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The official newsletter of Unit Owners Association QLD Carmel-by-the-Sea Administration Costs Before Expiry of old Management Rights regime

TOTAL ADMIN COSTS

73%

EXPIRED CARETAKER COSTS

27%

NOV-DEC 2012 MARCH 2011

At Last a Win for Carmel Owners They now have a better Management Rights Contract that costs them less

2011 Financial Year

Total Admin Cost

$786,890* After expiry – Owner implemented new management structure

Deduct Caretaker’s Costs

$214,207* TOTAL ADMIN COSTS

100%

($1,714 average per lot per annum)

= Net Administration

572,683

Costs $

*Figures sourced from 2011 Audited Financial Statements.

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EST. 1978


From the Editor

Paul Cassels

Merry Christmas and a Happy New Year When it comes to entering into service or supply contracts for high value amounts (such as for air-conditioning and lift maintenance, painting, etc) bodies corporates are required by law to seek competitive quotes to ensure fair value for owners. So why is it that under current Queensland legislation fee payable for caretaker remuneration – often the single highest expenditure item a body corporate faces – are not treated the same way and are effectively exempt from this kind of competitive tendering requirement?

www.uoaq.org.au Unit Owners Assocation QLD 6th Floor. 333 Adelaide St, Brisbane Q 4000 E help@uoaq.org.au P 3220 0959 uoaq.org.au

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P 3220 0959 or www.uoaq.org.au and request to communicate to a particular person Sue Ekert, Bob Boundy, Elle Young, Paul Cassels. Published by Unit Owners Association QLD Editor Paul Cassels

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We appreciate the support of our sponsors to help us do the work we do. To become a sponsor of UOAQ, please contact Paul Cassels on 3220 0959

CTS Management Suite 35, Level 6. “Northpoint” 231 North Quay Brisbane QLD 4000 Telephone 07 3211 4445 Fax 07 3211 4410 Mobile 0419 741 066 Email coralie.mott@ctsm.com.au www.ctsm.com.au

Hartley’s Body Corporate Management

“How much would a Politician pay for an endless term in office without ever being tested at the ballot box?”

It stands to reason that the only way unit owners can get a clear idea of the cost they should be paying for caretaking services for their building is for the building caretaking contract to subjected to the same competitive tender process that would apply to any other major service or supply contract. This could occur if a caretaking contract is left to run its contractual life, however the policy of incumbent managers to constantly seek premature extensions (top-ups) of caretaking contracts (often without any premium or renegotiation of contract terms) has the effect of forever pushing this opportunity beyond owners’ reach. When a caretaker enters into an initial contract she or he pays a negotiated “value” for the business based on the contract obligations and term. In many instances, extensions to the contract term will deliver additional value exclusively to the caretaker manager without any benefit to owners. ….. How much would a Politician pay for an endless term in office without ever being tested at the ballot box? I would like to thank our great team of volunteers at the UOAQ and your committee members for all the work throughout the year. From everyone at the UOAQ we would like to thank all our members and supporters including the fantastic Advertisers in the Unit News Online. Merry Christmas and a Happy New Year

Coralie Mott

(BA Dip Ed, Cert IV in BCM)

Director and Body Corporate Manager

Quality Building Management Pty Ltd.

Strata Inspections and Reporting

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Your Details. Join Today Title

Membership Details I enclose

Name of complex

Name Phone

Total units in Complex

Mobile

Unit Owners Association QLD

Email Address

Help for Members

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Members of the UOAQ are welcome to contact committee members of the association for any help on any body corporate matter.

Disclaimer

Articles contributed to this newsletter are published as a service to members and do not necessarily reflect the opinion or policy of this Association. To contact the committee of the UOAQ for assistance with a body corporate matter please e-mail help@uoaq.org.au

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help@uoaq.org.au (07) 3220 0959 Level 6 / 333 Adelaide Street Brisbane Q 4000 GPO Box 2359 Brisbane Q 4000

UnitNews November - December 2012

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EST.

