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Sharing Expenses inCommunity Titles

Schemesiscussion Paper on Lot Entitlements

under the Body Corporate andCommunity Management Act 1997

December 2008

Table of Contents

Attorney-General’s foreword ................................................................................... 1

Introduction ............................................................................................................... 2

How to make a submission...................................................................................... 3

Setting the scene ...................................................................................................... 4

What are lot entitlements? ...................................................................................... 4 Purpose of contribution schedule lot entitlements............................................... 4 Purpose of interest schedule lot entitlements ..................................................... 5

Historical review of lot entitlements in Queensland................................................. 6 Building Units and Group Titles Act 1980 ........................................................... 6 Body Corporate and Community Management Act 1997.................................... 6 Body Corporate and Community Management and Other Legislation Amendment Act 2003.......................................................................................... 8 Fischer v. Body Corporate for Centrepoint Community Title Scheme................. 9 Body Corporate and Community Management and Other Legislation Amendment Act 2007........................................................................................ 10

Issues....................................................................................................................... 11

The current system for setting and adjusting contribution schedule lot entitlements: Is it appropriate? .............................................................................. 11

The current system for setting and adjusting contribution schedule lot entitlements: Other issues..................................................................................... 21

Other issues .......................................................................................................... 23

Appendix 1: An example of the application of lot entitlements.......................... 24

Appendix 2: Summary of lot entitlements legislation by jurisdiction................ 25

Appendix 3: Review of lot entitlements under the Body Corporate and Community Management Act 1997 submission form.......................................... 28

Attorney-General’s foreword Community titles schemes, whether high-rise apartments, townhouses, villas or commercial premises, involve the collective ownership and management of common property and body corporate assets. The relationships between owners in community titles schemes are governed by the Body Corporate and Community Management Act 1997 (the BCCM Act), which is designed to provide clear guidelines on rights and responsibilities. The BCCM Act provides for owners to be allocated two types of lot entitlements – a contribution schedule lot entitlement and an interest schedule lot entitlement. These lot entitlements are used to determine a range of matters for the first and each subsequent owner of a lot, including the lot owner’s responsibility to contribute to the costs incurred by the body corporate in managing the common property, voting rights in some instances, and the lot owner’s share in the common property. The setting and adjusting of lot entitlements are therefore extremely significant to the 338,000 owners in community titles schemes. As the trend towards living and working in community titles schemes continues, these issues will become relevant to more and more Queenslanders. Sharing costs and interests fairly and appropriately is a challenge for community titles legislation. Not surprisingly, there are divergent views about what approach to setting and adjusting lot entitlements should be adopted. Regardless of the methodology used, there is unlikely to be an outcome that wins universal acceptance. The challenge is to determine the fairest method of sharing costs and interests in Queensland’s diverse community titles schemes. Such a legislative basis will both encourage the growth of a strong and diverse community titles sector and ensure a harmonious environment for owners. Most community interest in lot entitlements has focused on contribution schedule lot entitlements, which have the most immediate impact on owners as they determine how body corporate costs are shared. In light of the ongoing interest in lot entitlement issues, this discussion paper has been released to inform the community about the current system of lot entitlements and why it was introduced, and to facilitate public comment and feedback on the appropriateness and operation of the current system. I welcome submissions from all persons with an interest in this issue. The Honourable Kerry Shine MP Attorney-General and Minister for Justice and Minister Assisting the Premier in Western Queensland

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Introduction Lot entitlements are used to determine how the costs and interests associated with community titles schemes are shared between lot owners. Concerns have been raised about the current system for setting and adjusting contribution schedule lot entitlements, which determine how costs associated with the management of the community titles scheme are shared between owners. The aim of this discussion paper is to promote an understanding of the issues commonly raised about contribution schedule lot entitlements and to seek views on possible options for reform. The discussion paper has been produced for the purposes of public discussion and comment only. The reforms in the discussion paper are for discussion purposes only and do not represent a formal proposal or position of the Queensland Government. The discussion paper includes a number of questions to assist in the development of submissions. However, submissions on other lot entitlement issues are welcome.

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How to make a submission Owners in community titles schemes and other interested individuals and organisations are invited to make written submissions on the issues raised in this discussion paper or any other issues relating to lot entitlements. Submissions can be mailed to:

Review of lot entitlements Strategic Policy Department of Justice and Attorney-General GPO Box 149 Brisbane QLD 4001

or emailed to:

legalpolicysubmissions@justice.qld.gov.au The closing date for submissions is 28 February 2009. The Body Corporate and Community Management Act 1997 can be accessed at www.legislation.qld.gov.au.au. The discussion paper is available from the Department of Justice and Attorney-General website at www.justice.qld.gov.au or by telephoning 1800 060 119.

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Setting the scene

What are lot entitlements? The BCCM Act provides for the establishment and administration of community titles schemes. A community titles scheme involves individually owned lots and common property that is owned by all the lot owners as tenants in common. A body corporate is created upon the establishment of a community titles scheme. Lot owners are automatically a member of their body corporate. Bodies corporate have a range of statutory functions including administering the common property and enforcing the by-laws for the scheme. Each unit owner is obliged to contribute to expenses incurred by their body corporate in carrying out its functions. Expenses commonly include outgoings for maintenance of common property (such as pools, gardens, buildings and driveways) and administrative expenses (such as the cost of engaging a body corporate manager). Lot entitlements are used to determine how costs and interests in a community titles scheme are divided between owners and the voting rights of owners in certain circumstances. Under the BCCM Act, every lot in a community titles scheme is allocated a contribution schedule lot entitlement and an interest schedule lot entitlement. These lot entitlements are set out in the scheme’s community management statement recorded by the Registrar of Titles.

Purpose of contribution schedule lot entitlements The contribution schedule lot entitlement for a lot is the basis for calculating a lot owner’s share of most amounts levied by the body corporate. However, the BCCM Act or regulations may provide that particular expenses are divided in a different way. (For example, the regulations provide for the costs of replacement insurance for the common property and body corporate assets to be divided according to interest schedule lot entitlements). Contribution schedule lot entitlements do not have any direct bearing on the sum of budgeted expenses incurred by a body corporate. The actual amounts levied for a particular year are determined by a body corporate at its annual general meeting when it adopts its budgets. The body corporate’s administrative fund budget covers regular maintenance of the common property and body corporate assets and other recurrent expenditure including administrative expenses such as secretarial fees and postage. The body corporate’s sinking fund budget covers expenditure of a capital or non-recurrent nature such as painting the common property, structural repairs and replacement of major items of a capital nature like fences or common property carpets. Contribution schedule lot entitlements are also used for calculating the value of a lot owner’s vote for voting on an ordinary resolution where a poll is requested for voting on the resolution. Also, a motion will fail to be passed by special resolution if the total of the contribution schedule lot entitlements for lots voting against a motion is more than 25% of the total contribution schedule lot entitlements for the scheme.

