Green v The Owners Units Plan No. 199
[2015] ACAT 42
•16 June 2015
ACT CIVIL & ADMINISTRATIVE TRIBUNAL
GREEN & ORS v THE OWNERS – UNITS PLAN No. 199
(Unit Titles) [2015] ACAT 42
UT 3 of 2014
Catchwords: UNIT TITLES – merits review of a motion by an owners corporation – merits review as a hearing de novo – changes to unit entitlements after an extension to the property – factors in determining valuations for calculating unit entitlements
Legislation cited: Unit Titles Act 2001 s 8, 20, 146, 149
Unit Titles (Management) Act 2011 s 125, 129
Cases cited:Meaney v The Owners Corporation Units Plan 40 (Unit Titles) [2013] ACAT 72
Parker v Owners Units Plan No 36 (Unit Titles) [2014] ACAT 37
Tribunal: Ms J. Lennard – Senior Member
Date of Orders: 16 June 2015
Date of Reasons for Decision: 16 June 2015
ACT CIVIL & ADMINISTRATIVE TRIBUNAL UT 3 of 2014
BETWEEN:
CAROLE SLADEN, LINDSAY GREEN, BRUCE BRAMMALL, BRYAN CLARKE & TONY SWAN
Applicant
AND:
THE OWNERS – UNITS PLAN No. 199
Respondent
TRIBUNAL: Ms J. Lennard – Senior Member
DATE:16 June 2015
ORDER
The Tribunal orders that:
Motion 3.1 passed at the meeting on 5 February 2014 (that no further attempt be made to register the amendments to the original Schedule of Unit Entitlements for Units Plan 199 which were approved at the general meeting of owners on 19 July 2011) is repealed.
The Executive Committee of Owners of Units Plan 199 shall proceed to make application to the appropriate section of the Australian Capital Territory Environment and Planning Directorate for amendment of the Unit Entitlements for Units Plan 199 in accordance with the valuation provided by Peter Gately in 2011.
The legal and other costs incurred in complying with order 2 above are to be assessed upon completion of the amendment to the Unit Entitlements for Units Plan 199 and paid by the owners in accordance with their Unit Entitlements.
………………………………..
Ms J. Lennard – Senior Member
REASONS FOR DECISION
Background facts
Lindsay Green, Carole Sladen, Bruce Brammall, and Bryan Clarke, four of the applicants in this matter, were members of the executive committee of Units Plan 199 in 2011.
In early 2011, the owner of Unit 15 requested approval for an extension to his unit.
The owner of Unit 15 had legal advice that the extension would not cause significant increases to the unit entitlement of Unit 15 nor significant decreases to the unit entitlement of the other units within the complex; and therefore that there was no necessity to make an application to amend the unit entitlements.
The Executive Committee also sought legal advice and was advised that the default articles of the Units Plan 199 contained the following clause:
4 Erections and alterations
(1) a unit owner may correct 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.The Unit Titles Act 2001 (ACT) [UT Act] was applicable to applications for extensions, variations of the lease and amendment to unit entitlements at the time of the meeting in July 2011. Section 146 of the UT Act required a special resolution of the Owners Corporation authorising an application to the planning and land authority for amendment to the schedule of unit entitlements. The requirements for passing a special resolution at a general meeting are that the number of votes cast in favour of the resolution is greater than the number of votes cast against it; and the votes cast against the resolution number less than one third of the total number of votes that can be cast on the resolution by people present at the meeting (including proxy votes).[1]
[1] Section 106 of the UT Act
Section 166 of the UT Act required an unopposed resolution of the Owners Corporation authorising an application to be made for variation of the lease. The requirements for passing of an unopposed resolution at a general meeting were that – (a) no votes are cast against the resolution; and (b) at least one vote is cast in favour of the resolution. It is noted in the legislation that an abstention for any unit does not prevent an unopposed resolution from being passed.[2]
[2] Section 107 of the UT Act
A general meeting of the owners of Units Plan 199 was held on 19 July 2011. Prior to the meeting, the executive committee circulated a covering letter and some background notes relating to the three motions to be put to the general meeting.
Three motions, which were valid and regular in accordance with the legislative requirements, were passed unopposed at the general meeting held on 19 July 2011:
a)to approve the extension to Unit 15;
b)to retrospectively approve an extension to Unit 34; and
c)and to approve amendments to Units Plan 199’s Schedule of Unit Entitlements.