1978

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Feature Story

At Last A Win for Owners “At last! A Win for Carmel Owners.....”they now have a better Management Rights Contract that costs them less. The Getting of Value and Control for Owners. One of the most often raised issues with the UOAQ’s phone support service to unit owner members is their anguish regarding their inability to exercise any influence in respect of the ever increasing costs affecting the value of their unit investment, with many resigned to the fact that it is beyond their control to do anything about remedying same and revile with despair and disempowerment. This article details that there is an emerging alternative by outlining what actions owners can take to improve their financial lot. But this requires ACTION not INACTION with high conviction owner support of the building’s voluntary body corporate committee prepared to make a difference in unshackling the building from its inherited and entrenched high cost regime. Set out below is a case study outlining how this building with a proactive committee took positive action which has resulted not only in a substantial winding back of costs with resultant potential to substantially reduce levies going forward, but improved on site management. This related to expiring a long term entrenched caretakers’ contract with the attendant high cost regime that caretaker contract extensions perpetuate. Carmel by the Sea (CBTS) – Broadbeach – 125 Lots (52 Holiday Rental, 26 Owner Occupied & 47 Lock Ups. A high profile 4.5 star Beachfront Property). Recent History, Background, Resolve of Body Corporate Committee and Outcome: • Many years ago, the committee resolved that it would recommend to owners that they refuse any extension requests of the Caretaker’s contract and allow it to expire which was supported by very high conviction owner voting overwhelmingly year after year in favour of this initiative. • Well prior to expiry, drafted a more extensive contract with higher detailed work specification than the incumbent developer drafted contract (16 years old). • Submitted to open market tender, including inviting the incumbent Caretaker to tender on an equal basis with other tenderers. • The new high performance contract incorporated the provision of building management services as well as conferring the rights of property management of the letting pool for a maximum three year period with NIL up-front investment purchase by the successful tenderer. • Incumbent Caretaker was paid Contractual Building Management Fees of $214,207 (excl GST) for the 2011 financial year with its contract expiring on 16 October 2012. • Expressions of interest were received from over 50 interested parties, short listed to six serious tenderers, which included four contracts offered for NIL consideration. • A high calibre tenderer was appointed with NIL caretaker remuneration, took up residence in the building 2 months prior and by contract commencement date had received engagement to provide property management services for sufficient lots ready to operate profitably, confident in the further migration of additional lots transferring to the letting pool to further increase its commercial returns.

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• The Committee was able to negotiate the purchase/subdivision of the office from the expiring Caretaker, allowing the new Caretaker to operate from the incumbent office premises, ratified by a motion without dissent as an alternative to building its own separate office on common property which had been previously approved by the Body Corporate. • See Table of Research data below at lines six and seven which outlines the financial impact on owners by changed Caretaker remuneration (Col C), increased No. of Years Sinking Funds Reserves (Col D) and potential reduced levies if full impact of the savings in the caretaker’s remuneration is passed on to owners (Col E). The resilience of the committee with their foresight, tenacity, unity and dedication to the value enhancement for their owners has to be congratulated in the delivery of this industry breaking initiative, that shines the light in setting out the example for the ‘getting of value and control’ on behalf of its owners. What do you think will happen to value of units in this complex? The many doomsayers along the way with significant self interest decrying any likely successful outcome of this initiative have been proved convincingly WRONG. A common question is how can a new Caretaker undertake and perform the building management to a high standard for very reduced even NIL remuneration? There is a simple explanation: • Unlike the purchase of an existing unexpired Management Rights (MR) contract for a large multimillion capital sum, this newly commenced contract has no such capital outlay up front, because under the legislation, a Body Corporate is prohibited from selling same, so no consideration can be paid so no purchase can take place. • Under these circumstances, the tenderer makes the following assessment relating to what is the commercial viability relating to them: What excess business income from the letting pool, less the costs of provision of buildings management is sufficient to provide an adequate net income, allowing only for the need to service working capital investment, not a large purchased multimillion dollar contract outlay? In the case of Carmel, four separate independent well-credentialed tenderers all concluded and offered a NIL remuneration Building Management contract as being appropriate compensation. Were they all wrong? Lastly, the seminars at which the sale of Management Rights contracts is promoted. When the example of the Carmel outcome was questioned by an attendee at a recent seminar, this was discounted suggesting the likelihood that the new Caretaker would fail financially. What the self interest promoters fail to relevantly point out is that as the Carmel model removes any large up front capital investment being necessary, normal commercial returns from the business achieved are adequate. When will the MR marketing operation accept that a NEW NORMAL is coming as demonstrated by the above case study and slippage of the value of MR contracts will accelerate as is already being signalled by owners questioning an alternative that shifts the value in favour of owners? Perusal of the real estate advertising pages shows the extent of Sale of MR contracts where the number of owners in receivership is testament to this emerging realisation of the financial deterioration of this product.