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Contribution schedule lot entitlements may also be used to determine a lot owner’s contribution to utility services (for example water and electricity) that are charged according to usage where the service provider cannot measure individual supply.

Purpose of interest schedule lot entitlements The interest schedule lot entitlement for a lot is the basis for calculating a lot owner’s share of the common property and body corporate assets if the scheme is terminated. It is also used for calculating the unimproved value of a lot for the purpose of a charge, levy, rate or tax payable to a local government or other authority and that is calculated on the basis of unimproved value. It is also used to calculate the proportion a lot owner contributes to the costs of replacement insurance for the common property and body corporate assets. Appendix 1 contains an example of the application of contribution schedule lot entitlements and interest schedule lot entitlements for these different purposes.

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Historical review of lot entitlements legislation in Queensland A review of the background to Queensland’s legislation relating to lot entitlements is important for understanding the considerations that have shaped the current lot entitlement provisions of the BCCM Act.

Building Units and Group Titles Act 1980 The Building Units and Group Titles Act 1980 (the 1980 Act) was the predecessor to the BCCM Act. Under the 1980 Act, a single schedule of lot entitlements was used to determine each owner’s share in the common property, the proportion of body corporate levies payable by each owner and the voting rights of owners. Under the 1980 Act, there were two types of plans:

• a group titles plan (now known as a standard format plan); and

• a building units plan (now known as a building format plan). Lot entitlements for lots in a group titles plan had to be set in proportion to the unimproved value of the lots and had to be accompanied by a valuer’s certificate. There was no ability to take into account whether a particular lot was vacant or developed. The 1980 Act provided no guidelines for setting lot entitlements in a building units plan (typically used for high-rise developments). Lot entitlements were often set to reflect the expected market value of the lots. Sometimes, lot entitlements were based on the respective size of the lots or on the level of body corporate levies that might be generated by a particular lot. In some instances, the entitlements set were quite arbitrary. In this environment, it was possible for developers to give less attractive lots lower lot entitlements in order to make them more marketable on the basis of low body corporate fees. It was also possible for developers to set low lot entitlements for lots they intended to keep for themselves, thus reducing their contributions to body corporate expenses. Many owners had expressed concern to Government that they were required to pay a disproportionate share of body corporate expenses under these arrangements. These problems were compounded by the fact that, under the 1980 Act, there was no provision to adjust the lot entitlements set by the developer for the scheme (apart from extinguishing the plan of subdivision).

Body Corporate and Community Management Act 1997 The community titles sector in Queensland is diverse and is changing rapidly. The BCCM Act introduced significant reforms to community titles legislation to accommodate emerging trends in community titling. The primary object of the BCCM Act is to provide for flexible arrangements for the application of a community living concept on freehold land.

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The broad policy intent of the Act is indicated through its secondary objectives, namely:

• to balance the rights of individuals with the responsibility for self-management;

• to promote economic development by establishing sufficiently flexible administrative and management arrangements;

• to encourage the tourism potential of community titles schemes without diminishing the rights and responsibilities of owners and intending buyers;

• to provide a legislative framework which accommodates future trends in community titling;

• to ensure that bodies corporate have control of the common property and real assets that they are responsible for managing on behalf of owners;

• to provide bodies corporate with a level of flexibility in their operations and dealings to accommodate changing circumstances within community titles schemes;

• to provide an appropriate level of consumer protection for those living or intending to live in community title schemes;

• to improve accessibility to information about community title matters; and

• to provide an efficient and effective dispute resolution process. In response to continued calls for a change to the method of distributing shared body corporate expenses under the 1980 Act, the BCCM Act introduced fundamental reforms to the concept of lot entitlements when it commenced in 1997. The BCCM Act introduced a dual system of lot entitlements, with each lot having a contribution schedule lot entitlement and an interest schedule lot entitlement:

• The contribution schedule lot entitlement is used for determining the owner’s contribution to most body corporate expenses and the value of a lot’s vote on a poll for an ordinary resolution.

• The interest schedule lot entitlement is used to calculate the owner’s share of common property, the amount of any contribution to insurance premiums, any entitlements to property upon a termination and the unimproved value of the lot for the purpose of separate assessment of rates or taxes.

The bodies corporate that had been created under the 1980 Act were taken to be schemes under the BCCM Act and the single schedule of lot entitlements in these existing schemes was replaced by a contribution schedule and an interest schedule that were both identical to the existing schedule. The BCCM Act also introduced an ability to adjust lot entitlements. Two or more owners could agree to adjust their own entitlements between themselves, a body corporate could adjust the lot entitlements through a resolution without dissent, or a lot owner could apply to the District Court for an order for the adjustment of lot entitlements. The principles to be applied by the Court varied for the two schedules, reflecting their different purposes and applications.

• For contribution schedule lot entitlements, the order of the Court had to be consistent with the principle that the respective lot entitlements should be equal, except to the extent to which it is just and equitable in the circumstances for them not to be equal.

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• For interest schedule lot entitlements, the order of the Court had to be consistent with the principle that the respective lot entitlements should reflect the respective market values of the lots at the time of the order, except to the extent to which it is just and equitable in the circumstances for the lot entitlements to reflect other than the respective market values of the lots. (For schemes created under a standard format plan it is the unimproved value of the lots that is relevant.)

Body Corporate and Community Management and Other Legislation Amendment Act 2003 The Body Corporate and Community Management and Other Legislation Amendment Act 2003 (the 2003 Act) introduced changes to the BCCM Act to clarify and extend the arrangements for setting and adjusting lot entitlements. The 2003 Act amendments introduced a requirement that developers must set contribution schedule lot entitlements at the establishment of a scheme according to the principle already legislated for the District Court to consider in determining applications for the adjustment of contribution schedule lot entitlements. It also became mandatory for the developer to have regard to the following matters when setting the contribution schedule lot entitlements and interest schedule lot entitlements for a scheme:

• how the scheme is structured;

• the nature, features and characteristics of the lots included in the scheme; and

