Apartments and townhouses together are presenting complex issues. Photo: Michelle Kroll.
The increasing number of combined townhouse and apartment developments may call for a change in legislation to make it easier to separate owners’ costs from the outset, according to a prominent property lawyer.
MV Law’s Christine Murray was commenting on a recent decision in the ACT Civil and Administrative Tribunal (ACAT) knocking back a bid to overturn an AGM’s rejection of motion that proposed a split budget.
In this situation, the proportional share of total general fund contribution would have been reallocated between apartment and townhouse units according to benefit, rather than unit entitlement.
The unnamed development in Denman Prospect was built in two stages – townhouses first, apartments second – with the Stage 2 builder going bust and leaving a number of serious defects.
This required an engineer’s report and engaging lawyers to make a builders’ warranty insurance claim.
Townhouse owners felt they should not have to share the costs with apartment owners, although there were some common areas covered in the engineer’s report.
The strata manager suggested a split budget and raising a one-off special levy payable by apartment owners to cover legal costs associated with the buildings’ defects claim.
But the motion went down mostly along ownership lines.
Senior ACAT member Emma Morrison found it was not unreasonable for the motion to be opposed and dismissed the application, noting there were common areas involved.
But she said a different proposal could be more acceptable.
“Multi-unit developments raise complex issues, particularly financial ones,” Ms Morrison said.
“The outcome of these proceedings should not be interpreted as an opinion that a split budget or user pays model would be unfair or unworkable for Unit Plan 15667.
“Rather, the parties are encouraged to consider the feedback and work together in deciding whether to put a more detailed proposal to owners at some later stage.”
MV Law’s Christine Murray: “The attempt to assign the costs in an equitable way can quickly become quite complex and tedious.” Photo: File.
Ms Murray said this kind of issue would become more common and significant with greater development.
She said that as mixed unit developments became larger and more complex, with additional facilities such as gyms and pools that are expensive to maintain, how owners corporation levies were allocated would become increasingly important.
Ms Murray said split budgets were usually seen in mixed-use development with residential and commercial components.
“A split budget can work very well where the various expenses can be easily and fairly allocated to different parts of the complex,” she said.
Split budgets in complexes with a mix of townhouses and apartments may work if the separate areas used and the cost of their upkeep are readily apparent.
“For example, lift maintenance costs may sensibly be paid for by apartment owners only, as the lifts only service the apartment block,” she said.
“However, what if a person has a ground floor apartment and never uses the lift? Should they also contribute to the costs?
“Should a unit with no car spaces assigned to it have to contribute to the cost of maintaining the car park garage door? Should a unit that doesn’t have a hedge in front of it have to contribute equally to the garden maintenance costs?
“The attempt to assign the costs in an equitable way can quickly become quite complex and tedious.”
Ms Murray said the developer would ideally put in place arrangements for a split budget from the outset.
But the legislation no longer permitted this because it was considered to be a change to the default rules and developers were not allowed to do this for units sold off the plan.
Ms Murray said it could be done after developers had sold more than one-third of the units, but only by special resolution “which as we have seen from the tribunal can be difficult to achieve as the owners can vote as they see fit and in their own best interest”.
“Perhaps a change in the legislation to permit a developer to put these arrangements in place from the outset is warranted,” she said.
Owners Corporation Network president Gary Petherbridge said the townhouse and apartment components should ideally have separate unit plans or body corporates from the start.
Each unit plan would then cater for the basic differences in each type of development such as maintenance needs, and the unit entitlement points could be allocated more simply.
Mr Petherbridge said legislation about three years ago addressed the need to allow for allocating costs to different types of owners.
“This allocation method was in addition to an entitlements points method,” he said.
“The approach allows costs to go in line with benefit or usage.”
He said the key to this extra approach was a well defined and accredited calculation method for the allocation of costs, possibly by a lawyer specialist and/or quantity surveyor.
“I believe this ACAT decision against reversing the failed motion to separate the costs was possibly based on not being satisfied with the analysis and calculation method,” he said.
“If in the future this was addressed, there could be a different decision.”
Mr Petherbridge said it was critical the promised strata commissioner be established to help educate owners and property managers and to head off and resolve these kinds of situations as the strata sector expanded.