November - December October 2012 UnitNews

3


Feature Story In a separate article, a range of the due diligence questions that should be asked by purchasers of MR contracts might assist prospective purchasers of MR contracts carefully looking before leaping onto the financial merry go round that is Mangement Rights! When approaching the Carmel Body Corporate Committee for comment, this was declined with the information researched limited to their audited financial statements, website (carmelbythesea.net.au) and communications to owners. The table below provides the financial research that supports the case study commented on above. It confirms the average per lot per annum caretaker costs split into the three segments

of MR contracts: No/Low years (Line 1), Standard Module Buildings (Line 2) and Accommodation Module Buildings (Line 3), with examples of a building with good financial performance (Line 4) and conversely poor financial performance (Line 5). These last 2 lines highlight this stark contrast between the low Caretaker costs, higher number of year’s sinking fund reserves and lower levies. Will the market start to seek out buildings that may offer enhanced future value? Keep an eye on those buildings DARING TO BE DIFFERENT by SAYING NO TO CARETAKER EXTENSIONS and REGAINING BUILDING CONTROL BY THEIR BODY CORPORATE.

Table of Research Data

No. Buildings In Data Base Statistics Average

Average Annual No Years Caretaker Sinking Costs Fund P L P A Reserves

1 2 3 4 5 6 7

(C) (D) 830 1,278 1,298 1,144 6.90 1,876 0.94 1,714 4.42 0 5.50

(A) (B) No/Low Years MR Contracts 7 Standard Module Buildings 23 Accommodation Module Buildings 52 Example of a Building with good financial performance Example of a Building with poor financial performance Carmel by the Sea (Previous Caretaker Costs) Carmel by the Sea (Adjusted to New Caretaker)

A free service is provided to financial members of UOAQ to have the ranking of the financial performance of their building and a financial evaluation report provided which is ranked against unidentified

Total Levies PLPA (E)

2,869 5,957 6,694 4,980

benchmarking data of over 100 buildings. Please contact UOAQ to provide this for your building.

“Performance Based” Management Solutions Our Professional Body Corporate Management Service includes:

CTS Management

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UnitNews November - December 2012

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A FREE service that costs Owners PLENTY UOAQ now provides a service to assist Queensland Unit Owners to improve the quality and cost of their Body Corporate Administration contracts through better tendering practices and to counter alternative services being offered which purport to offer a free service but charge exorbitant fees to tenderers with the Body Corporate Committee being unaware of these undisclosed and embedded costs. Just as the saying goes – ‘there is no such thing as a free lunch’, “Clearly an independent and impartial service was needed so UOAQ stepped in to fill the void,” said UOAQ treasurer Bob Boundy. Many Body Corporate Administration contracts come up for renewal each year and must be dealt with at the AGM so Body Corporate Committees are often dealing with the issue late in the year and at a time when many other issues compete for their attention. This can leave the appointment of the Body Corporate Manager in their own hands, having a vested interest in retaining the work on a ‘flow on’ basis rather than having their contract go to open market tendering – in any other industry this is called a clear conflict of interest. It is not in the interest of BC Managers to point out the significant advantages to owners in testing the market value of their Administration contract in the open market so they may not raise the matter until it is too late to go to market and the incumbent’s name is put forward by motion in the Notice of AGM by default, generally without an alternative even being offered with Committees being too time poor to take any alternative action. Some Managers have exploited this situation even further by writing into their contract that they must be paid in advance making any subsequent challenge over costs more problematic. They do not give owners an option to pay after service delivery and when raised

Remember if someone offers you a deal that sounds too good? It probably is!!! UOAQ helps building owners tender for improved Administration Contracts.

