Unit Owners Association of Queensland advocates for its members and owners towards liveable community spaces in Queensland. To that end we have decided to address the industry in open letters on topics which from time to time have an influence on unit living in Queensland.
Our open letters are crafted in such a way as to provide thought leadership on the topic and to frame industry perspectives, in particular in the interest of bringing more certainty to the actions of Bodies Corporate. We therefore invite industry colleagues from all stakeholders to participate in the discussions framed in those ope letters.
October 2016 - 'Test of reasonableness'. (Download pdf copy here (493KB))
Address to the industry on a topic which causes much consternation in the community schemes - so called 'test of reasonableness' (section 94 of the BCCM Act 1997). Our hope is for further judicial and/or regulatory guidance on the application of the test.
An Open Letter to the strata industry in Queensland from lot owners concerning the reasonableness of actions by Bodies Corporate
To the strata industry in Queensland,
The Unit Owners Association of Queensland Inc. (“UOAQ”) represents thousands of unit owners whose homes and investments are governed by the Body Corporate and Community Management legislation. The substance of our work reflects the fact that members of the strata industry often overlook that it is for the ultimate and primary benefit of owners of lots that community title schemes exist in Queensland, not the third party service providers. Moreover, it is through the payment of levies and purchase monies that owners also serve as the ultimate and primary underwriters of the commerce and trade associated with the initial and ongoing functioning of community schemes. As you know, owners are also formally members of bodies corporate of community titles schemes in whose best interest representative committees of bodies corporate and third party service providers are obliged to act.
From time to time, owners believe it necessary to express a public view on the application of certain provisions of the law or dysfunctionality within the strata environment. On this occasion, we recognize section 94 of the Body Corporate and Community Management Act 1997 (the “Act”) that: “…the body corporate must act reasonably in anything that it does…”. Further, we acknowledge that this test of reasonableness is regarded as objective taking into account all facts and circumstances.
In view of this, the UOAQ pens this open letter seeking to:
- bring awareness to central and ever present facts and circumstances that should be considered in every case to which a section 94 test of reasonableness is applied,
- set out grounds for safe harbour of body corporate actions so that home owners and investors in community schemes can be assured that certain conduct of their bodies corporate will not be subject to claims from third parties on grounds of section 94; and
- gain industry acknowledgement of factors that will in all cases be deemed unreasonable.
The motivation for this open letter is to bring clarity and assurance to homeowners and investors in community title schemes in Queensland.
The Standing Elements
There are certain factors that apply to all situations involving bodies corporate (the “Standing Elements”). These Standing Elements do not change regardless of the circumstances of the case. However, if Standing Elements are not taken into account, determinations on what is ‘reasonable’ may result in different outcomes the section 94 test of reasonableness applies. Accordingly, the UOAQ advocates that the Standing Elements should be taken into account in all determinations on what is reasonable. The Standing Elements include the fact that:
- a fiduciary duty is owed by the body corporate to the owner members,
- the committee must discharge its legal duty to act in the best interests of owner members in accordance with the committee code of conduct,
- each body corporate manager and caretaking service contractor has a legal duty to act in the best interests of the body corporate by acting honestly, fairly and professionally, exercising reasonable skill, care and diligence in performing the terms of engagement,
- financial underwriting role that member owners play in the strata industry and their right to strike bargains through the body corporate with service providers which represent value for money,
- the committee should demonstrate sufficient due diligence in the circumstances by applying an evidenced-based decision-making process,
- the body corporate is free to demand performance of contractual rights from service providers since such service providers have agreed to perform its obligations.
Applying these factors to a given circumstance will affect outcomes. For instance, an adjudication order is not well grounded if unreasonableness is found in the actions of the body corporate committee but the third party claimant is not acting in the best interests of the body corporate members. Alternatively, a committee’s actions should be weighed as more likely to be reasonable if they are in the best interests of the body corporate members and a claimant seeks an outcome which is not.
The Safe Harbour
As a matter of public policy, consideration should be given to the fact that owners in community title schemes are either homeowners or investors. Accordingly, the integrity of home ownership and investment conditions should be safeguarded from unnecessary uncertainty. The UOAQ advocates for legislative and/or judicial safe harbour from impunity for want of reasonableness (a “Safe Harbour”). Only with a clearly defined Safe Harbour can the integrity of home ownership and investment in community title schemes be protected from inconsistent application of the objective test of reasonableness. Moreover, a Safe Harbour gives effect to the objects of the Act to: (a) provide an appropriate level of consumer protection for owners of lots included in community title schemes, (b) ensure that bodies corporate for community titles schemes have control of the common property and body corporate assets they are responsible for managing on behalf of owners of lots in the scheme and (c) balance the rights of individuals with the responsibility for self-management as an inherent aspect of community title schemes.
Accordingly, the UOAQ advocates for a Safe Harbour in which it will in all cases be deemed reasonable action of a body corporate if action is taken:
- in a civil manner (including in writing),
- to exercise a contractual or other legal right or freedom,
- in the best interests of the member owners of the body corporate,
- to mitigate the continued rise in levies to owner members,
- to protect the member owners from continued erosion of consumer rights or breaches of contract, and
- to protect unit owners’ right to the peaceful enjoyment of their lot in a disharmony free community environment.
It is largely self-evident that these factors should be reasonable in every case. In particular, a body corporate should not be prevented by the legislative test of reasonableness from insisting on a contractual right when a bargain is struck freely with a third party. In addition, the exponential nature of a compounded rise in any levy amount over time can never be considered correlated to the deliverance of the ‘value-for-money’ struck on the original date of a contract when it is widely accepted that economic conditions fluctuate and competition and efficiencies in supply of services increase over time. Accordingly, it will always be reasonable to ‘mitigate a continued rise’ in levies into perpetuity.
The UOAQ does not assert that this list is exhaustive and would encourage industry participation to arrive at a definitive Safe Harbour of actions for bodies corporate. Fortifying home ownership and the investment environment is irrefutably best for the sustainability of the industry.
The UOAQ also advocates that certain actions outside of the Safe Harbour be deemed unreasonable for the purposes of the section 94 test in every case to protect homeowners and investors. It follows from the Act that the following actions of a body corporate should be deemed unreasonable in all circumstances. That is, actions which:
- place the interests of third parties before those of the member owners of the body corporate,
- result in a continued rise in levies without maintaining value for money,
- are not in the best interests of member owners of the body corporate, and
- do not protect the member owners from continued erosion of consumer rights or breaches of contract.
The reasonableness test of section 94 of the Act has the potential to bring uncertainty to owners in the strata community adversely affecting the long term prospects for community title home ownership and investment in Queensland. As the primary beneficiaries and ultimate underwriters of community title schemes in Queensland, lot owner concerns should be weighed heavily by the industry in the interests of sustainability; in particular, the institutions charged with governing the strata environment.
Nothing advocated under this open letter is inconsistent with objectives of the applicable legislation in force, as enacted by the elected representatives of the people of Queensland. That any industry’s practical norms might stray over time from legislated objectives can be reasonably expected (especially where suppliers to that industry are not regulated). The question really becomes whether official and unofficial industry participants act to make the necessary corrections through enforcement, regulation and/or judicial action.
The UOAQ invites all industry participants to contribute to the perspectives illuminated by this open letter in the same constructive manner and with the same well-meaning motivation with which it has been issued.