The extensions to Unit 15 were duly undertaken.
In August 2011, the owners of Unit Plan 199 applied to the ACT Planning and Land Authority (ACTPLA) to amend the unit entitlements. From September 2011 the levies for the units affected by the amendment to the unit entitlements were increased or decreased in accordance with the schedule approved by the meeting in July 2011, even though the schedule had not been registered. In October 2011, ACTPLA gave permission to amend the entitlements and the Executive Committee engaged Chamberlains Law Firm to complete the registration process. The registration process required the production of the original certificates of title for the units affected by the amendment to the unit entitlements.
This process was not completed, due to the difficulty in obtaining the original certificates of title and in October 2012 Chamberlains Law Firm ceased working on this matter. The application to amend the unit entitlements is now beyond the time limits set by legislation. The Owners Corporation would now require ACTPLA to grant a further extension of time for completion of the application to amend the unit entitlements.
In August 2013, the current Executive Committee for Units Plan 199 was elected. The Executive Committee sought advice from ACTPLA. That advice was not in evidence before the Tribunal however in the written submission the respondent states:
ACTPLA advised that it does not require a change to the entitlements as a result of the extension to Unit 15. But if the Owners Corporation wishes to do so, it apply can once again to extend the authority. Because it is 2 ½ years since the 2011 general meeting ACTPLA will now require a new valuation advice on the appropriate distribution of entitlements based on the relative values in 2014.
The written submissions also note that a number of units have been extensively renovated since 2011 and the schedule of amended entitlements as presented to the July 2011 meeting would no longer be accurate.
A general meeting of the owners of Units Plan 199 held on 5 February 2014 passed the following resolution: that no further attempt be made to register the amendments to the original Schedule of Unit Entitlements for Units Plan 199 which were approved at the general meeting of owners on 19 July 2011. The owners also passed a motion authorising the levies to be reset in accordance with the original schedule of unit entitlements.
The applicants now seek a review on the merits of the resolutions passed at the general meeting of the owners of Units Plan 199 on 5 February 2014.
Relevant law
Section 125 of the Unit Titles (Management) Act 2011 (ACT) [the UTM Act] provides that a party to a dispute relating to an Owners Corporation for a units plan between the corporation and the owner or occupier of a unit in the units plan may apply to the ACAT for an order in relation to the dispute. The applicants, as owners of units in the units plan, make this application to resolve the dispute relating to the resolution that no further attempts be made to register the amendments to the Schedule of Unit Entitlements.
The UTM Act provides at section 129, that ACAT may make an order repealing or amending the resolution of a general meeting on a merits review of the resolution by ACAT.[3]
[3] Section 129(f) of the UTM Act
The unit entitlement in relation to strata title is defined as the proportional ratio allocated to each unit in a strata plan that determines liabilities for levies, rates and taxes, the quantum of the undivided share of the common property, the voting rights and entitlement to share in the proceeds of the winding up of a strata scheme. Unit entitlement is determined during development of a strata scheme by reference to the proportionate area and value of the strata unit in relation to the other units in the strata scheme.[4]
[4] Butterworths Australian Legal Dictionary, Butterworths, 1997 at page 1215.
Section 8 of the UT Act provides that the schedule of unit entitlement is a schedule indicating, by numbers assigned to each unit, the improved value of each unit relative to each other unit. The total unit entitlement under a schedule of unit entitlement must be 10, 100, 1000, 10,000 or 100,000.
Amendments to unit entitlement are required to reflect accurately the current relative improved values of the units, or a change in those values that is anticipated after a particular event happens.[5]
[5] Section 146 of the UT Act
A review on the merits involves a reconsideration of all aspects of the original decision. The function of a merits review is to determine the correct or preferable decision. In order to determine this issue, the Tribunal conducts a full hearing – a hearing de novo – and the Tribunal is not limited to a consideration of the evidence that was before the original decision maker, or indeed evidence that was available at the time of the original decision, but decides the matter on the basis of the evidence available to it at the time of the merits review. The Tribunal is not obliged to try to choose either the original resolution passed at the general meeting held in July 2011 or the resolution passed at the general meeting held in February 2014. Rather, the Tribunal is to make the correct or preferable decision on the merits of the case.[6]
[6] See generally Meaney v The Owners Corporation Units Plan 40 (Unit Titles) [2013] ACAT 72; Parker v Owners Units Plan No 36 (Unit Titles) [2014] ACAT 37
In Meaney v The Owners Corporation Units Planned 40 (Unit Titles) [2013] ACAT 72, the tribunal stated that the process of merits review usually requires the reviewing body to ‘stand in the shoes’ of the original decision maker and make the correct or preferable decision. In applying this model to section 129(1)(f), the original decision maker is The Owners - Units Plan 199.