by discerning owners or committees, the catch all phrase of “its industry practice” is used as a defence. “Rorting in any other industry” Unfortunately for owners this dubious practice is making it more common in the industry for BC Admin rights contracts to have advance payments written in to them. When UOAQ looked at the availability of commercial services to assist Bodies Corporate with tendering their Administration contract the result was alarming. It found companies offering what they call a “FREE” service but which in fact locks a successful Body Corporate Administration Manager into large up front fees that are so high as to be unviable, and to fund such payments are then introduced to a financier to borrow the funds to pay these significant fees ahead of the cashflow from receipt of the fees from the Body Corporate. These fees can be as high as 2.5 times the basic fee. So where a BC Managers annual fee is $10,000, they would pay $25,000 to be allowed onto the tender list. What Body Corporate Administration Manager can afford to pay away 2 ½ years out of their 3 year’s fee income to take on the work. As all tenderers pay this extreme fee, this is disguised as being FREE to Bodies Corporate as it is the BC Manager who pays the fee, but this is a less than transparent process. Ultimately it is owners who pay either directly or indirectly, as the high embedded fees are passed on in the tendered fees with the service provider organising the tender being the winner. Wise Body Corporate Committees recognise that their incumbent Administration Manager has a conflict of interest and arrange for independent testing of their contracts each year. This needs to be started around three months prior to the AGM so that there is time for Tender Preparation, Calling for quotations, Assessment of tenders, consideration and formulating a recommendation to owners which are the steps in the process that the UOAQ follows to provide a considered recommendation to go with AGM documentation that must be in owners’ hands 21 days prior to the meeting. This is provided at a quoted but token cost of the other ‘FREE’ services on offer.

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November - December 2012 UnitNews

5


Quick News

Caretakers’ Contracts

Owners Motion for next General Meeting - Owners to consider alternative Caretaking & Letting arrangements.

ORDINARY MOTION - That the body corporate does not prematurely extend the caretaking and letting agreement ahead of their expiry date and instead requires the committee to investigate alternative options two years before the expiry of the current contract and report back with a comprehensive analysis of the various options available to the next general meeting of owners.

4. There is no obligation on owners to extend existing contracts, as the incumbent Caretaker should have achieved full value of its purchase by the time they expire, given that no future extensions can be mandated in advance at time of purchase. In fact the legislation provides a finite period for the original term of the contract, so they were always intended to terminate at expiry.

– Add Value to Owners by Not Extending.

Caretakers’ Contracts – Add Value to Owners by Not Extending. Extensions to caretaker’s contracts are becoming a divisive issue in buildings where the interests of the two parties are in conflict. Caretakers prematurely request extensions influenced by what best suits their own commercial interests: the longer the term, the greater the value and this lifts their security value supporting their bank accommodation, potentially reducing their debt repayments over a longer period, none of which confer any benefit on owners. Owners benefit by not extending contracts and undertaking the course of action as set out in the draft template motion and explanatory Schedule below. The UOAQ www.uoaq.org.au encourages unit owners and committees to be proactive in lodging this motion at their next general meeting that flags the potential to reduce future costs. Explanatory Schedule: Instead of only considering a request to extend the incumbent Caretaker’s Caretaking and Letting Contracts prematurely, the committee should be empowered to consider the alternatives that will otherwise be available and potentially beneficial to the Body Corporate.

Everything Covered? For Professional, Friendly assistance and quotes call

A summary of some of the reasons to allow the incumbent Caretaker’s contract to expire and consider the alternatives of entering into an entirely new agreement are as follows: 1. Quality of the Contract Document. There is no opportunity to amend or rewrite the current contract (without the Caretaker’s consent) which may be somewhat out of date and bland or ambiguous in the specification of the obligations of the contractor. Commencing with a new agreement and precisely specifying the obligations of the contractor to be incorporated in the contract can improve the expectations of the parties. 2. Open Market Tender: This process provides a fair basis for the market value of the contract to be assessed. An efficient, incumbent Caretaker, if invited to tender, would have the best opportunity to be successful, having home ground advantage and best building knowledge of the complex compared to other tenderers. 3. The caretaker’s cost is generally the largest single annual administration expenditure of the complex at around 35+%. Given the obligations of the Body Corporate Committee to act in the best interests of all owners, how is it reasonable to allow this large expenditure to continue and never be reviewed, only indexed upwards? Whilst a relatively new approach, bodies corporate that have allowed the previous contracts to expire and entered into new agreements have made very significant cost savings, whilst maintaining high calibre management, and achieved a significant reduction in owners’ levies. Sinking Fund Forecast Insurance Valuation Builders Warranty Condition Assessments Safety Risk Reports Asbestos Reports Fire Safety Reports And much more

