The Body Corporate and Community Management and Other Legislation Amendment Bill 2023 (Qld) (the Bill) has been introduced into Queensland Parliament to amend the Body Corporate and Community Management Act 1997 (Qld) (the BCCM Act) and some other legislation. We will outline and discuss the major changes that are proposed in the Bill. There are some other changes that are less impactful to the everyday lot owner also proposed in the Bill that we will not touch on in this article.
Termination of community titles schemes
The most significant amendment that has been introduced by the Bill is another avenue of termination of a community titles scheme. Currently, a scheme may only be terminated where 100% of owners are in agreement. This will remain, however the amendment introduces the ability for a scheme to be terminated by 75% of owners voting in favour where there are economic reasons for termination.
What are economic reasons for termination?
The Bill defines “economic reasons for termination” as the scheme not being economically viable, or it will not be economically viable within 5 years, to carry out repairs and maintenance to maintain the common property in good or structurally sound condition.
What is “economically viable” has not been defined, however the body corporate must take significant steps prior to terminating for economic reasons.
We have already had some interest as to what the threshold for what is “economically viable”. In our view, the threshold will fall far below the requirement for the works required to cost more than the replacement value of the building. It may be the case that the sinking fund forecast showing the need to increase the levies over an extended period to keep up with maintenance of the building may be reason enough to terminate the scheme. This is supported by the statement from the Attorney-General, who said that these laws “…recognise that it might not make economic sense for lot owners to have to pay large body corporate levies to repair and maintain their buildings, when a significant majority of the lot owners would rather the scheme be sold for redevelopment.”
We would expect that the Court will consider the reasonableness of the decision, being a significant pillar for everything a body corporate does. The Court should be considering how likely is it that repairs are going to be required, what advice has been received that building repair costs will escalate, how many owners have voted in favour of the termination and the age of the building.
We consider it important that Parliament considers clarifying what is “economically viable” to mitigate potential future disputes, as this is one of the largest grey-areas that will be open for dispute under this new process.
What are the steps required to terminate for economic reasons?
Pre-termination report
The body corporate must prepare a pre-termination report prior to considering a motion to decide to terminate for economic reasons. The report must include details such as a market value for each lot and the scheme land, a statement of assets and liabilities held by the body corporate and reports prepared by a qualified person as to the economic viability of the lots and the condition of the common property and assets, including the cost of any repairs to the common property and assets.
The Bill specifically confirms that a person must not be engaged to prepare the required reports if the body corporate “knows or reasonably suspects” that person has a conflict of interest. This is mirrored when discussing who can be a “facilitator”, which is discussed further below.
Economic reasons resolution
The body corporate must give each lot owner the pre-termination report at least 90 days prior to the general meeting where a motion to consider whether economic reasons for termination exist. This is called an “economic reasons resolution” and can be passed by majority.
Termination plan resolution
If the economic reasons resolution passes, the body corporate may then pass a termination plan resolution by majority. The Bill does not prohibit this termination plan resolution being considered at the same general meeting as the economic reasons resolution, and we would consider it more efficient that these motions be considered together, rather than waiting for and expending the cost of another general meeting to be called and held.
If the termination plan resolution passes, the body corporate must, within 14 days, notify the relevant persons including all owners, occupiers, registered mortgagees and the caretaking service contractor and letting agent in the scheme.
Termination plan
Where the termination plan resolution passes, the body corporate must produce and provide owners a copy of the termination plan at least 120 days before it holds a general meeting to consider a motion for a termination resolution.
The termination plan must outline certain details, including the details of the proposed purchaser and purchase price, how the assets and liabilities will be distributed and an estimate of the amount each owner will be entitled to at the end of the sale.
Termination resolution
A termination resolution must pass by 75% of all lot owners voting in favour, with no proxy votes. A regulation module may also determine that this must be conducted by a secret ballot.
Appointing a facilitator
Should the termination resolution pass, the body corporate must then appoint a facilitator to assist with the implementation of the termination plan. We have concerns with the open-ended definition of who can be a “facilitator”. We consider this role should be limited to specialised persons to ensure the termination plan and relevant legislative requirements are adhered to.
We also note that there is very little clarity around what happens after a termination resolution passes. For instance, is there a timeframe within which the body corporate must commence the process, including how quickly they must appoint a facilitator? This should be clarified in the Bill to ensure that disputes in this regard can be mitigated.