• the purposes for which the lots are used. Where the contribution schedule lot entitlements are not equal, the community management statement and disclosure statement given to prospective buyers by the developer must explain the reason for the unequal lot entitlements. These amendments were in response to concerns that some developers were still arbitrarily setting contribution schedule lot entitlements with little regard to the principle that would be applied by the District Court if a dispute arose in the future. The 2003 Act amendments also clarified the processes for the adjustment of lot entitlements. Firstly, it provided that applications for adjustment of a lot entitlement schedule could be made to a specialist adjudicator as a less formal and less expensive alternative to an application to the District Court. This amendment responded to concerns that the District Court was inaccessible to many owners. Secondly, the 2003 Act amendments provided guidance to the District Court or specialist adjudicator on matters that may or may not be considered in determining an adjustment of lot entitlements. This addressed criticisms that the legislation was not sufficiently clear on this issue. The amendments provided that matters relating to how the scheme is structured; the nature, features and characteristics of the lots; and the purposes for which the lots are used, may be considered. However, the Court or specialist adjudicator may not have regard to the applicant’s knowledge, or lack of knowledge, of the particular lot entitlements or the purpose of lot entitlements at the time of the contract. The explanatory notes for the 2003 Act explain the purpose of this restriction:

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Lot entitlements are regarded by some as a property right of which the buyer had knowledge at the time of purchase. This view arose in part from the Building Units and Group Titles Act 1980 which used a single value based entitlement number for contributions to body corporate funds and interest in the common property of the scheme. The Body Corporate and Community Management Act 1997 altered this concept for schemes translated from the Building Units and Group Titles Act 1980 and for new schemes under the Body Corporate and Community Management Act 1997 to require a separate number each for the contribution and interest schedules… The reality is that most buyers have no real concept of the operation of the different schedules, despite the mandatory warning statement on the contract of sale and any advice the buyer may receive prior to signing a purchase contract for a lot in a scheme. Lot entitlements do not have to remain fixed for the life of a scheme. If the scheme changes, for example through compulsory acquisition under the Acquisition of Land Act 1988 or from an all-residential scheme to a mix of residential and commercial, the lot entitlements must change to justly and equitably reflect the changed structure of the scheme, the nature and characteristics of the lots and the purpose for which they are used. Allowing the Court or specialist adjudicator to also disregard the applicant’s knowledge or lack of knowledge is intended to allow a determination to be made which will provide the best possible lot entitlement arrangement for the scheme that is just and equitable at the time, without the Court or the specialist adjudicator trying to find out or understand what may or may not have been in the mind or the understanding of the owner at the time of buying the lot in the scheme.

Fischer v. Body Corporate for Centrepoint Community Title Scheme The law relating to contribution schedule lot entitlements was further clarified by the Court of Appeal in June 2004 when it handed down its decision in Fischer & Ors v Body Corporate for Centrepoint Community Title Scheme 7779 [2004] QCA 214 (the Centrepoint case). Owners in a community titles scheme established under the 1980 Act that consisted of 51 residential lots in two towers, with lots ranging from one bedroom apartments to three bedroom apartments, applied for an order of the District Court to adjust the contribution schedule lot entitlements for the scheme. The District Court observed that there was a degree of arbitrariness in the original allocation of lot entitlements but that generally, the higher an apartment was in the buildings, the greater its lot entitlement, probably reflecting a connection between the value of the apartments and their lot entitlements. Separate expert reports obtained by the applicant and the body corporate identified the extent to which individual lots placed greater financial burden on the body corporate than other lots. Both reports recommended new contribution schedules. The District Court refused to adjust the lot entitlements. It rejected both expert reports on the basis that they did not give sufficient weight to a lot’s size, number of bedrooms or location in the buildings. It also considered the potential effect any adjustment would have on the value of the apartments and the fact that the majority of owners did not support the application. The Court of Appeal allowed an appeal from the District Court’s decision. It found that, although the BCCM Act gives no clear indication of what a court is to consider when deciding whether it is just and equitable that respective lot entitlements not be

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equal, the intention is that only matters that show how lots differently affect the cost of operating and maintaining the community titles scheme, are relevant. More general considerations of amenity, value or history are to be disregarded. In determining the meaning and intention of the BCCM Act, the Court had close regard to the relevant Second Reading Speech and explanatory notes for the 2003 Act.

Body Corporate and Community Management and Other Legislation Amendment Act 2007 In a review of body corporate and community management issues in 2004, stakeholders expressed concern that the costs of specialist adjudication and the costs and formality of District Court proceedings inhibit parties’ ability to seek an adjustment to lot entitlements. In response, the Body Corporate and Community Management and Other Legislation Amendment Act 2007 provided that applications for the adjustment of lot entitlements could be made to the Commercial and Consumer Tribunal, a low-cost, informal jurisdiction, instead of the District Court. Applications can continue to be made to a specialist adjudicator under the BCCM Act.

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Issues

The current system for setting and adjusting contribution schedule lot entitlements: Is it appropriate? Current legislation The developer of a community titles scheme sets the scheme’s lot entitlements. These lot entitlements will continue to apply to the scheme unless the lot entitlements are subsequently adjusted. The BCCM Act provides for lot entitlements to be adjusted in three ways. First, two or more owners can agree to adjust their own entitlements between themselves. Second, a resolution without dissent can be passed by the body corporate. Third, an owner can make an application to the Commercial and Consumer Tribunal or a specialist adjudicator for an order for the adjustment of lot entitlements. Under the BCCM Act, the principle for setting and adjustment of contribution schedule lot entitlements is that the respective lot entitlements should be equal, except to the extent that it is just and equitable in the circumstances for them not to be equal. The second reading speech for the 2003 Act explains the principle:

The guiding principle for both setting and adjusting the contributions schedule is that it involves the equitable sharing of the costs of operating and maintaining the common property. These costs should be borne in proportion to the benefit, not in proportion to the unit's value. It is not a contribution linked to an ability to pay, but as a payment for services. There is not an argument … against the fact that, in terms of costs related to a property’s value – costs such as rates and insurance – owners whose properties are worth more should pay more. But when we are talking about those parts of a property where the benefits are shared more or less equally, we cannot apply the same formula.

The explanatory notes for the 2003 Act further explain the principle:

…usually all lot owners are equally responsible for the cost of upkeep of common property and for the running costs of the community titles scheme. However, it is recognised that there are many valid instances where the contribution schedules do not have to be equal…usually the numbers in this schedule are equal, unless it can be demonstrated that it is just and equitable for there to be inequality.

The explanatory notes for the 2003 Act provided three examples of when unequal lot entitlements may be needed:

Example 1 Where a basic community titles scheme contains lots having different uses, for example a combination of residential and business lots (restaurants, small shops and the like) the contribution schedule can be different to reflect the higher maintenance and utilities use of the shops in comparison to lower requirements for the residential lots. Example 2 In a layered scheme there may be a difference in the contribution schedule of each basic scheme in the layered arrangement depending on the nature of each of the basic schemes. If the layered scheme was a building that comprised a number of basic schemes including a car park, shopping centre, hotel and residential schemes, the contribution schedule would be different between, for example, the car

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park and the shopping centre to reflect the different service needs, the different levels of consumption of utilities and the different maintenance and refurbishment costs. A similar difference would exist between the hotel and the residential schemes. Example 3 In a basic scheme, if all the lots are residential lots ranging in size from a small lot to a penthouse, the contribution schedule lot entitlements generally would be equal. However, the contribution schedule may be different if the penthouse has its own swimming pool and private lift. The contribution schedule should recognise this type of difference. The other lots in the scheme despite being of differing size or aspect would be expected to have equal contribution schedule lot entitlements.