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5. The financial / banking arrangements of the Caretaker should not be a higher consideration than the rights of owners. Owners have the right to let the existing Caretaker’s contracts expire and then enter into new arrangements. 6. Granting a new contract, to commence immediately on expiry of the existing contract, means there is no large up-front payment by the successful applicant, so Owners will have a wider choice of applicants, that is not limited to their financial capacity to buy an existing Caretaking contract, but more importantly on their likely future management performance. The old process of extending existing contracts puts value in the hands of the Caretaker but never reduces the body corporate’s costs. 7. Shorter duration contracts limited to three years which are purely performance based, become far more feasible under this scenario, which reduces performance risk. 8. The Unit Owners Association of Queensland (www.uoaq.org.au) fully endorse the policy of Sustainability in CTS schemes in Queensland.

SIGN UP TODAY. uoaq.org.au

Quality Building Management Pty Ltd.

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Strata Inspections and Reporting

UnitNews November - December 2012

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Feature Story

Perversion Of The BCCM ACT 1997 For many years (even before 1997) the Queensland Resident Accommodation Managers Association (QRAMA) (recently changed to ARAMA Queensland) has exercised a disproportionate influence over the content and drafting of the Body Corporate Community Management Act 1997 (BCCM Act). This influence by ARAMA has been possible due to the under representation of unit owners. This disproportionate influence has resulted in the BCCM Act being totally unbalanced, discriminatory (against unit owners) and biased (against unit owners). That is, perverted from its primary objective of “balancing the rights of individuals with the responsibility for self management.” NOT - control and management by minority vested interest groups! During this period where ARAMA had control and influence they have been happy to follow the conciliatory approach: “All parties have their point of view and for the past 10 years have collectively worked together to seek to establish a more professional approach on all matters impacting within the strata and community title industry, to deal with day to day matters as well as the longer term issues.”

Hartley’s Body Corporate Management ‘Looking after all your Body Corporate Needs’

However, as soon as any opposition to their vested interests appears to be gaining traction, there is an abrupt change in attitude: “In recent weeks there has been a significant rift in the relationships, as many of the old shibboleths and self interests of parties have again been given prominence in the public arena and a very serious “them and us” situation has recurred. A call has been made to ignore the rights of other stakeholders and destroy their investment.” ( This of course refers to the “Say No” campaign elucidated below) ARAMA continues: “I am very concerned that a hostile minority within the largest group of stakeholders is potentially threatening the asset viability of their colleagues, by the selfish tunnel vision approach to what is now a national industry, not a cottage industry.” ARAMA then resorts to their old tactic of misrepresenting the facts: “Provision of services costs money but destruction of a structure that was in place and agreed to when each owner purchased their lot is a very short-sighted approach that destroys benefits as well. “ The facts are that there is no move to change the “structure” that was in place when the unit owners purchased. The unit owners are simply being alerted to one of their few remaining rights under the Act. ARAMA implies that it is treasonable for unit owners not to commit themselves to an extension of a contract that commits the unit owners, and their successors, to future debt while having no escape from the contract; all without benefit to the unit owners.

■ Financial Management ■ Agendas & Meetings ■ Administration of your Scheme ■ Maintenance ■ Dispute Resolution ■ Compliance

The ARAMA author is unquestionably an extremely articulate, eloquent and convincing writer, however, to those with an intimate knowledge of the BCCM Act, his arguments are obviously defective and misrepresentative of the facts. ARAMA represents a small vested interest group of building caretakers and letting agents who are totally reliant on the investment of unit owners, who collectively own the buildings that

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November - December 2012 UnitNews