A merits review is not based upon the premise that there is any unlawful aspect of the original decision, nor is the Tribunal required to examine whether the decision was based upon factual errors or unreasonableness.
The applicant and the respondent have made written submissions to the Tribunal, and these will be considered by the Tribunal in determining what the correct or preferable decision should be.
Submissions from the applicants and the respondents
The applicants provided the following documents:
a) a written submission dated 7 September 2014;
b) a statement of facts and contentions dated for December 2014; and
c) a written reply to the respondents’ statements of facts and contentions.
The respondents provided the following documents:
a)a response by the Owners Corporation to the applicants’ submission of 7 September 2014; and
b)a statement of facts and contentions dated 14 January 2015.
The applicants and the respondents gave extensive oral testimony at the hearing conducted on 27 February 2015.
The applicants’ evidence and assertions are summarised as follows:
a)the original resolutions were interconnected in that the approval for the proposed extension to Unit 15, the retrospective approval for the already completed extension to Unit 34 and the amendment to the Schedule of Unit Entitlements were approved as a whole, and that the approval of significant extensions was dependent upon the amendments to the unit entitlements. The applicants stated that they would not have voted to approve the extension to Unit 15 in the absence of the corresponding resolution to alter the unit entitlements;
b)that there is an inequity in failing to reallocate unit entitlements, which are at the core of how much each owner pays and where unit entitlements depend entirely on the footprint size of the building;
c)any significant increase in the physical size of any particular unit ought to be reflected in a corresponding amendment to the unit entitlements, to ensure that each unit owner pays an appropriate share of rates, water rates, insurance and other costs. There was some evidence before the Tribunal that the ACT government calculation of rates was according to a formula which was influenced by the unit entitlement of each unit. The costs of running and maintaining the complex, including levies, building insurance, strata management fees, water usage and the common property electricity are allocated to owners, according to the unit entitlements. If the unit entitlements are not adjusted then Unit 15 (and any other extended units) will have a windfall, that is, will be subsidised in perpetuity by the other unit owners;
d)a failure to implement the original resolution and to make appropriate amendments to the unit entitlements when the size of individual units is extended sets a dangerous precedent;
e)Unit entitlement should be calculated based on size and not market value. This is so because it provides a constant measure for the calculation of unit entitlements and is not dependent upon vagaries of the market or finishes or home decoration within the unit; and
f)the valuation prepared in 2011 could be used as the relative sizes of the units have not changed since then. ACTPLA has indicated that if the unit entitlements based upon the schedule, presented at the 2011 meeting remain the same, then the application for amendment of the unit entitlements can proceed based upon that schedule of unit entitlements.
The respondents’ evidence and assertions are summarised as follows:
a)that the decision of the Owners Corporation of Unit Plan 199 should be preferred to the decision reflected in the resolutions passed in 2011 because it was based on more complete information. The background notes to the original resolution carried the implication that a change of unit entitlements would be necessary if the proposed extension to Unit 15 was approved. Further the respondent saying that the owners were not told enough details to allow them to make a reasoned decision and in particular that the costs involved in making an application for an amendment to unit entitlements were not revealed;
b)that the changes to the unit entitlements as reflected by the schedule presented to the meeting in 2011 was not significant. The majority of units were not affected at all, and that in the long-term, those whose unit entitlements were increased or reduced would not be significantly affected. The owner of Unit 15 would be most affected should the unit entitlements be amended: his contribution would increase by $486 per year. The owner of Unit 34 would have his contribution increased by $121 per year. Four unit owners would have their contributions decreased by $122 per year. The remaining 53 unit owners would not be affected;
c)the cost of renewing the application to amend the unit entitlements would be significant, in the range of $7000 – $10,000. This cost would be borne by all of the unit owners;
d)that the owner of Unit 15 had had legal advice that the increase in the size of his unit was so insignificant that it would not warrant any application to amend the unit entitlements. The letter from the solicitors was in evidence before the tribunal; and
e)that several unit owners have undertaken extensive internal renovations, thus increasing the market value of the units. It would be unnecessarily burdensome for a re-adjustment of unit entitlements to be undertaken every time a unit owner renovated and added value in this manner. The Tribunal notes that none of the renovations have involved an extension of area.