The principle is clearly based on the concept that usually all lots equally cause and benefit from most body corporate expenses and therefore it is reasonable for each owner to equally contribute to these expenses. However, the principle recognises that the individual features of a lot give rise to particular or additional costs to the body corporate that are not caused by other lots. In such cases, unequal lot entitlements may be set to allow a more equitable distribution of expenses amongst owners. The principle in practice It is unclear how developers have been applying the principle in the setting of lot entitlements. Orders for the adjustment of lot entitlements provide evidence of the application of the principle by the Commercial and Consumer Tribunal (and formerly the District Court) and specialist adjudicators. The Commercial and Consumer Tribunal (and formerly the District Court) and specialist adjudicators have generally required clear evidence to justify a departure from the position of equal contribution schedule lot entitlements. Unequal lot entitlements are usually based on an expert report by a quantity surveyor or other expert. The expert reports generally analyse past and prospective administrative fund and sinking fund expenditure and then examine each item of expenditure to determine how it should be allocated amongst the respective lots, based on the extent each lot draws on the particular expense item. Many items such as administrative costs, are allocated on an equal basis but some items are allocated on another basis such as lot area, quantity per lot, and car parking spaces per lot. The court will decide whether to accept a particular analysis. The Commercial and Consumer Tribunal (and formerly the District Court) and specialist adjudicators have acknowledged that, in virtually every case, there will be an argument that one or more lots draw on the body corporate funds to a greater extent than other lots. However, when these differences are considered over the relevant time period, often 10 or 15 years, the actual difference is frequently very small. After considering the extent to which the respective lots draw on the expenses of the body corporate, it is determined whether any differences in the lot entitlements proposed for each lot are material enough to make it ‘just and equitable’ to depart from equal lot entitlements. This question must be decided on a case by case basis.

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For example, in one 2006 case, the specialist adjudicator decided that the difference between the highest and lowest entitlement was so small (0.28% or $451.98 a year) that the entitlements should be equal. Whereas in another 2006 case, a difference of 0.62% between the lowest and highest entitlement, which translated into $1,388.69 a year, was considered by the adjudicator to be significant enough to justify the entitlements being unequal. Impacts of orders for adjustment of lot entitlements As contribution schedule lot entitlements determine the proportion an owner contributes towards the body corporate expenses, any adjustment inevitably results in some owners contributing more, and others contributing less, to these expenses. The effect of an adjustment on an individual owner will vary depending on the lot entitlements in the scheme at the time of the application, the extent to which some lots disproportionately cause body corporate expenses, and the amount of the body corporate’s annual budget on which levies are based. The adjustment made by the Court of Appeal in the Centrepoint case in 2004 resulted in 15 of the 51 lots experiencing a change of more than 25% in the proportion each lot contributed to shared expenses. For 21 of the 51 lots, the change was less than 10%. The original lot entitlements meant individual lots were paying between 1.16% and 3.54% ($2233.91 and $6793.85) of expenses. After adjustment, individual lots were responsible for between 1.85% and 2.19% ($3548.30 and $4200.42) of expenses. The biggest increase in levies experienced by an individual lot owner as a result of the adjustment was 58.85% (with levies increasing from $2233.91 to $3548.30), and the biggest decrease in levies experienced was 40.43% (with levies decreasing from $6793.85 to $4046.98). It has also been claimed that, because valuers take lot entitlements into account when arriving at a valuation, higher levies may result in a lower lot value while a reduction in levies may increase the value of a lot. A certified valuer gave evidence to the District Court in the Centrepoint case that “for an investor-owner of a lot subject of an increase in the levy the effect would be to decrease the cash flow from the rental income, thus affecting negatively the return on investment and for an owner-occupier the increased levy would create a negative effect on the marketability of the unit.” The financial impact on owners is not a relevant consideration under the current legislative provisions in determining whether to adjust lot entitlements because it is not a factor that is relevant to the extent to which a lot impacts on body corporate expenses. Lot entitlements legislation in other jurisdictions There is no consistent approach to lot entitlements across Australian jurisdictions. In some jurisdictions a single lot entitlement determines both an owner’s interest in common property and liability to contribute to body corporate expenses (NSW, WA, SA). In other jurisdictions, there are two or more types of lot entitlements for determining different matters (Qld, VIC, TAS). Across Australian jurisdictions, lot entitlements are set according to respective values of lots, equally or according to what is just and equitable (i.e. the extent to which

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particular lots cause body corporate expenses). In some cases, the basis for the initial setting of lot entitlements is not regulated (VIC, NSW). Some jurisdictions provide for a change of lot entitlements during the course of the life of the scheme. Others have very restricted opportunities to change lot entitlements. (For example, in NSW lot entitlements can only be adjusted if they were unreasonable when originally set.) Sometimes it is possible to change lot entitlements by agreement among the owners, and in other cases, they can be changed with reference to an adjudicator or Tribunal. Appendix 2 provides a summary of lot entitlements legislation by jurisdiction. Differing views Disparate and often opposing views have been expressed by the community about the current lot entitlements system. These community views are summarised in the table below. Views against the current system Views for the current system

The ‘Australian’ view of fairness, entrenched in Australia’s taxation system, is that wealthier people in the community should carry a greater amount of community expenses. Applying this principle, lot entitlements should be set on lot value, which usually reflects capacity to pay.

Body corporate expenses are not in the nature of taxes for community services, but are shared expenses entered into by private citizens. It is not reasonable to expect some owners to ‘subsidise’ other lot owners simply because their lot may be worth more given that all the owners benefit from most body corporate services equally. Lot value is not necessarily reflective of owner’s ability to pay.

The adjustment provisions allowing existing lot entitlements (often based on lot value) to be adjusted in line with the current legislative principle benefit ‘wealthy penthouse owners’ at the expense of ‘struggling pensioners’ occupying small units. Applications to adjust lot entitlements are greedy grabs by penthouse owners in an effort to exploit owners of smaller lots.

Owners of smaller lots have already had the benefit of having their levies subsidised for many years. The wealthy penthouse owner versus the struggling pensioner example is an unhelpful generalisation. Unfair lot entitlements can often also occur in a range of lots with similar characteristics. Also, owner-occupiers often purchase slightly larger units to live in and may undertake significant borrowings to do so, whereas smaller units are often purchased by investors for use as rental properties. Many cheaper or smaller lots are frequently used as rental properties, and that with the changing of tenants, these lots actually contributed more wear and tear to the overall complex. Owners are only being asked to pay what their lot costs the body corporate.

