Rethink of Body Corporate Lot Entitlements

Queensland University of Technology (QUT) is currently undertaking a review of Queensland property law for the Queensland Government. The Commercial and Property Law Research Centre of QUT is responsible for examining a broad range of Queensland property issues, and thus far has reviewed seller and buyer disclosure, sale of land under the Property Law Act 1974 (QLD), leases and tenancies under the Property Law Act 1974 (QLD), and a number of body corporate issues.  

Most recently, QUT has provided a report to Queensland Government proposing a new system for the allocation of body corporate costs between lot owners, one it suggests, is more representative of benefits received.

Current BCCM Schedule

Under the Body Corporate and Community Management Act 1997 (QLD) (‘BCCM Act’), each lot in a community title scheme is attributed with a contribution schedule lot entitlement figure, which is used to calculate the percentage of contribution a lot owner will make to body corporate expenses, relative to the total contribution schedule lot entitlements for the development . This single figure is generally allocated by the developer under the BCCM Act by utilising either the equality principle or the relativity principle.

This single figure model has a number of limitations. Some expenses benefit all lots equally. For instance, the costs of cleaning common areas, maintaining a pool, or engaging body corporate management. The burden of this cost should be shared equally among the lot owners, because the benefit is received equally regardless of lot size, lot position, or the proportion of a lot owner’s interest in the scheme. However, lot owners with a larger lot entitlement will pay a larger share of the expenses.

Further, the single figure approach does not account for varying degrees of interest in the scheme and the proportional benefit that can be received. For instance, the benefit of capital expenditure is retained proportionately to lot size. If capital expenditure improves the value of the common property, then larger lots which have a larger interest in the common property, benefit disproportionately to their contribution.

The single figure approach has little flexibility to consider the relative benefit that lots will receive from an expense. This results in owners of smaller lots paying for capital expenditure in common property at a rate greater than their interest in the common property, and owners of larger lots paying a larger share of the expense for an equally shared benefit.

Recommendations

QUT has assessed that the current model of using a single figure to allocate community title scheme expenses is inadequate, and recommend that it should be discontinued. They proposed a new model which will contain three categories of expense that aim to incorporate consideration for the proportional benefit and burden incurred by each lot. These categories will replace the use of the contribution schedule lot entitlement figure as the single figure by which most expenses are allocated. Instead, expenses will be categorised and then allocated based on whether or not they benefit or burden all lots equally.

The categories proposed are:

            Category 1: expenses that benefit all lots equally

            Category 2: expenses that benefit all lots, but differently

            Category 3: expenses that only benefit some lots

Preparation of the administrative budget and sinking fund budget by the body corporate management will still follow the same process. However, instead of allocating these budgets according to the lot entitlement figure, the expenses will be categorised into one of three categories and allocated to lot owners accordingly.

Whilst QUT anticipates that the recommended model will have little impact on most schemes, they suggest that it will create greater transparency for lot owners in the distribution of expenses.

Community Response

The full report prepared by QUT’s Commercial and Property Law Research Centre is accessible at the community consultations page of the Department of Justice and Attorney-General website at www.justice.qld.gov.au.