The Tribunal had before it evidence in relation to valuation as follows:
a)a letter dated May 2011 from Mr Peter M Gately, a registered valuer. That letter stated that the proposed construction of the extension to the townhouse on Unit 15 and the completed smaller extension to Unit 34 would have a partial impact on the existing Schedule of Unit Entitlements for the whole development. Attached to that letter were a certificate of valuation and a schedule of reassessed unit entitlements. That reassessment increased the unit entitlement of Unit 15 and Unit 34 and decreased the unit entitlements of four other units with a slight increase in the unit entitlements of eight further units;
b)a letter from Mr Peter Gately dated 28 November 2014 certifying that the Schedule of Unit Entitlements as determined on 22 June 2011 is considered to be reasonable, having regard to respective values of the units, with the proviso that during the intervening period between 22 June 2011 and the date of the writing of the letter no unit building had been extended or had any substantial refurbishment or renovation;
c)Mr Peter Gately gave evidence by phone on 27 February 2015. He stated that there was no perfect answer to any valuation question. A valuation for the calculation of unit entitlements was based on relative values of each unit within a complex. There were a number of factors that may influence the relative values. These include aspect, garden space, car accommodation, the internal condition of the unit, including whether there had been upgrading of kitchens and bathrooms and the overall size and area of the individual dwellings within the complex. Internal renovations and high-quality finishings would be likely to influence market value but would not necessarily have an impact that would require an alteration of unit entitlements. Mr Gately went on to say that the size of the unit was an important factor in that a larger unit would always have a greater unit entitlement than a smaller unit, other things being equal; and
d)Mr Gately explained that in 2011 he had examined the complex, including the common property and car accommodation, and that he had also inspected the interior of several of the units. His valuation reflected the relative values for the purpose of unit entitlements calculation at the time.
There was some dispute between the parties as to the proper basis of valuation. Mr Gately is a Certified Practising Valuer and the only valuer to have undertaken inspection and assessment of the relative values for the purpose of calculating unit entitlements in relation to Unit Plan 199. There is evidence that the Environment and Planning Directorate would rely upon a valuer’s declaration that the Schedule of Unit Entitlements is reasonable, having regard to the prospective relative improved values of the units as required by section 20(1)(c) of the UT Act. Mr Gately has provided such a declaration.
The Tribunal also had before it evidence as to the cumulative effect of the failure to amend the unit entitlements. Over a 10 year period, the owner of Unit 15 would be required to pay an additional $4860; the owner of Unit 34 an additional $1210; and each of the owners of the four units whose unit entitlements would have been reduced, will have paid an additional amount of $1220. This calculation fails to take into account any increases in levies to the administration and sinking funds of Units Plan 199, or any special purpose fund required from time to time. The applicants estimate that over a 25 year period, and taking into account that there will be an increase in levy from time to time, that the net benefit to the owner of Unit 15 would be in the vicinity of $18,000-$20,000.
The Tribunal notes that the applicants gave evidence that the owner of Unit 15 had at the time of seeking approval for the extension to his unit undertaken to pay the costs associated with amendment to the unit entitlements. There is no evidence that this undertaking was formally recorded or is enforceable, except by way of what the applicant described as a ‘gentleman’s agreement’. The Tribunal further notes that from 2011 until February 2014 the unit entitlements payments were informally adjusted so that each unit owner paid according to the schedule attached to the resolution passed in 2011. The respondents have given evidence to the Tribunal that they have refunded the additional payments made to the owners of Unit 15 and Unit 34.