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Views against the current system Views for the current system

Adjustments of lot entitlements should not be allowed so that owners can have certainty about their future liability for body corporate expenses.

If someone is subject to an unfair arrangement (paying more than their fair share), remedy should be possible.

Adjustments of lot entitlements disadvantage those who purchased their lot on the basis of a budgeted-for set of lot entitlements.

Owners have been able to be aware that lot entitlements could be adjusted since 1997.

There should be no means to seek adjustment because the purchaser received pre-purchase disclosure about lot entitlements.

Most owners are not aware of lot entitlements and what they mean when they purchase. If someone is subject to an unfair arrangement (paying more than their fair share), remedy should be possible.

If someone purchases a lot knowing its entitlements then they should have not right to seek adjustments thereafter.

If someone is subject to an unfair arrangement (paying more than their fair share), remedy should be possible.

Provisions assume each lot burdens the body corporate equally, which is not correct.

Provisions allow unequal lot entitlements where lots can be shown to impose particular or additional costs on the body corporate that other lots do not.

Developers should have discretion to set lot entitlements so they can include affordable housing in community titles schemes by setting low lot entitlements for certain lots. Pensioners and the unemployed can’t afford to pay the same levies as penthouse owners.

The costs of using lot entitlements to facilitate more affordable accommodation are not met by either developers or government but by the other lot owners in the scheme who must pay a higher proportion of body corporate expenses than those owners with the benefit of low lot entitlements. It is unreasonable to expect private citizens to pay a higher proportion of shared expenses in order to make housing more affordable for others, particularly where owners derive an equal benefit from the expenses and where there is no certainty that the value of a lot is reflective of an owner’s capacity to pay for the expenses. It would be more appropriate for the developer to provide low cost housing options through an appropriately selected purchase price than to transfer costs to other owners far into the future. Setting low lot entitlements for a lot could actually result in increased purchase prices for those lots, which would not result in affordable housing.

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Views against the current system

Views for the current system

Basing lot entitlements on lot value will facilitate the provision of affordable housing.

This assumes that people in need of affordable accommodation purchase smaller or less attractive lots. In many cases, investors purchase smaller, cheaper units while people purchasing a unit as a home may choose a slightly larger, more expensive unit and take out significant borrowings to do so.

Current system is a barrier to developers being able to market the scheme.

Lot entitlements are not about marketing, but are about fair sharing of expenses.

Options for reform Based on the views expressed above, a number of options for reform emerge:

• Retain the current arrangements for setting and adjusting contribution schedule lot entitlements.

• Adopt a different basis for contribution schedule lot entitlements. • Remove or limit the ability to adjust contribution schedule lot entitlements. • Remove or limit the ability to adjust contribution schedule lot entitlements in

schemes established prior to 1997. Some of the arguments for and against each of these options are provided below. Option 1: Retain the current system for setting and adjusting contribution schedule lot entitlements Some arguments for:

• Allows equitable sharing of body corporate expenses.

• Has the flexibility to cater for mixed-use developments. In particular, it allows expenses to be shared equitably in schemes with a range of lot types that affect body corporate expenses differently by providing the ability to set and adjust contribution schedule lot entitlements to reflect the fact that particular lots disproportionately give rise to body corporate expenses.

• Has the flexibility to respond to changing circumstances in the scheme to allow equitable sharing over the life of the scheme. For example, if a scheme changes from an all-residential scheme to a mixed-use scheme comprising both residential and commercial lots, the lot entitlements can be adjusted to reflect any resulting changes in the extent to which particular lots disproportionately give rise to body corporate expenses.

Some arguments against:

• It is unfair for owners who purchased their lot prior to the introduction of the BCCM Act to be subject to the new principle. Under the 1980 Act, there was no way of adjusting the relative lot entitlements and the presumption was that a purchaser would take into account the entitlements, the burden of body corporate levies, the voting rights and the prospect of extinguishment, in agreeing to the purchase price.

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• There is a lack of certainty for owners about what proportion of body corporate expenses they will be liable to pay in the future, with resulting changes to the value of their lot.

O Tae L(l S

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Questions 1. Do you support the current system for setting and adjusting contribution

schedule lot entitlements? Why or why not? 2. What, if any, further guidance should the legislation provide about the

application of the principle? For example, is there a need for the legislation to provide further guidance on when it is just and equitable to depart from equal lot entitlements? Why or why not?

3. Do you have any other comments on the application of the principle by

developers in setting lot entitlements, or by the Commercial and Consumer Tribunal or specialist adjudicators in making orders for the adjustment of lot entitlements?

ption 2: Adopt a different basis for contribution schedule lot entitlements

here are a number of established alternative approaches for distributing costs mong owners that could be adopted as a basis for contribution schedule lot ntitlements.

ot value Market value for lots created under a building format plan and unimproved value for ots created under standard format plan.)

ome arguments for:

• Lot value is an objective criteria for setting lot entitlements.

• Lot entitlements based on lot value are better linked to an owner’s ability to pay.

• Lot entitlements based on lot value are consistent with the taxation and rates system.

• As lot value is used for setting interest schedule lot entitlements, owners would contribute to the cost of running the body corporate in proportion to their overall interest in the scheme and in proportion to the benefit they would receive if the scheme terminated.

rguments against:

• Lot value is determined by a range of factors (including aspect and location) and has little or no bearing on the costs a lot generates for the body corporate. For example, the cost of engaging a body corporate manager is entirely unrelated to whether a lot has one bedroom or two bedrooms. Owners of more expensive lots are therefore subsidising the owners of less valuable lots.

• Lot value is inappropriate for mixed-use schemes because commercial and residential lots are valued differently and affect body corporate costs to a different extent.

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• Body corporate expenses are private expenses between owners and not in the nature of taxes. The expenses associated with running a body corporate and maintaining common property are costs incurred by private individuals, rather than charges for public services. An analogy can be made with the way owners of adjoining land are required to contribute to the cost of constructing or repairing a dividing fence. The costs are shared equally, not in proportion to the relative value of each property.

• Lot value is not necessarily reflective of owner’s ability to pay. For example, stakeholders have pointed out that owner-occupiers commonly purchase slightly larger units to live in, whereas smaller units are often purchased by investors for use as rental properties.

• Market value of a lot is susceptible to frequent change. For example, a lot owner may renovate their lot, or a lot’s view may be built out.