7


Quick News the caretakers are employed to maintain, and in which they are given the rights to conduct a unit letting business. The unit owners are the only group who contribute financially to the ownership and maintenance of their building, and yet under the BCCM Act they are not permitted to recoup any of their expenses from the sale of the caretaking or letting rights. ARAMA currently claims to have some 900 members managing 43000 units with a property value in excess of $12 billion. To put these figurers into perspective these 43000 units valued at $12 billion are totally owned and funded by the unit owners – not ARAMA. ARAMA further claims that their members generate $330 million in holiday letting and $290 million in long term letting. Again putting these claims into perspective, the unit owners through their investment in unit buildings generate this income. Not ARAMA! This income would be available with or without ARAMA, but it would not be available without the investment of the unit owners. Compared to the 900 members claimed by ARAMA (Australia wide) there are some 380,000 unit owners in Queensland alone. This fact should ring the warning bells for any political party. The foregoing is but a small example of the misconception of the unit industry proliferated by ARAMA. One other is that their members bring expertise and qualifications to building management. To a limited extent this may be correct. However, many caretaker/letting agents are mum and dad operators who are buying themselves a job and a lifestyle. They have obtained a limited real estate licence, have never previously managed a building, have no hospitality training and no engineering knowledge of the building systems and facilities. For the first 12 months of their employment they are more of a liability than an asset to the unit owners, and after two years they are looking to sell and move into retirement. Compare ARAMA members’ qualifications to those of the Hotel Motel Accommodation Association (HMAA) many of whom hold tertiary qualifications in hospitality, tourism, building management, accounting or engineering. These are professionals who make a life long career in the hospitality, tourism and building management industry.

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UnitNews November - December 2012

The perverted influence of ARAMA on the BCCM Act has resulted in caretaker/letting agents becoming a protected species beyond the control of the unit owners. This has made their position in the small business community unique. Unlike normal small business operators whose success or failure depends on their energy and business ability, caretaker/letting agents can totally fail in their positions as caretaker and letting agent, but the unit owners cannot terminate their employment and must continue to pay them even when they fail to perform their duties. This protected status of caretaker/letting agents has resulted in the rights to their business being grossly overvalued by any measure of normal small business worth, and this in turn has led to some adjudicators claiming that to sack them for breach of contract is too severe a penalty given the value of their rights. ARAMA has further extended its perverted influence by convincing the Government that caretaker/letting agents should not pay a penalty for early termination of contract after two years. Also again, notwithstanding that the Objectives of the BCCM Act in part state: • “to 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 included in the schemes; “ • “to provide bodies corporate with the flexibility they need in their operations and dealings to accommodate changing circumstances within community titles schemes” ARAMA “successfully reversed the draft proposal that the (building) office must be on common property”. (ARAMA Newsletter December 2007). This effectively removes control and flexibility from the Body Corporate and gives control to the caretaker/letting agent. Control of the office is essential to management and control of the building. This action by ARAMA clearly demonstrates ARAMA’s vested interest approach in arguments to Government legislators, its total disregard to the objectives of the BCCM Act and total disregard of the interests of building unit owners. The unit owners are starting to raise their concerns with the BCCM Act and unjust practices that have been perpetuated by ARAMA for far too long. One example of this is the ‘Say No’ campaign being run by the Queensland Unit Owners Association. This campaign educates unit owners and committees that they can ‘say no’ to caretakers demanding extensions to their contracts. ARAMA is crying foul and publishing information to discredit the unit owners. The extensions to contracts are worth millions of dollars to caretakers, but under the BCCM Act the Body Corporate (unit owners) are not allowed to profit. The injustice is obvious. If the BCCM allowed the Body Corporate to sell the extensions, then there may be some justice in the system. The developers are allowed to sell caretaking and letting agent contracts! Why not the Body Corporate? Clearly the Queensland Government has allowed itself to be influenced by a vested interest group that has usurped the objectives of the BCCM Act for its own gain and to the detriment of the unit owners of Queensland. Considering the projected growth in unit ownership, there is an urgent need for the Government to consult with informed representatives of unit owners who understand the unit industry, the BCCM Act and the complexities of legislative drafting and standards. Such a group exists, and is willing to give freely of its time and energy in establishing a level playing field in the ownership and management of residential and accommodation units in Queensland. If the Government acts in the public interest it should consult the major stakeholder by accepting this offer, the writer is prepared to liaise with the members of the group and the Government to formulate a working party to review the BCCM Act and associated Regulations.

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Quick News Subject:

North Queensland Insurance

This affects you and all your owners and clients!!

