a more modern look. However, it is not reasonably required to fulfil the owners corporation’s maintenance obligations as the walls are in a functional condition, and in my view would constitute an improvement or enhancement of the common property.
88.I concluded that rendering was not reasonably necessary to maintain the common property in good repair.
5.4 Repair or replacement of the carports, including providing security doors for each (carport)
89.The respondents proposed enclosing the existing carports by adding doors at each end to improve both security and appearance. No estimate of cost was provided.
90.The applicants argued that the carports form part of individual units and are not common property, further they say that such works constitute improvement rather than maintenance, as they would transform the nature of the structure and add an element, that is, doors, that is not currently present.
91.The respondents argue that doors on the exterior of the building, are, like external windows, part of the fabric of the common property rather than the property of an individual owner.
92.I prefer the applicants’ argument on the basis of logical appeal and concluded that the proposed changes would transform the appearance and function of the carports, do not constitute maintenance of the existing structures, and thus are outside the purposes of a sinking fund.
5.5 Electrical works
Background
93.The respondents argued that it is necessary to replace the all electrical wiring and the common circuit board. Mr Kercheval estimated the cost of such work at $21,000.
94.The applicants say that there is no current need to replace any of the electrical infrastructure in the common property and that in any event the respondents’ estimate of costs is unsupported by objective evidence.
95.The applicants and respondents engaged different electrical contractors to conduct an inspection and report. John Marich produced a report for the respondents; Wayne Taylor for the applicants. Both relied on advice from an Access Canberra electrical inspector.
96.Neither of the electrical contractors’ reports complied with the expert witness code of conduct and neither expert was called to give evidence. The respondents did not provide a quote for the proposed works.
97.There was no serious disagreement that:
(a)The electrical infrastructure on the common property is original and at the time of installation complied with prevailing safety standards but if installed now several aspects of it would not meet current standards.
(b)There is no legal requirement to upgrade the installation to meet current standards unless alterations or additions are made to it.
98.The applicants suggested that, if there was a need for an upgrade, it was triggered by electrical works done within one of the respondents’ units. The respondents provided evidence that the installation of a separate electrical distribution board in their unit (Unit 5) in 2014 complied with safety standards and received appropriate certification and Mr Taylor found no evidence of any alterations or additions to the original infrastructure.
99.I am satisfied that the respondents’ installation did not trigger the need for an upgrade to the common electrical infrastructure.[50]
[50] Respondent’s submission filed 23 May 2019. Annexure 3 is a certificate of electrical compliance
100.However, just because there is no legal requirement to upgrade the electricity infrastructure does not mean an upgrade is not reasonably necessary to maintain it in good condition.
Fire risk
101.Mr Marich reported that electrical insulation around cables in the roof space disintegrated on contact and posed a fire hazard. Whereas Mr Taylor concluded:
The electrical installation is consistent with a building of its age and the cables that have been used have plastic sheathing which doesn’t deteriorate with age.[51]
[51] Applicant’s submissions materials filed 17 April 2019 at Annexure X
102.Fire risk is the most urgent and serious issue in dispute regarding the state of the wiring as it relates to a potential risk of personal injury and property damage.
103.On 22 August 2018 the tribunal directed that Mr Erskine and Mr Kercheval grant access to their three units “to any electrician engaged by the applicants to conduct an assessment and report, upon that electrician providing them an explanation in writing as to why such access is necessary.”[52]
[52] ACAT order dated 22 August 2018
104.Access was never granted, each party blame the other. Mr Erskine said the respondents did not grant access because they were not provided with a reason for access. At the hearing Mr Erskine added that the state of the wiring could be observed from the roof space; I am not satisfied that he is qualified to make that judgment.
105.The evidence was insufficient to determine whether the electrical witing posesd a fire risk or not.
Other deficits
106.Mr Marich identified the following additional issues with the electrical infrastructure:
(a)The capacity of the system is insufficient for the total load required for the units. He recommended that every unit have a distribution board with a minimum two power circuits and a light circuit.
(b)The main switchboard, which serves all units and common areas, located under the common staircase is hazardous and does not provide enough clearance for maintenance.
(c)Every unit should have a smoke detector.
(d)Power and light circuits on meter panel which run to each unit is protected with a re-wireable fuse which is outdated and does not comply with current regulations.