• Lot value can be difficult and expensive to establish. Lot size Some arguments for:

• Lot size is an objective criteria for setting lot entitlements. Some arguments against:

• Lot size has little or no bearing on the costs a lot generates for the body corporate. For example, the cost of engaging a body corporate manager is entirely unrelated to whether a lot has one bedroom or two bedrooms. Owners of larger lots are therefore subsidising the owners of smaller lots.

• Manifestly unfair arrangements could emerge in some circumstances, for example, where a lot has,more car parks than other lots.

No criteria – Arbitrary allocation by developer Some arguments for:

• Developers would be able to use lot entitlements to market unattractive lots. Some arguments against:

• Arbitrary setting of lot entitlements can result in unfair sharing of expenses, which is not conducive to long-term satisfaction and harmony in the community titles scheme.

Just and equitable (i.e., according to body corporate expenses generated by the lot) Some arguments for:

• ‘Just and equitable’ is an objective criterion for setting lot entitlement because the impact of a lot on body corporate expenses can be determined through expert reports.

• Is an equitable basis for sharing body corporate costs as costs are shared between lots in proportion to the benefit derived by each lot from the expenses.

• Provides the flexibility to cater for mixed-use developments with a variety of lot types.

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Some arguments against:

• The costs a lot generates for the body corporate is expensive and difficult to establish as an expert report is typically required.

Option 3: Remove or limit the ability to adjust contribution schedule lot entitlements Some arguments for:

• Provides greater certainty for owners about the proportion of body corporate fees they are liable to pay and stability for the value of their lot.

Some arguments against:

• Owners who are paying a greater proportion of the body corporate expenses than is equitable would not have a remedy.

• In schemes created under the BCCM Act, owners would have no ability to enforce the current legislative principle in their scheme if the developer failed to set lot entitlements on this basis.

• Owners may have purchased their lot on the understanding that they could adjust the existing lot entitlements according to the current legislative principle.

• Provides no ability to deal with changes in the scheme that may have an impact on the proportion of body corporate expenses generated by a particular lot. Unfair situations would emerge when there have been changes in the scheme that affect the amount of expenses a particular lot causes. For example, if there is no ability to change lot entitlements, where a scheme changes from an all-residential scheme to a mixed-use scheme comprising both residential and commercial lots and the commercial lots generated increased costs for the body corporate, all the other owners in the scheme would have to subsidise these costs.

Oe Ac

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Question 5. Do you think the ability to adjust lot entitlements should be limited in some

way? Why or why not? If yes, please explain what arrangements should apply.

Question 4. Should some other basis be used for setting lot entitlements, bearing in mind

the diverse nature of modern community titles schemes? Why or why not? Ifyes, please explain what basis should apply.

ption 4: Remove or limit the ability to adjust contribution schedule lot ntitlements in schemes established prior to 1997

number of approaches have been suggested in relation to adjustments of ontribution schedule lot entitlements in schemes established before 1997:

Impose a sunset provision on the ability to make adjustments of lot entitlements.

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• Provide that an order for adjustment may not increase an owner’s lot entitlement by more than 25% in excess of the owner’s lot entitlement at the time of the order.

• Allow the decision-maker to consider additional factors in determining an adjustment of lot entitlements (for example, the financial impact of the adjustment on owners).

• Limit adjustments to circumstances when there have been changes in the structure of the scheme, the nature, features and characteristics of the lots in the scheme, or the purposes for which the lots are used.

• Only allow adjustment of lot entitlements in manifestly unfair situations (for example, where the change would be greater than a certain amount or percentage).

Some arguments for:

• Lot entitlements in schemes established prior to 1997 would generally not have been set according to the current legislative principle for contribution schedule lot entitlements and adjustments are likely to result in significant changes in lot entitlements. Limiting adjustments of lot entitlements could provide greater certainty for owners.

• Owners who purchased their lot prior to 1997 were not aware at the time that the legislation would be changed to allow for an adjustment of lot entitlements and took into account the entitlements when agreeing to the purchase price. Limiting adjustments of lot entitlements would protect these owners against an unreasonable change in lot entitlements.

Some arguments against:

• A split system where schemes established before the BCCM Act commenced are treated differently may result in these schemes being treated differently by the market.

• Owners who are paying a greater proportion of the body corporate expenses than is equitable would not have a remedy for their situation.

• Owners may have purchased their lot after 1997 on the understanding that they could adjust the existing lot entitlements.

• It would be inappropriate to treat schemes established prior to 1997 differently if the scheme has had their lot entitlements adjusted according to the current legislative principle for contribution schedule lot entitlements since 1997.

Question 6. Should the ability to adjust contribution schedule lot entitlements in schemes

established prior to 1997 be limited in some way? Why or why not? If yes, please explain what arrangements should apply to these schemes.

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The current system for setting and adjusting contribution schedule lot entitlements: Other issues Issue: Adjustments of contribution schedule lot entitlements following the amalgamation of lots Some owners argue that the current adjustment provisions provide a strong financial incentive for the owners of multiple lots in a scheme to amalgamate the lots and then apply for an order for the adjustment of contribution schedule lot entitlements. An amalgamation of lots results in a single lot taking the place of two or more smaller lots. It reduces the total number of lots in the scheme, and therefore reduces the number of lots among which shared body corporate expenses are divided. When the Commercial and Consumer Tribunal or a specialist adjudicator makes an order for the adjustment of contribution schedule lot entitlements, the lot entitlements for the lots in a scheme must be equal unless it is just and equitable for them not to be equal. Under the current legislation, whether a particular lot is an amalgamation of two or more other lots is irrelevant in determining that lot’s entitlement as a lot’s impact on the body corporate expenses is the sole criterion for a departure from equality. Because lots equally cause most body corporate expenses, an adjustment of contribution schedule lot entitlements to recognise an amalgamation of lots is likely to result in an increase in the proportion of body corporate expenses paid by the owners of other lots in the scheme as a result of the reduced number of lots in the scheme. The current lot entitlement provisions recognise that circumstances in community titles schemes can change and seek to provide for equitable sharing of the body corporate expenses between owners over the life of a scheme. However, some owners consider the change to lot entitlements that may result from an amalgamation of lots to be unfair and a factor that creates uncertainty for owners about their future contributions to expenses.

Questions 7. Are you aware of any cases where the amalgamation of lots has resulted in a

significant change in the contribution schedule lot entitlements of other owners?

8. Do you think that the Commercial and Consumer Tribunal and specialist

adjudicators should be able to consider the amalgamation of lots in making orders for the adjustment of lot entitlements? Why or why not? If yes, please explain how you think it could operate in practice, including any transitional and practical issues that would need to be addressed.

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Issue: Information and education about lot entitlements Stakeholders have indicated that many owners have no real understanding about the operation of lot entitlements at the time of their purchase. The BCCM Act requires a seller to give a disclosure statement to a person who proposes to buy their lot, before the buyer enters into a contract to buy the lot. An information sheet (BCCM Form 14 Contract Warning) must also be given to the buyer with the contract.

