Amendments to the Body Corporate and Community Management Act 1997 (BCCMA) that came into force on Thursday have again turned the Queensland real estate industry on its head and put agents in the gun for contract termination lawsuits as well as re-tooling and compliance costs.
Peter Lawlor – the minister who oversaw the $1.5 billion PAMDA fiasco – was originally at the forefront of this further drive to madness.
The amendments provide for a complex new lot entitlements system.
Contribution schedule lot entitlements must be set equal according to the “equality principle” or if permissible, by reference to one or more prescribed relevant factors under the “relativity principle”.
Interest schedule lot entitlements must reflect the market values of the lots, subject to “just and equitable” exceptions.
Because of the intricacy of the changes, complex transitional provisions mean that it is safer (but expensive) to reissue any contracts that were given to potential buyers prior to cut over but hadn’t been signed by then.
The changes bring with them new disclosure and contract termination rules. You guessed it, buyers will once again have termination opportunities due to agent’s inadvertent paperwork errors and once again, it will take the courts a decade or more to determine exactly what the new rules mean.
Rather, the seller must disclose in the BCCM 206 disclosure statement “the extent” to which contributions are based on the contribution schedule entitlements on the one hand and on the interest schedule on the other.
How can this be done in practice?
Contracts and forms provider, ADL sought advice from the BCCM commissioner as to how the “extent” should be expressed or explained. The advice given, without of course accepting any responsibility for its accuracy was: “It has been suggested that this breakdown between the two schedules could be expressed in terms of a dollar figure, ratio or percentage”.
For many bodies corporate, the “extent” questions will be answered as “the whole” or “100%” for either the contribution or the interest lot entitlement questions and “nil” or “zero” for the other.
But to understand how to answer when there are variations from the norm, we need to digress – just for a moment – from our story.
There are at least two different types of variations. In some cases, $60k of the annual budget may be contributed according to one schedule of entitlements and $40k according to the other. In that scenario, assuming the body corporate administrator has recorded this on a per lot basis, the “extent” can be expressed as a dollar figure in the disclosure statement.
In another variation to the norm, contributions may be divergent, because say, a body corporate has resolved to “levy” (that term since Thursday is obsolete) a greater proportion of landscaping expenses upon the ground floor apartment lots because they have a far greater use of a common garden area.
Eventually such bodies corporate must adjust their contribution entitlements so that, if they cannot be “equal”, they are “relative”, i.e. any variations to equality must be referenced to one or more specific factors referred to in new s 46A. Until such adjustment has been formally accomplished (usually through QCAT), sellers must notify the “extent” of divergence.
This explains the need to disclose but not how such divergence is to be expressed. Consider again the ground floor garden apartment in our example. The “extent” of divergence is very unlikely to be able to be expressed as a ratio or percentage. Can it be expressed as a dollar amount? Only if the body corporate administrator has accurately calculated what it is.
Where that information is not available, the best way to express the divergence in our example may be to answer: “The whole, except that lots G1 & G2 pay a X% of the Z garden expenses (higher than in accordance with their contribution schedule lot entitlements) as a result of which other lot owners (including the lot which is the subject of this proposed sale) pay a lesser sum – refer to CMS and body corporate resolutions for further particulars”. But is this sufficiently accurate to comply?
I don’t know. Your suggestions (‘comment’ below) welcome.
Before we finish on the new disclosure rules, you need to know that the BCCM 206 disclosure statement must be accompanied by a copy of the community management statement (CMS) for the body corporate and both given to the buyer before they sign the contract.
Just remember that not getting it all right will most likely give a buyer an out at any time up until settlement if they are at all “materially prejudiced”.
My guess overall is that it’s another $1.5 billion at least that buyers, sellers and real estate agents will have to pour into the toilet.
But more on termination traps and other horrors to be careful of in our next post. You can’t wait I’m sure.