Summary of steps
A high-level summary of the steps required for termination of a community titles scheme is below.
| Step | Resolution type | Timeline | |
| 1 | Prepare and distribute a pre-termination report | 90 days prior to considering an economic reasons resolution | |
| 2 | Consider an economic reasons resolution | Majority resolution | |
| 3 | Consider a termination plan resolution | Majority resolution | |
| 4 | Notify all relevant persons that the termination plan resolution has passed | Within 14 days of the termination plan resolution passing | |
| 5 | Prepare and distribute a termination plan | 120 days prior to considering a termination resolution | |
| 6 | Consider a termination resolution | 75% of all lot owners in favour | |
| 7 | Notify all relevant persons as to the outcome of the termination resolution. If the termination resolution passes, notify the other parties identified under the Bill. | Within 14 days of the termination resolution being considered | |
| 8 | Appoint a facilitator to assist with implementing the termination plan | ||
Challenging a decision
Where an economic reasons resolution is considered, an aggrieved party may, within 90 days (either of notice of the motion passing being received or of the day the motion was considered, depending on the aggrieved party) apply for an order of a specialist adjudicator to resolve the dispute. Where this occurs, the body corporate may not consider a motion to pass a termination resolution before the dispute is resolved.
Certain parties (including the body corporate, owners and the appointed facilitator) may apply to the Court to dispute the outcome of a termination resolution within 90 days of receipt of notice of the outcome. There are restrictions as to what parties can seek certain orders. Where such an application is made, the body corporate cannot take any action to implement the termination plan.
It is interesting here that the onus to dispute the outcome of a successful termination resolution falls to the aggrieved owner. Under the current legislation, the onus is reversed, where the body corporate must bring an application against an owner who votes against termination. We will no doubt wait for a brave owner to challenge a successful termination resolution.
That being said, when an owner makes an application challenging a successful termination resolution, the body corporate must pay the reasonable costs incurred in that proceeding, and further has the onus to prove that it is just and equitable to implement the termination plan. This removes one large deterrent from owners challenging a termination resolution – cost.
This requirement to cover the cost of the proceeding is not limited to circumstances where the body corporate is unsuccessful in proving that it is just and equitable to implement the termination plan. In our view, this may open the floodgates for owners who do not have a legitimate case disputing the outcome just for a run at it.
Effect of termination resolution
Once the scheme is terminated, the body corporate is dissolved. Upon dissolution, the former owners become entitled to the body corporate assets in shares proportionate to the interest schedule lot entitlements (ISLEs) that were in effect immediately prior to dissolution. The liabilities will also vest in the former owners. The amount a lot owner is entitled to from the sale of the scheme is to be distributed in accordance with the market value of each lot, which will have been outlined in the termination plan.
By-laws
Some of the other amendments included in the Bill relate to the by-laws that can be implemented for a community titles scheme.
By-laws about the use of smoking products
A body corporate will now be able to implement a by-law that prohibits the use of smoking products on the common property, the body corporate’s assets and outdoor areas within a lot or within an exclusive use area. It is specifically declared that a by-law of this nature will not be oppressive or unreasonable (so long as it adheres to the legislative requirements).
This amendment implements the well-known decision or Artique, whereby the Adjudicator upheld a lot owner’s request for an order that another lot owner cease smoking on her balcony due to the health hazard of the smoke drift.
Importantly, this amendment does not legislate an inherent right for a body corporate to prohibit smoking in certain areas of the scheme. It allows for an appropriate by-law to be included, which the body corporate can then enforce to prohibit smoking.
The Bill clearly identifies that these by-laws relate only to smoke that is regulated by the Tobacco and Other Smoking Products Act 1998, so smoke generated from barbecues or similar appliances will not be covered by this amendment.
Pet by-laws
The Bill amends the BCCM Act to codify what has long been an existing state of the law regarding by-laws regulating pets on scheme land. A body corporate will not be able to include a by-law that prohibits the bringing of an animal onto a lot or common property, and a by-law must further not restrict the number, type or size of an animal that an occupier may bring onto the lot or the common property.
The amendment further allows that the by-law may prohibit animals being brought onto scheme land without the prior written approval of the body corporate or the committee, and the committee may enforce conditions that are reasonable in the circumstances.
While the body corporate may not be able to restrict the number, type or size of an animal that may be brought onto scheme land, an owner or occupier is still subject to the local council laws in this regard. This cannot be used as a free for all to bring any kind of animal onto scheme land.
Next steps
These amendments are still subject to the Bill passing through Parliament.
In our view, there are still some major issues that have been identified by industry leaders that need to be rectified before this Bill becomes law to ensure that the rights and obligations of stakeholders are properly balanced.
However, we ultimately welcome these changes. Too often we have seen schemes that are clearly not “economically viable”, even reaching the point of the repairs required exceeding the replacement value of the building. This is particularly pertinent on the Gold Coast, where some stubborn owners refuse to vote in favour to redevelop an aging scheme.
If you are concerned with the proposed changes of this Bill, please reach out to one of our Body Corporate Lawyers on 07 5539 9688 to discuss your options.