The disclosure statement provides the amount of annual contributions currently fixed by the body corporate payable by the owner of the lot, but does not require the lot entitlements to be stated. The information sheet encourages prospective purchasers to be aware of their likely financial contributions and encourages them to obtain a copy of the community management statement. Neither the disclosure statement nor the information sheet provide the actual schedules of lot entitlements (although if the sale is a sale of a proposed lot, the proposed community management statement must be provided), information about the possibilities of adjustments after purchase, or information about the purpose of lot entitlements.

Many of the concerns around lot entitlements could be addressed by ensuring that purchasers of properties are informed before they purchase a lot about the distribution of lot entitlements in the scheme, the basis for the distribution of lot entitlements, and the possibility of adjustments. Improved information about lot entitlements may help purchasers make informed choices, encourage purchasers to ‘comparison shop’ before making a final purchase, to consider whether the allocation of lot entitlements is fair and reasonable, and, by explaining the potential for adjustments in the future, enable/encourage owners to anticipate and perhaps even budget for such an eventuality. Ultimately, if this information became widely known, it may have the effect of making any adjustments less controversial as only informed decisions would ever be made.

Options for improving knowledge around lot entitlements include amending the information sheet to provide better information about lot entitlements, their uses and the potential for adjustment, and requiring the disclosure statement to provide the details of the lot entitlements of every lot in the scheme and the aggregate lot entitlements or, if the community titles scheme is not yet registered, those entitlements as proposed.

ICTtTa Ao

Question 9. Should pre-purchase disclosure about lot entitlements, their uses and the

potential for adjustment be improved? If yes, how do you think this should be achieved?

ssue: Orders for adjustments of lot entitlements by the Commercial and onsumer Tribunal and specialist adjudicators he Commercial and Consumer Tribunal has had jurisdiction to hear applications for

he adjustment of lot entitlements since 1 July 2007. The Commercial and Consumer ribunal was provided with jurisdiction in place of the District Court to increase the ccessibility of lot entitlements dispute resolution.

lot owner may also apply for an order of a specialist adjudicator for the adjustment f lot entitlements.

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Questions 10. What has your experience with the Commercial and Consumer Tribunal or

specialist adjudication been in relation to orders for the adjustments of lot entitlements? Have you experienced problems, and if so, what were they?

11. Did you find specialist adjudication and/or the Commercial and Consumer

Tribunal an accessible and cost-effective jurisdiction? Are there any changes to processes that could increase the accessibility and cost-effectiveness of these jurisdictions for parties to an application for the adjustment of lot entitlements?

12. An owner may apply for an order for the adjustment of lot entitlements by

either the Commercial and Consumer Tribunal or a specialist adjudicator. What jurisdiction did you apply to, and why?

Other issues

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. Are there any other issues relating to lot entitlements that should be addressed? Please provide details.

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Appendix 1: An example of the application of lot entitlements A scheme with 5 lots may have the following lot entitlement schedules in the community management statement:

Community Management Statement for the XYZ Community Titles Scheme

Schedule of lot entitlements

Lot on Plan

Contribution Schedule Lot Entitlement

Interest Schedule Lot Entitlement

1 1 10 2 1 20 3 1 20 4 1 25 5 1 25

TOTALS 5 100 For each of the two lot entitlements schedules, each lot in the scheme is allocated a whole number. The aggregate or total of all the lot entitlements is also shown. In this scheme, as each of the five lots has an identical contribution schedule lot entitlement, each lot would be responsible for 1/5 (20%) of most amounts levied by the body corporate. Thus, the costs of maintaining the common property gardens and driveways and the payment of the body corporate management fees would be divided equally between all lot owners. If a poll was conducted for a vote, each owner would have an equal vote. However, the proportion the lots would contribute to rates and charges based on unimproved value and the scheme’s replacement insurance policies and the proportion the owner of each lot would receive upon termination of the scheme would be 10/100 (10%) for lot 1, 20/100 (20%) for lots 2 and 3, and 25/100 (25%) for lots 4 and 5.

Appendix 2: Summary of lot entitlements legislation by jurisdiction State Types and purposes of

entitlements Basis used for setting lot entitlements

Means and basis for adjustment of entitlements Basis for contributions

QLD

Interest schedule lot entitlements determine share of common property and body corporate assets and interests on termination. Contribution schedule lot entitlements determine share of amount levied and value for voting on ordinary resolution if poll conducted.

No mandatory criteria for setting interest schedule lot entitlements. Contribution schedule lot entitlements must be equal, unless it is just and equitable in the circumstances for them not to be equal.

Lot entitlements can be adjusted by: - Agreement of two or more owners if there is no change in

aggregate lot entitlement - Resolution without dissent - Order of the Commercial and Consumer Tribunal or a

specialist adjudicator. An order must be consistent with the following principles:

- For an order for the adjustment of contribution schedule lot entitlements, the principle that the respective lot entitlements must be equal unless it is just and equitable in the circumstances for them not to be equal.

- For an order for the adjustment of interest schedule lot entitlements, the principle that lot entitlements should reflect the respective market values of the lots included in the scheme except to the extent to which it is just and equitable in the circumstances for the lot entitlements to reflect other then the respective market values of the lots. (For schemes created under a standard format plan it is the unimproved value of the lots that is relevant.)

Contribution schedule lot entitlements

NSW

Unit entitlements

Not regulated. The Consumer, Trader and Tenancy Tribunal may order the reallocation of unit entitlements if the allocation of entitlements was unreasonable when the strata plan was registered or became unreasonable because of a change in permitted land use. The Tribunal is to have regard to the respective values of the lots. An application for an order must be accompanied by a certificate specifying the valuation of each of the lots at the time of registration or immediately after the change in the permitted land use.

Unit entitlements

WA

Unit entitlements determine voting rights of an owner, undivided share of each owner in the common property, and proportion payable by each owner of contributions levied by the body corporate

Relative value of lots as certified by a licensed valuer. Value means: -for a strata scheme, the capital value -for a survey-strata

May be adjusted in certain circumstances by a resolution without dissent or order of State Administrative Tribunal. The adjustment must be in line with the relative value of lots as certified by a valuer.

Unit entitlements unless a by-law allows levies to be apportioned otherwise or the State Administrative Tribunal orders levies be

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State Types and purposes of entitlements

Basis used for setting lot entitlements

Means and basis for adjustment of entitlements Basis for contributions

scheme, the unimproved site value.

apportioned otherwise.