107.It was not apparent on what basis Mr Marich determined that the system’s capacity was insufficient to meet demand. The respondents relied on the letter from Helen McKenzie previously referred to, in which she said she had managed:
two of the studio apartments in this complex for a 10 year period however not in the last 2 years… tenant could not run things like kettle, toaster and laptop together without throwing out the main switches. Was near impossible during winter to run an electric heater and 2 or 3 other appliances (errors in original).[53]
[53] Applicant’s submissions filed 19 September 2018 Annexure 7
As previously observed Ms McKenzie did not provide a witness statement and was not called to give evidence.
Conclusion – electrical infrastructure
108.I prefer the applicants’ testimony that the capacity of the system was sufficient to meet the needs of their tenants.
109.There was no evidence that any of the units lacked smoke alarms. As the units are tenanted the installation of smoke alarms within each unit is the statutory responsibility of the unit owner under section 11B of the Residential Tenancy Act 1997. It is not the responsibility of the owners corporation – except in relation to the common areas.
110.An owners corporation is responsible for ensuring that the common property is reasonably safe for users. This responsibility is founded in common law of negligence; its maintenance obligations under the UTMA as well as obligations imposed by the Work Health and Safety Act 2011.
111.The question of risk, including fire risk, raised by the respondents requires a definitive answer as soon as possible.
112.Accordingly, I determined that the sinking fund should be amended to enable the executive committee to engage a suitably qualified independent expert to assess and report upon any unacceptable risks posed by current electricity infrastructure; the scope of work required to mitigate any such risk; and the estimated cost of such mitigation. I have made an allowance of $2,000 to cover the cost of such report.
113.Depending on the recommendation in the electrical report, the owners may need to consider either further amending the sinking fund, or establishing a special purposes fund, to undertake any urgent remediation necessary. If urgent action is not indicated the report may help inform the next 10 year plan.
114.Apart from the unresolved question of risk there is insufficient evidence to support an amendment to the current sinking fund plan but, given the age of the infrastructure, consideration should be given in the next plan as to what, if any, allowance for maintenance, including renewal, will be reasonably necessary.
5.6 Plumbing
115.The respondents proposed replacing all internal plumbing pipeworks at an estimated cost of $25,000. No quote was in evidence and Mr Kercheval told the Tribunal that he had based his estimate on verbal advice from two plumbers.[54]
[54] Transcript of proceedings 2 July 2019 page 58
116.The respondents relied on the following incidents to demonstrate the inadequacy of the plumbing infrastructure:[55]
(a)Around the end of 2011 the tenants in Unit 2 (which was subsequently purchased by the respondents in 2017) made several complaints of water leaking from the bathroom in the unit above (Unit 5 owned by the respondents).
(i) The issue was resolved when the respondents renovated the bathroom in Unit 5.
(ii) Mr Kercheval says the source of the leak was a soft soldered plumbing joint between the taps and shower head.
(iii) When the bathroom wall cladding was removed, Mr Kercheval observed that the pipes were copper with soft soldered joins and the drains were steel. In Mr Kercheval’s opinion soft soldering is more prone to distort and leak with age; polyethylene is now used instead of copper for pipes; and steel drains “eventually rust out and the suggested lifespan is 50 years”.[56]
(iv) Mr Kercheval referred to comments allegedly made by plumber he engaged to renovate the bathroom at the time in support of his conclusions. The plumber was not identified and no direct evidence of any kind from him was adduced, I found the comments attributed to him by Mr Kercheval some seven years later of no probative value.
(b)On 18 May 2009 a building a maintenance contractor, John Robson, reported to the strata manager[57] that he had inspected the complex several times and observed that the toilet in Unit 3 (owned by the respondents) was leaking from around the base through the ceiling of Unit 1 (owned by Ms Mack). Mr Robson did not identify the cause of the leak and the respondents resolved it by replacing the toilet. My view on the evidence is that the source of the leak would seem to be the toilet not the pipework.
(c)Mr Robson also observed another water stain on Unit 1’s ceiling caused by a leak from the bathroom floor in Unit 4 (owned by the Cheetham’s). Although he speculated as to what might have caused the leak he did not proffer a conclusive diagnosis. Ms Mack said it was caused by leaking taps in the Cheetham’s unit. Whereas Mr Kercheval told the Tribunal that the source of the leak was the Cheetham’s hot water system and due to its lack of an effective overflow mechanism. Mr Kercheval replaced the mechanism, which resolved the problem. In any event there is no evidence to suggest that the incident was in anyway related to deficiencies in the pipework.
