Have you ever been asked to vote for an extension of your caretaker’s agreement? Put another way, has your Scheme been asked to ‘top up” your caretaker’s term usually by a further 5 years?

It’s common and can actually occur once every financial year of the body corporate. After all, it is the caretaker’s prerogative to keep the agreement alive for as long as possible in order to increase the value of the asset within the agreement. It is also a trend amongst the management rights industry for those agreements to be extended indefinitely to enhance their value.

The commercial reality is that an extension would provide a significant increase to the value of the management rights. However, what most owners are not aware of is that granting a top-up is discretionary and when you put aside the plethora of marketing material on this topic, owners should be entitled to exercise their vote as they see fit.

This ultimately begs the question of whether it is reasonable for a body corporate to refuse a caretaker’s top-up request.

Requirements for extension

The focus of this article will be on caretaking agreements under the Accommodation Module because it is the only residential regulation module that allows the maximum term of service agreements up to 25 years, as opposed to the standard 10 years.[1]

In practice, a caretaking agreement could consist of a full 25-year agreement, or it could consist of an initial term plus options up to the maximum 25-year term (such as an initial 20-year term with a 1 x 5 option). In either event, it results in the body corporate being bound to the terms of that agreement for 25 years, potentially more if top-ups are granted.

What is a ‘top-up’?

In addition to exercising any options already approved by the body corporate, the caretaker can also request an additional ‘option or subsequent right’ outside of the unexpired term. In industry terms a ‘top up’. Top-ups require body corporate approval at a general meeting, which means that there is only one of two outcomes, either the top-up is approved or it is refused.

It is when options are refused that often bodies corporate are faced with claims of un-reasonability.

Is it unreasonable to say no?

While the legislation clearly provides that top-ups are discretionary, often Committees and Owners are faced with arguments that their dissenting votes are unreasonable and that it is unreasonable for a body corporate to refuse a top-up.

This is simply not the case and the adjudicator in Castaway Cove [2006] QBCCMCmr 452 (17 August 2006), confirmed such position by stating in their reasons:

“While I accept that the caretakers think it would be unfair if the Agreements were not renewed or extended, that is the contractual term that they signed up to and is certainly not unreasonable for the Body Corporate to simply abide by the current Agreements and no more…

…I consider that there is nothing inherently unreasonable in owners passing a resolution that expresses their view that the scheme work towards a situation of no on-site caretaking”

Ultimately, the body corporate has an obligation to act reasonably, and should the body corporate no longer support long-term caretaking for the scheme or no longer supports the contractual duties within the agreement (some of which could be 30 years old), it is reasonable for the body corporate to maintain that position.

No Top Up Policy

While the legislation provides that top-ups are discretionary and such position is supported in adjudicator’s decisions, adopting a formal ‘no top-up policy’ has not been met with the same level of enforceability.

In the decision of K&A Property Services Pty Ltd as trustee for K&A Holding Trust v The Body Corporate for Island Park Gardens CTS 20219 [2016] QCAT 308, the Queensland Civil and Administrative Tribunal held that a body corporate resolution imposing a ‘no top up policy’ was invalid because it:

“gives the impression, whether intended or not, that requests to the body corporate for top-ups will not succeed regardless of their merits. Such a policy also carries a danger of misleading body corporate members into thinking that they do not have to consider top-up requests on their merits.”

In that regard, the Tribunal found that a resolution approving a ‘no top-up policy’ was invalid, however, that did not prevent the body corporate from reasonably voting against a top-up or, in this matter, an assignment.

The importance then in our opinion is ensuring that the body corporate and owners consider each and every application for a top-up (or any variation or assignment for that matter) on its own merits.

So, what should or can a body corporate do?

It is common for the caretaker to directly contact owners and seek their support, this is especially so with owners within their letting pool. While we have seen some creative arguments over the years going to why the top-up is needed, more commonly the reason is that the caretaker’s financier requires the same.

To a large extent, the reason behind the request to extend is irrelevant. What is relevant is what is in the best interests of its owners and the scheme at large. Some schemes do require traditional onsite caretaking, their ownership, facilities, and use ultimately mandates the same. However, perhaps what lets the scheme down is poorly outdated agreements. In these circumstances, it is not the ‘top up’ that is then the concern but rather ensuring that the contractual obligations between the parties are clearly and concisely articulated in the agreements.

Each building is different and accordingly, each committee and body corporate should be turning their minds to what best serves their scheme and ownership.

In the current climate, it is naïve to think that both parties will not lobby and campaign for support. Accordingly, it is important for Committees to take a balanced approach, understand the proposal presented to it, and to ensure that owners are educated with respect to same. Often it is as simply as understanding: what is the caretaker asking for? Put aside the legal jargon, if I vote yes what I am committing the body corporate to?

With this very basic information, owners can then exercise their right to vote freely.

Finally, the key is to act proactively. Do not wait for your budget meeting to receive the owner-submitted motions, make it a habit that on the first day of the financial year ask your strata manager if any owner-submitted motions have been received. If there is a motion going to any form of variation seek specialised legal advice ASAP. This will give the body corporate time: time to think, time to consider and deploy a strategy to ensure that the schemes and owners’ best interests are advocated for.

Remember, top-up motions can be submitted by the caretaker once every financial year of the body corporate. Accordingly, if a body corporate has an attitude against top-ups, this is not a one-off campaign, it is an attitude that needs to be a habit. The committee needs to be prepared on the first day of every financial year to ensure that it is proactively dealing with any requests received.

Conclusion

If after reading this article, you found our comments to be relevant or at least intriguing, you may wish to do further research into this hot topic of discussion with the Attorney General reviewing management rights for further legislative protections, powers and remedies to bodies corporate. That discussion has welcomed community submissions to evaluate the imbalances in management rights.

[1] Section 130 of the Body Corporate and Community Management (Accommodation Module) Regulation 2020 (Accommodation Module)

This article was contributed by Jessica Cannon, Grace Lawyers

 

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