VIC

Lot entitlements determine the extent of the lot owner's interest in any common property affected by the owners corporation and interest in the scheme on dissolution. Lot liabilities determine the proportion of the administrative and general expenses of the owners corporation which the lot owner is obliged to pay.

Unregulated.

Lot entitlements and liabilities can be changed by unanimous resolution of the body corporate. The body corporate must have regard to: - In adjusting the lot entitlements, the respective value of lots. - In adjusting the lot liability, the amount that it would be just

and equitable for the owner of the lot to contribute towards the administrative and general expenses of the owners corporation.

Lot entitlements and liabilities can also be changed by an order of the Victorian Civil and Administrative Tribunal.

Lot liability

SA

Lot entitlements determine share of common property, interests and liabilities on cancellation of strata plan, and contribution to levies

Relative unimproved value of lots as certified by a land valuer. (In the case of a strata lot, unimproved value is taken to include the value of the part of the building containing or comprising the lot without taking into account the value of fixtures or other improvements.)

Lot entitlements can be adjusted by unanimous resolution of the body corporate. The new schedule of lot entitlements must be certified correct by a land valuer.

Lot entitlements can also be changed by order of the District Court.

Based on unit entitlements unless another basis decided by unanimous resolution.

TAS

General unit entitlements apply for all purposes unless special unit entitlements apply for a particular purpose. Special lot entitlements can be set for fixing an owner’s: - proportionate contribution to the body corporate expenses - proportionate interest in the common property - number of votes exercisable at a general meeting of the body corporate

Fair and equitable basis

Unit entitlements may be changed by unanimous resolution, order of the Recorder of Titles, or by agreement of the affected lot owners. The Recorder may redetermine unit entitlements on a basis that the Recorder considers fair and equitable.

General unit entitlement unless there is a special unit entitlement for this purpose.

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State Types and purposes of entitlements

Basis used for setting lot entitlements

Means and basis for adjustment of entitlements Basis for contributions

- proportion of the body corporate’s income.

NT Unit entitlements determine an owner’s voting rights in some circumstances, and an owner’s contribution to levies

Relative improved capital value of lots

Court order, only in circumstances where a unit is being eliminated from the unit plan due to damage or destruction.

Unit entitlement, unless the body corporate decides by unanimous resolution that contributions for expenditure should be apportioned otherwise

ACT Unit entitlements determine proportional weighting of votes on a poll; an owner’s level of financial contributions

Relative improved value (including the value of buildings and improvements)

The schedule of unit entitlements may be amended on authorisation by the planning and land authority on application by the owners corporation. The application must be authorised by an unopposed resolution of the owners corporation made within 3 months before the application is made, and the amendment must be necessary to reflect accurate the current relative improved values of the units, or a change in those values that is anticipated after a particular event happens. If the owners corporation is unable to pass the necessary unopposed resolution due to opposition by one or more unit owners, the Magistrates Court may intervene to break the deadlock.

Unit entitlement, unless the body corporate decides by unopposed resolution that contributions should be apportioned otherwise.

Appendix 3: Review of lot entitlements under the Body Corporate and Community Management Act 1997 submission form This feedback form is designed to assist individuals and organisations to make a submission. It consists of two sections:

1. Section 1 asks for your details for record purposes. 2. Section 2 contains questions about your views on the issues raised in this paper. You can

respond to all or some of the questions. If you wish, you can also provide additional comments.

Mail submissions by 28 February 2009 to:

Review of lot entitlements Strategic Policy Department of Justice and Attorney-General GPO Box 149 Brisbane Qld 4001

Or submit your comments by email to:

legalpolicysubmissions@justice.qld.gov.au We appreciate your time and consideration of these questions. Your feedback is valued, and we look forward to hearing your views. Section 1 Please provide us with your details for record purposes. Name (optional):________________________________________________________________ Title and organisation name – if responding for an organisation (optional): _______________________________________________________________________________ Address (optional): ______________________________________________________________ Email (optional):_________________________________________________________________ Which group do you identify with? (optional)

Owner in a community titles scheme

Advocacy organisation

Legal service provider

Other service provider (please specify)

Government

Academic/research

Other (please specify)

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Section 2 The current system for setting and adjusting contribution schedule lot entitlements: is it appropriate? 1. Do you support the current system for setting and adjusting contribution schedule lot

entitlements? Why or why not? ________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________ 2. What, if any, further guidance should the legislation provide about the application of the

principle? For example, is there a need for the legislation to provide further guidance on when it is just and equitable to depart from equal lot entitlements? Why or why not?

________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________ 3. Do you have any other comments on the application of the principle by developers in setting lot

entitlements, or by the Commercial and Consumer Tribunal or specialist adjudicators in making orders for the adjustment of lot entitlements?

________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________ 4. Should some other basis be used for setting lot entitlements, bearing in mind the diverse

nature of modern community titles schemes? Why or why not? If yes, please explain what basis should apply.

________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________ 5. Do you think the ability to adjust lot entitlements should be limited in some way? Why or why

not? If yes, please explain what arrangements should apply. ________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________ 6. Should the ability to adjust contribution schedule lot entitlements in schemes established prior

to 1997 be limited in some way? Why or why not? If yes, please explain what arrangements should apply to these schemes.

________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________

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The current system for setting and adjusting contribution schedule lot entitlements: Other issues Adjustments of contribution schedule lot entitlements following the amalgamation of lots 7. Are you aware of any cases where the amalgamation of lots has resulted in a significant

change in the contribution schedule lot entitlements of other owners? ________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________ 8. Do you think that the Commercial and Consumer Tribunal and specialist adjudicators should be

able to consider the amalgamation of lots in making orders for the adjustment of lot entitlements? Why or why not? If yes, please explain how you think it could operate in practice, including any transitional and practical issues that would need to be addressed.

________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________ Information and education about lot entitlements 9. Should pre-purchase disclosure about lot entitlements, their uses and the potential for

adjustment be improved? If yes, how do you think this should be achieved? ________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________ Orders for adjustments of lot entitlements by the Commercial and Consumer Tribunal and specialist adjudicators 10. What has your experience with the Commercial and Consumer Tribunal or specialist

adjudication been in relation to orders for the adjustments of lot entitlements? Have you experienced problems, and if so, what were they?

________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________ 11. Did you find specialist adjudication and/or the Commercial and Consumer Tribunal an

accessible and cost-effective jurisdiction? Are there any changes to processes that could increase the accessibility and cost-effectiveness of these jurisdictions for parties to an application for the adjustment of lot entitlements?

________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________ 12. An owner may apply for an order for the adjustment of lot entitlements by either the

Commercial and Consumer Tribunal or a specialist adjudicator. What jurisdiction did you apply to, and why?

________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________

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Other issues 13. Are there any other issues relating to lot entitlements that should be addressed? Please

provide details. ________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________

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