(d)In 2018 Robert Taylor, a plumber, cleared a blocked laundry tub and recommended putting a direct connection to the drain from the washing machine to avoid a recurrence.[58] In my view this was simply a localised issue, which has been resolved and does not require any changes to the pipework in general.
[55] Respondents’ submissions filed 23 May 2019 page 3
[56] Respondents’ submissions filed 23 May 2019 page 3
[57] Letter from John Robson – Building and maintenance contractor to Strata manager in respondent’s submission filed 23 May 2019 page 19
[58] Invoice from Robert Taylor Plumbing dated 24 September 2018 in respondents’ submissions filed 23 May 2019 page 35
117.Evidence was not adduced from a plumber about the state of the plumbing in common areas and what work if any was required to maintain it in good repair. Mr Kercheval, as a qualified builder, is likely to have some knowledge and familiarity with plumbing. However, the value of his evidence is limited by the fact that it is not his area of expertise and, as he is a party in the proceedings, he cannot be considered to be objective. The facts established on the evidence do not support a finding that all the common pipework needs replacement. In my view there was insufficient evidence to establish that any work is necessary either currently or within the foreseeable future.
5.7 Replacement of the current asbestos eaves, and repair and repainting of the eaves, fascias and gutters
118.Property Works prepared a sinking fund report for the owners in 2009, which formed the basis of the plan adopted in 2010. The report contained the following comments regarding the presence of asbestos: “No inspection for asbestos was carried out on the property and no report on the presence or absence of asbestos is provided.”[59]
[59] Applicants’ submissions filed 17 April 2019 Annexure B
119.Although the report acknowledged that, given the age of the building, asbestos may be present in wall or ceiling sheeting the only safety advice given to the owners corporation was that the sheeting be fully sealed and that “Drilling cutting or removing sheeting or products containing asbestos is a high risk to people’s health.” The report recommended that “if asbestos is noted as present with in the property then you should seek advice from a qualified asbestos removal expert as to the amount and importance of the asbestos present and the cost of sealing and removal.”
120.The respondents adduced a letter with an attached quote from Glade Group addressed to Mr Kercheval dated 10 August 2007.[60] It identifies that the eaves were made from asbestos sheeting and quoted a price to remove it.
[60] Exhibit R1
121.In the correspondence Glade Group did not assess the potential risk posed by the presence of the asbestos; nor did it recommend that the asbestos be removed, or that any other action be taken to mitigate risk.
122.It is not disputed that the exterior of the building, including the eaves, currently requires painting. Mr Kercheval argued that it is not safe to paint the eaves the applicants say it is not unsafe to do so provided the surface of the sheeting is not damaged in the process. Neither party adduced expert evidence on this point.
123.In addition to the duties of an owners corporation in relation to risks to users in general it must also comply with legislative safeguards which specifically relate to management of asbestos.
124.Having identified the presence of asbestos sheeting in the eaves the sinking fund plan should be amended to enable a report to be commissioned from a qualified independent expert to identify and recommend strategies to mitigate risks.
125.Depending on the reports recommendation the owners corporation may need to consider either further amending the sinking fund, or establishing a special purposes fund, to undertake urgent remediation. If urgent action is not indicated, the report may help to inform the next 10 year plan.
5.8 Replacement of asbestos lagging to pipes in Units 1 and 2
126.Mr Kercheval told the Tribunal that, given the age of the building, the water pipes are likely to have asbestos lagging. He said that while this did not pose a risk if left undisturbed, if repair or renovations involving the pipes were undertaken in future the affected lagging would have to be removed. In my opinion, works necessitated by renovations are by definition improvements not maintenance and thus beyond purposes of a sinking fund.
127.I concluded on the evidence that removal of the asbestos lagging was not reasonably necessary to maintain the common property in good repair during the currency of this plan. The removal of the lagging is, insofar as it is necessary or incidental to anticipated maintenance, a matter which can be addressed in the next plan.
6. Conclusion – correct and preferable decision
128.The correct and preferable decision in this case is one which ensures that, in relation to the current plan:
(a)The plan reflects expected sinking fund expenditure; and
(b)The total sinking fund contributions are sufficient to meet the expected sinking fund expenditure stated in the plan.