The Tribunal had before it copies of background briefings, agendas and minutes in relation to the meetings held in 2011 and 2014. Each of the background notes contained errors which have arisen from a combination of misunderstanding and brevity. The background note to the meeting in July 2011 states that a reallocation of unit entitlements is ‘necessary’ when extensions are made to the area of units. There is no absolute legal requirement for the unit entitlements to be amended. However, the background notes with the attached schedule setting out the changes to the unit entitlements is clear and it is explained that it is based upon the assessment of a registered valuer. The background information supplied prior to the meeting in February 2014 appears to overestimate the costs of completing the application to amend the unit entitlements. It states that ACTPLA requires a new valuation, when it appears on the evidence before the Tribunal that Mr Gately’s updated certificate will be sufficient, and includes an amount of $1625 for reimbursement to the owners of Units 15 and 34. The total cost is said to be $6224, but taking into account that overestimation, the total cost is more likely to be about $3000.
Conclusion
The Tribunal had before it a copy of the original assessment of unit entitlements undertaken by the builder, Gary J Willemsen. This establishes that the unit entitlements were calculated based on the area in square metres of the house and carport. The UT Act provides at section 8, that the unit entitlement is a schedule indicating the improved value of each unit relative to each other. The evidence of Mr Gately is that while a number of factors may be taken into account in determining valuations for the purpose of calculating unit entitlements, the area of the dwelling and car accommodation are a paramount consideration. Mr Gately emphasised that the valuation is a measure of the value of each unit relative to the others within the complex. The relative areas of the units have been altered by the extensions to Unit 34 and Unit 15.
The unit entitlement is the proportional ratio allocated to each unit in a unit plan that determines liabilities for levies, rates and taxes and voting rights. The proposed budget for the financial year 2014 to 2015 provided by the respondents shows that the levies paid by unit owners to the administration and sinking fund of Units Plan 199 is an amount in excess of $160,000 and comprises more than 95% of the anticipated annual income. The major expenses incurred per annum are strata management, insurance, maintenance of the building and gardens and water usage. Unit owners, by the payment of levies to the administration and sinking fund, the special-purpose funds from time to time, contribute in accordance with the unit entitlement to these expenses.
The Owners Corporation of Unit Plan 199 voted in 2011 to amend the unit entitlements, because the area of two units had or would increase, the resolutions approving the extensions were passed at the same meeting as the resolution to amend the unit entitlements. The owners were supplied with a valuation by a qualified valuer and with information as to the changes recommended. The applicants gave evidence that they would not have voted in favour of the proposed extension to Unit 15 if the unit entitlements were not to be correspondingly amended.
If the unit entitlements are not amended to reflect the relative values of the units, then some unit owners will be subsidising other unit owners.
The Tribunal concluded that the unit entitlements should be proportional to the value of each unit as determined by a Certified Practising Valuer.
The amendments to the unit entitlements will involve a cost that is to be borne by all unit owners. The additional cost is not a factor that outweighs the long term subsidy by some owners of the owners of Unit 15 and Unit 34.
Section 129 of the UTM Act provides that ACAT may make an order repealing or amending a resolution of a general meeting based on a merits review of the resolution and that ACAT may make any other order it considers reasonably necessary or convenient to resolve a dispute under this part. The Tribunal makes the following orders:
1. Motion 3.1 passed at the meeting on 5 February 2014 (that no further attempt be made to register the amendments to the original Schedule of Unit Entitlements for Units Plan 199 which were approved at the general meeting of owners on 19 July 2011) is repealed.
2. The Executive Committee of Owners of Units Plan 199 shall proceed to make application to the appropriate section of the Australian Capital Territory Environment and Planning Directorate for amendment of the Unit Entitlements for Units Plan 199 in accordance with the valuation provided by Peter Gately in 2011.
3. The legal and other costs incurred in complying with order 2 above are to be assessed upon completion of the amendment to the Unit Entitlements for Units Plan 199 and paid by the owners in accordance with their Unit Entitlements.
………………………………..
Ms J. Lennard – Senior Member
HEARING DETAILS
FILE NUMBER: | UT 14/03 |
PARTIES, APPLICANT: | Carole Sladen, Lindsay Green, Bruce Brammall, Bryan Clarke & Tony Swan |
PARTIES, RESPONDENT: | The Owners – Units Plan No. 199 |
PARTIES APPEARING, APPLICANT | Carole Sladen, Lindsay Green, Bruce Brammall, Bryan Clarke |
PARTIES APPEARING, RESPONDENT | Kay Berry, Margo Morrissey, Michelle De Laine |
TRIBUNAL MEMBERS: | Ms J. Lennard, Senior Member |
DATES OF HEARING: | 27 February 2015 |
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