Bodies Corporate take another hit!

All I can say is ….WOW!

I have practiced exclusively in body corporate law since 1995.

In those last 21 years I have acted predominately for bodies corporate.

I have become increasingly dismayed at the decisions coming out of QCAT recently which seem to me to be patently unfair against bodies corporate.

The decision in the case of K&A Property Services and the Body Corporate for Island Park Gardens is a recent example.

Whilst the case involved several issues, the one I will focus on is the decision of the QCAT member in regards whether a body corporate is entitled to recover costs from the outgoing manager on a failed assignment of management rights.

Relevantly, section 120 of the Accommodation Module (section 122 of the Standard Module) provides:

120 (6) The body corporate must not—

(a)   unreasonably withhold approval to the transfer; or

(b)   require or receive a fee or other consideration for approving the transfer (other than reimbursement for expenses
reasonably incurred by the body corporate in relation to the application for its approval).

In the Island Park Gardens case, the body corporate did not provide its consent to the proposed assignment of the management rights.

Importantly, the body corporate was not found to have act unreasonably in withholding its consent.

However, when the body corporate sought payment from the outgoing manager of the fees incurred by the body corporate in considering the assignment, the outgoing manager argued there was no legislative or contractual basis obliging it to pay the fees incurred by the body corporate (notwithstanding those fees essentially being incurred at the manager’s behest that is, but for the manager’s sale of the management rights, the fees would not have been incurred by the body corporate).

Astonishingly (to my mind anyway) the Member said that the manager was NOT liable to pay the costs incurred by the body corporate.

The Member found  that section 120 (6) envisages that certain costs incurred by a body corporate in approving a transfer can be placed upon the outgoing manager, but it does not provide for the imposition of costs on an outgoing manager in relation to considering an application for an assignment.

Putting aside the question of whether the decision is correct or not, it is yet another disincentive to bodies corporate to withhold consent to an inappropriate candidate to take over the management rights.

In my view the intent of the legislation is to prohibit a body corporate requiring money to approve a transfer (in essence to prevent a body corporate “selling” its consent), but that prohibition is not to prevent a Body Corporate receiving reimbursement for its costs. The legislation does not in my view prohibit payment of costs to consider an assignment where approval is not given.

The intention of the legislation surely must be that a body corporate should not be out of pocket where it is entirely reasonable for it not to approve the proposed incoming manager. In fact, I submit the bracketed words in section 120 (6)(b) provide for exactly that.

The Member though found the bracketed words qualify but do not expand the preceding words.

The Member suggests the situation in the Island Park Gardens case may have been different if the caretaking and letting agreement contained a contractual provision requiring the manager to pay the costs incurred by the body corporate in an assignment, irrespective of whether consent is ultimately forthcoming or not.

The decision makes it even more critical now for a body corporate to secure a written  undertaking  from an outgoing manager to pay the costs incurred by the body corporate in considering a request for consent to the assignment of management rights,  irrespective of whether consent is ultimately forthcoming or not.

Of course though,  the next argument by a manager and those that act for them, will be that it is unreasonable for a body corporate to seek such an undertaking.

Given QCAT’s decision in Island Park Gardens, it may well be such an argument would find favour with a member.

One can only hope the Island Park Gardens decision is appealed and that any such appeal is successful.

For the law to be as it now currently stands  is patently unfair to bodies corporate.

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