129.The estimated cost of the agreed works, including a 10% contingency is $38,500; the anticipated costs of the electrical and asbestos safety assessments, including a 10% contingency, is $4,400. An amount of $6,000 should be maintained in reserve at the end of the term of this plan. A total amount of $48,900 is required to fund these purposes.
130.Assuming a current sinking fund balance of $32,014 the total sinking fund contribution required for this financial year is $16,886.
131.Accordingly, I amended the motion under review pursuant to section 129(1)(f) as follows:
1. The expected sinking fund expenditure until 30 June 2020 includes:
(a)Repainting exterior of the complex, at an estimated cost of $20,685.50;
(b)Replacement of the back fence, at an estimated cost of $1,192;
(c)Repair to broken bricks, cracks in concrete paths; addition of a balustrade outside the front entrance of the complex – at an estimated cost of $13,000;
(d)Electrical and asbestos reports in accordance with orders 2 and 3, at an estimated total cost of $4,000.
2. The executive committee shall engage a qualified independent expert to assess and report upon the common electrical infrastructure at an estimated cost of $2,000, and the report shall:
(a)Identify any hazards; assess the risks; and recommend actions to control risks; and
(b)Pursuant to section 129(2) identify any works which could reasonably be expected to be required to maintain the electrical infrastructure in good repair for the next 10 year plan period.
2. The executive committee shall engage a qualified independent expert to assess and report on any asbestos risk at an estimated cost of $2,000, and the report shall:
1.Identify any hazards; assess the risks; recommend actions to control risks ; and
2.Pursuant to section 129(2) identify any works which could reasonably be expected to be required to maintain the electrical infrastructure in good repair for the next 10 year plan period.
3. The Executive Committee shall utilise existing funds in the sinking fund as far as possible.
4. The total sinking fund contributions be increased sufficient to cover anticipated expenditure to 30 June 2020 of $42,900, including a 10 % contingency, as well as provision for a reserve of $6,000.
5. The total sinking fund contribution levied for the 2019/2020 financial be $16,866.
It is noted that, depending in the recommendation in the electrical and asbestos reports, the owners corporation may need to consider either further amending the sinking fund, or establishing a special purposes fund, to undertake urgent remediation.
7. Any other orders under section 129(2) reasonably necessary or convenient to resolve a dispute
107.I am aware that the order I made under section 129(1) does not resolve the substantive dispute between the parties about ongoing maintenance but simply defers it.
108.A new plan, which comprehensively addresses the maintenance needs of the complex over the coming decade, is overdue for approval. While I found that much the program of works proposed by the respondents was beyond the purposes of a sinking fund it is self-evident that due to its age the complex will require significant maintenance over the coming years.
109.The applicants submitted that if I did not uphold the motion under review I should make an order that the executive committee commission a sinking fund plan report from a suitably qualified independent consultant, similar to the previous report prepared by Property Works, to inform the owners corporation decision on a new sinking fund plan. Mr Erskine, while conceding the idea had superficial appeal, submitted it was unnecessary as more than enough evidence had been submitted by the parties.
110.I prefer the applicants’ argument. The evidence before the Tribunal is both insufficient for current purposes and not intended to inform a plan stretching to 2030. A comprehensive report would provide an objective basis for the next plan.
111.Accordingly I made the following orders pursuant to section 129(2) on the grounds that they were reasonably necessary and convenient to assist the parties to resolve their substantive dispute:
1. Pursuant to section 129 (2) of the UTMA, the executive committee shall as soon as possible engage a suitably qualified consultant to prepare a sinking fund report for the 10 year period commencing 1 July 2020 to inform approval of a new sinking fund plan pursuant to section 82 of the UTMA. The issues addressed by the report shall include, but not be limited to, the following:
(d)Anticipated expenditure based on age and condition of building and service infrastructure.
(e)Prioritisation of works – based on health and safety of occupants and visitors and protection from further deterioration.
(f)Particular regard shall be given to to plumbing; electricity; external balustrading.