Re:

The Insurance Issue In North Qld

My name is Margaret Shaw and I have been fighting the insurance increases for the last 18 months. I have now set up an on-line petition and I’m asking you, and all the people you can reach to get on-line and sign it. The petition can be found at www.change. org/queenslandinsurance asking for support. It goes to insurance companies, the Insurance Council of Australia, State and Federal Government Treasurers etc. Basically, I think this is my final fling. I don’t want to give up but if this doesn’t get a response from the Insurance Council of Australia, and Federal and State Governments, then I think I’ve run out of ideas. I’m one of the fortunate ones who can afford to pay my bills, but there are so many who can’t and the majority are mostly older people in retirement villas and units, and those on fixed incomes. The people emailing me after several articles in the papers of Townsville, Mackay, Rockhampton, and on ABC radio 630 are just telling horror stories.

This Affects All Property Owners In North Queensland. The ongoing problem with insurance in North Qld is going to affect everyone, no matter what type of property they own, or where they live in North Queensland.

around 36%, and even in earthquake-torn Christchurch the increase is only 30% for residential properties (up to 80% for commercial). So if the increases are due to reinsurers penalising this area of the world due to Yasi, Japan, Christchurch, as the Insurance Council of Australia would have you believe, why are our increases higher than others? There are so many stories, it’s heart-breaking. These increases are devastating lives and businesses and causing huge mental, physical health and financial difficulties. We want: •

The recommendations resulting from the Cross Party Federal Parliamentary Inquiry held in February 2012 to be actioned in full - in order to help all home owners.

The Insurance Council of Australia to concede there has been market failure in North Queensland.

Please sign the petition, ask for a fair go for North Queenslanders. Please get everyone in your offices to sign the petition, and please send it to all your friends/owners and anyone you can so they can have their say.

As you may be aware, with the support of Warren Entsch MP and Senator Jan McLucas we managed to achieve a Cross Party Federal Inquiry in February this year, the result was nine recommendations of which only one has been actioned and that report was released on 19th October and was a complete waste of time. The facts are: Insurance companies in Queensland are driving homeowners to the wall. Premiums for units, large complexes and resorts in North Queensland have increased by 200-800% - The insurance at Seastar Apartments Airlie Beach where I live (25 units) went from $25,000 to $81,000 in a year. House premiums are beginning to rise rapidly too with houses in the suburbs of Townsville getting renewal notices for $20,000 and Ingham $26,000 (I guess Allianz doesn’t want the business), according to people on the land west of Townsville rural insurance is now close to impossible to get, and Warren Entsch MP notes “We are now getting examples where banks are issuing ‘show cause’ letters – one Cairns guest house had 13 rejections and now cannot meet the requirements of their mortgage.”. House owners can still shop around (but for how long?), strata owners cannot. It’s completely unjustified - many increases are for buildings that have not flooded, have not claimed for any cyclone damage (or minimal claims) in the last five years, and are not affected by bushfires. Also, because there are only one or two companies insuring larger buildings, they charge whatever they like. Even those who got damage require help. Meanwhile, the newspaper reports state that properties in Brisbane which did flood have received insurance premium increases of

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Quick News

By Gary Bugden*

Uncertain future for Body corporate levies Home unit owners in Queensland are bracing for further changes to the way lot entitlements are allocated to the various units in their buildings.

History of change

a complex assessment of the extent to which the respective units drew upon the financial resources of the body corporate. That is, it applied a “user pays” principle. Pre 1997 buildings were given the right to make application to a specialist adjudicator to have their interest schedule entitlements reallocated in accordance with the new rules. Some 150 of those applications were made, most being successful because of injustices that existed with the original allocations. These reallocations were unpopular with many of those owners having to pay higher levies as a result. Some owners argued that people purchased their units with knowledge of the lot entitlements and that it was unfair to allow those people to seek to change them retrospectively.

