Think Nicholsons

May 08

Body Corporate Tips - Reasonableness and Repayment Proposals

In a previous article we identified that body corporate managers and committees need to be careful to ensure that the committee gives due regard to repayment proposals (which generally, but not always, seek the reinstatement of a lost discount or the waiver of penalty interest and/or recovery costs), to comply with the requirement to act reasonably.

This article further considers the reasonableness requirement.

Almost invariably, it is the committee that decides whether to accept a repayment proposal.

This decision of the committee is a decision of the body corporate.

A body corporate is required to act reasonably in carrying out its functions, including in making or not making a decision.

Those functions include recovering contributions not paid by the due date, along with penalty interest and any recovery costs incurred. If a contribution has been outstanding for 2 years, the body corporate must start proceedings to recover that within 2 months from the end of the 2 year period.

The body corporate is given a discretion to allow a discount or to waive a penalty or recovery costs in whole or part, if satisfied there are special reasons for doing so.

How can a committee act reasonably?

In Aqua Park [2009] QBCCMCmr 152, the adjudicator held that:

“Reasonableness is a question of fact. The objective test requires a balancing of factors in all of the circumstances according to the ordinary meaning of the term ‘reasonable’. The question is not whether the decision was the “correct one” but whether it is objectively reasonable.

The requirement that the body corporate act reasonably does however require that owners be treated fairly.”

However, in Ainsworth & Ors v Albrecht & Body Corporate for Viridian Noosa Residences [2014] QCATA 294, Mr Roney QC held that, “there is no balancing exercise to decide whether overall, the reasonable explanations outweigh the unreasonable ones.”

Therefore, what is reasonable is a question of fact, based upon a consideration of all relevant matters in the circumstances of each case.

It is suggested that some of the factors for committees to consider are:

  • It will not be reasonable for a committee to apply blanket policies that do not permit it to exercise its discretion.
    However, clear and reasonable policies that guide the exercise of the discretion (and which can include a preference against approving requests for reinstatement of discounts/waiver of penalty interest and/or recovery costs) are appropriate, provided each repayment proposal is considered on its merits and the resultant decision is objectively reasonable;
  • The owner’s personal circumstances, such as a death in the family or the loss of employment;
  • The owner’s payment history;
  • The owner’s compliance with any previous repayment arrangements;
  • The effort made by the body corporate to locate or make contact with the owner to address their arrears before incurring significant debt recovery costs;
  • The proportion of debt recovery costs charged to the owner compared to the amount of outstanding arrears of contributions;
  • The length of time it will take for the owner to square the ledger;
  • The impact on the body corporate’s finances;
  • Decisions made with respect to other owners’ repayment proposals.

What if a decision is made to refuse a repayment proposal?

A lot owner may respond in one of three ways.

First, an owner may accept the decision and pay the outstanding contribution or negotiate with the body corporate to reach agreement on a repayment arrangement.

Second, an owner may not accept the decision and file a dispute resolution application in the Office of the Commissioner for Body Corporate and Community Management challenging the decision.

An adjudicator may make an order that is just and equitable to resolve a dispute, including to decide whether or not to declare a resolution purportedly passed to be void or to give effect to a motion that was not passed.

Third, the owner may defend proceedings that are commenced against them, to recover unpaid contributions, on the basis that the recovery costs were unreasonably incurred and, therefore, should not be awarded to the body corporate.

If you would like to discuss any of the above issues, or body corporate issues more generally, please telephone Nicholsons Solicitors on (07) 3226 3944.