Second order sought – composition of the executive committee
111.The applicants sought an order under section 129(1)(f) of the UTMA to repeal or amend, based on a merit review, an ordinary resolution of the general meeting on 8 February 2019 electing Luke Kercheval, Chris Erskine and Chris Olsen to the executive committee.[61] They sought an order to the effect that, either everyone's on the executive committee, or in the alternative, that Mr Kercheval is not on it.
[61] Applicants’ submissions filed 17 April 2019 page 3
112.I will deal with the applicants’ second choice first, that is that Mr Kercheval be removed from the committee, and substituted with another owner, “due to him repeatedly using ‘vulgar’ language at meetings.”[62]
[62] Applicants’ submissions filed 17 April 2019 page 22 at [2]
113.The applicants relied on the minutes of the general meeting held on 4 March 2019 attended by both respondents, Ms Mack and Mrs Copeman as well as the strata manager, David Bowditch. The minutes relevantly stated:[63]
[63] Minutes for adjourned general meeting The Owners – Units Plan No. 503 held 4 March 2019, applicant’s submissions filed 17 April 2019 Annexure E
Members Mack and Copeman directed the minutes record the poor behavior of Mr Kercheval, shouting, foul language and disgusting manner.
114.At the hearing the applicants conceded that that Mr Kercehval’s alleged behaviour happened in the context of general meetings of the owners corporation not executive committee meetings, which were only attended by the respondents and Mr Olsen and generally took place by email.
115.I concluded that there was a high level of conflict between Mr Kercheval and some of the other owners at times, which played out in the general meetings of the owners corporation. Mr Kercheval’s conduct on the executive committee was not in question.
116.The applicants referred to the decision of Leonard & Anor v Michie & Anor[64] in which Senior Member Orr QC held that the tribunal could make an order under section 129(1)(a) compelling an executive member to comply with Code of Conduct as required by section 46 of the UTMA.
[64] [2019] ACAT 14
117.However, Senior Member Orr went on to find at [30] that even if an executive member was in breach of the Code the Tribunal had no power to remove or ban them from the executive, saying:
... the respondents argued that the Tribunal could not make orders removing and banning them from holding the position of executive committee member for breach of the Code, or anything else. I think this is correct, for the following reasons. It is true that section 129(2) provides that the Tribunal may make any other order it considers reasonably necessary or convenient to resolve a dispute. But this power is limited by the context and purpose of the Unit Titles Management Act. Part 8 concerns dispute resolution, and sections 125, 127 and 128 make it clear that these are disputes “relating to an owners corporation” between various people. Section 129 generally provides for orders requiring a party to do or not do something, or in relation to resolutions. This focusses on disputes about whether people should or should not do certain things, and management of the owners corporation. Removing and banning a member from holding a position on the executive committee generally does not resolve the type of disputes set out in Part 8 of that Act. Such an action would not be about whether a person should or should not do something under the Act, or about management decisions. Rather this would be an action which in effect punishes the person for past behaviour and prevents future, but unspecified, behaviour.
118.In this case the applicants did not apply for an order pursuant to section 129(1)(a) compelling Mr Kercheval to comply with the Code of Conduct and so I did not need to consider whether he has breached it. Instead they sought an order pursuant to section 129(f) removing Mr Kercheval from his elected position on the executive committee.
119.As I am required to put myself in the shoes of the owners corporation when conducting a merits review under section 129(f), I can only make a decision legally available to the corporation. The applicants failed to establish any legal basis on which the owners corporation could have excluded or removed Mr Kercheval from the committee, and so that option is not open to me. Further I agree with Senior Members Orr’s reasoning that such an order is beyond the scope of section 129(2).
120.Turning to the applicants’ preferred option that all members be appointed to the executive committee. The election of the executive committee was made in accordance with section 39 of the UTMA and was therefore legally correct; it would also have been legally correct under section 39(2)(b) to elect all the owners to the executive committee. Both of these options were available to the owners at the meeting on 8 February 2019 and so are available to me, the question is which is preferable.
121.Generally it is not preferable to override the process for self-determination established by the UTMA unless there is a good reason to do so. I concluded from the applicant’s comments at the hearing that their primary concern was the imbalance of power which has arisen since Mr Erskine and Mr Kercheval bought their third unit in 2017 and, in doing so, acquired a majority of the voting entitlements. The applicants felt that having all the owners, or alternatively fewer of the respondents, on the executive committee would help redress that imbalance. As Ms Mack said, “So each – we all have some equal say.”[65]
[65] Transcript of proceedings 2 July 2019 page 146, line 3
122.The scheme of the UTMA is not premised on the principle of all owners having an equal say. The respondents are entitled to use their voting power, both in the general meeting, and the executive committee, as they wish, so long as any decisions made are in accordance with the UTMA and do not unfairly prejudice the other owners. The legislation safeguards the interests of individual owners by providing that decisions of the both the general meeting and the executive committee are subject to review by the tribunal.