Before 1997 lot entitlements in Queensland home unit buildings were allocated, often unfairly, by developers with little or no guidance from the law. In 1997 a coalition Government changed the law to create two sets of lot entitlements – interest schedule lot entitlements (dealing with common property ownership) and contribution schedule lot entitlements (dealing with voting rights and levy liability). In post 1997 developments the interest schedule entitlements were to be allocated equally unless, in the case of the particular building, it was “just and equitable” that they should be allocated in another way. This just and equitable test involved

Last year the former Labor Government amended the law to broaden the criteria for reallocation of lot entitlements and to allow a single owner aggrieved by a decision of a specialist adjudicator made before the amendment to bring about a reversal of the adjudicator’s decision – the original allocations then being reinstated. This action was unpopular with those owners who had previously obtained or benefited from reallocations. Apart from the costs incurred in obtaining the reallocation, reinstatement of a system adjudged to be unfair was considered objectionable. The amendments also increased the uncertainly about future reversal applications.

Lot entitlements determine things such as shares of ownership of common areas, voting entitlements and liability for maintenance levies. It is this liability for levies that is of special interest to unit owners, particularly older owners and those on fixed incomes. A change in lot entitlements can affect the amount that an owner has to pay their body corporate each quarter. In some cases this can also have an impact on the value of their unit.

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The Newman Government currently has a Bill before Parliament to enable reversal of the reversal of the adjudicator’s decision (i.e. to reinstate the original decision of the adjudicator). The Minister responsible, Attorney General and Minister for Justice, the Honourable Jarrod Bleijie, has also indicated that next year he will commission an expert panel to come up with the best way to allocate lot entitlements. Further changes to the law are then likely. Meanwhile, for unit owners the uncertainty continues as to how one’s share of maintenance levies may in the future be calculated. Fifty years ago, when strata titles were first introduced in NSW, lot entitlements were allocated in proportion to the respective areas of the units. This resulted in many instances of unfair allocations, caused mainly by units with exceptionally large balconies or with courtyards that were part of the unit title. Parking and storage spaces also had the potential to distort the fairness of allocations made using this approach. Subsequently in 1973, NSW moved to lot entitlements being allocated according to the respective values of the units in the building. Even this approach has had its problems where the respective values change because of such things as views being blocked by new buildings, improvements being made to some units but not others or market fluctuations where some types of units become more marketable than others. The move by Queensland in 1997 to adopt two schedules of lot entitlements instead of the normal single schedule was an attempt to overcome the unfairness of a single entitlement allocation regulating the sharing of ownership, voting and levy liability. This was an excellent approach which mirrored the practices in some

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Quick News North American jurisdictions. Where it went wrong was, arguably, the allowing of virtually unrestricted changes for existing schemes. This retrospective approach galvanized the opinions of a large body of unit owners against the “equality” form of allocation. It was this body of opinion that prompted the previous Government to act as it did in changing the law. The current position in Queensland is that allocations may take account of a range of things, such as equality, equity, management arrangements, unit usage (e.g. residential or commercial), market values, extent to which the unit draws on the body corporate’s financial resources and the nature, features and characteristics of the units. Comparatively, the Queensland position is one of the more complex in the world. And therein lies the reason for the uncertainty.

Leary & Partners Caretaker Duties Valuations and Tenders Are you a member of a body corporate and concerned about the level of remunera-tion paid to your resident unit manager?

The choice for Queensland

Does your body corporate wish to call tenders for the caretaker duties?

Ultimately, the choice for Queensland will involve the selection of one of the established criteria for allocating entitlements (i.e. value, area, equal or just and equitable) or the combining of these and other criteria to come up with a more reliable outcome. The use of single established criteria will result in instances of unfairness, as has been the experience around the world. Use of a combination of criteria, if properly applied, may result in a fairer outcome, but it will likely result in the same level of uncertainty as currently exists in Queensland.

Our company has prepared numerous valuations of Caretaker Duties for buildings from Port Douglas to Coolangatta. We have experience with large hotel style com-plexes of three hundred units right down to small boutique developments of less than fifty units for both valuations and a calling of tenders.

The fact is that there is no perfect solution. Developers and governments around the world have been trying for almost a century to come up with the perfect solution, but it has evaded them. Queensland is up with the best when it comes to the approach to allocation of lot entitlements and the challenge for the Government will be to ensure that we remain there.

For a fixed fee quotation or to discuss these specialist valuation services call us on 1800 808 991 or email enquiries@leary.com.au

• Gary Bugden OAM is a Brisbane Lawyer who practices exclusively in body corporate law. He also regularly consults on that law for Australian and overseas Governments.

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