123.I concluded that the applicants had failed to establish a good reason to override a decision of the corporation made in accordance with the legislation and so decided to uphold the resolution to appoint Mr Kercheval, Mr Erskine and Mr Olsen to the executive committee.
………………………………..
Senior Member E Ferguson
APPENDIX 1
Pursuant to s.86 of the Unit Titles (Management) Act 2011, Mr Kercheval and Mr Erskine move that -
(a)the Sinking Fund Plan be amended to include the following works to be carried out as soon as possible:
Replacement of the roof with Colourbond, with associated renewal of roof battens and supports
Replacement of all electrical wiring and the circuit board Replacement of all internal plumbing pipework
Replacement of the current asbestos eaves, and repair and repainting of the eaves, fascias and gutters
Rendering of the external walls Replacement of the fencing
Repair or replacement of the footpaths and balustrades
Repair or replacement of the carports, including providing security doors for each Replacement of the asbestos lagging to pipes in units 1 and 2
Repainting of all areas of the common property
Replacement of all windows with aluminium-framed windows
(b)the sinking fund contributions be increased to $300,000 to cover this work
(c)on a date approved by the Executive Committee but at least 12 months from the date of this motion, the communal laundry be converted into a storage room, including painting and repair, with no communal laundry facilities to be provided from that time onwards
(d)in the alternative to (c), the Sinking Fund Plan be amended to include repair, renovation and renewal of the communal laundry, including a new coin-operated washing machine, new wiring and plumbing, and a security door, as well as repainting and renovation
(e)in the event that motion (c) is not passed and motion (d) is, the sinking fund contributions be increased by a further $25,000 to cover this work
(f)the sinking fund contribution levies be charged over 3 years, beginning with a levy of $50,000 in total charged as from 1 July 2019, and levied at $50,000 at 6- monthly intervals until! July 2022
(g)the Executive Committee obtain quotes for the carrying out of work as soon as possible in relation to the fencing, footpaths, balustrades, communal laundry and carports, utilising existing funds in the sinking fund as far as possible
(h)the Executive Committee investigate the extent to which tenants may have to vacate the building while the other work is carried out, with a view to finding a period when that work can be done so as to minimise the disruption to unit owners and tenants, and report its investigations back to unit owners
(i)Any work requiring that units be vacated, not be carried out until the Executive Committee has reported to members as required by this motion, and approval given by ordinary resolution for that work to be done
We have in mind that voting on this motion should be done in steps. The first step should be to go item by item on the things to be added to the sinking fund plan, to see what if any consensus there is about each of them. Once that is decided, we then vote on whatever is left in the motion.
We repeat what we have said all along. This is a proposal, and it is open to discussion. But discussion has to address what the sinking fund is for (not what you think it's for, but what the Act says about it); and it has to address what information we have about what is needed to upgrade as well as maintain. Furthermore, it is not a decision to spend money; it is a decision to plan for spending money in the future. Any work that is actually carried out will be done after formal quotes are obtained and the best value for money from those quotes is worked out. At the moment, we are in the planning phase. Decisions on expenditure in the light of the plan would be made down the track.
16 February 2019
Luke Kercheval
Chris Erskine
HEARING DETAILS
FILE NUMBER:
UT 7/2018
PARTIES, APPLICANT:
Jan Scholberg Cheetham
Nancy Leigh Cheetham
Chris Olsen
Sharen Blanche Mack
PARTIES, RESPONDENT:
The Body Corporate, Units Plan No 503
Chris Erskine
Luke Kerchaval
COUNSEL APPEARING, APPLICANT
N/A
COUNSEL APPEARING, RESPONDENT
N/A
SOLICITORS FOR APPLICANT
N/A
SOLICITORS FOR RESPONDENT
N/A
TRIBUNAL MEMBERS:
Senior Member E Ferguson
DATES OF HEARING:
2 July 2019
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