User Pays Infrastructure Decision

November 20, 2018

When are owners liable to maintain Utility Infrastructure on common property? When does utility infrastructure on common property ‘relate only’ to a lot?

On 9 October 2018 the Queensland Court of Appeal laid down the test for when a lot owner is liable to pay the maintenance costs of utility infrastructure located within common property.

In JM Family Holdings Pty Ltd & Anor v Owltown Pty Ltd & Anor [2018] QCA260, the utility infrastructure in question was an elevator.

In the Norwinn Commercial CTS 38094 the developer had been paying all the costs of maintaining an elevator located on common property. The elevator serviced foyers on only two levels of one building in the Scheme. Each foyer led to common property and Lot 8. None of Lots 1 – 7 could access their upper-level using the elevator, however all Lots had internal stairs.

The developer went into receivership and all lots were sold. The new owner of Lot 8 determined, correctly, that the elevator should be maintained by the Body Corporate as utility infrastructure. The reason being that it supplied utility services not only to Lot 8, but also to both the common property (visitors could use the elevator to get to the upstairs toilets) and the other Lots (their maintenance contractors could use the lift on the way to the roof).

As a result, the new owner of Lot 8 brought resolutions to a General Meeting of the Body Corporate, and using their majority voting power, passed those resolutions. The effect of the resolutions was to require the maintenance costs of the elevator to be paid for by the Body Corporate, and thus by the owners pro rata their Contribution Schedule Lot Entitlements.

The owner of Lot 2 and 4, Owltown Pty Ltd, brought an adjudication application seeking to overturn the resolutions. The reasoning was that the resolutions were contrary to the Body Corporate & Community Management Act 1997 on the basis that while the Body Corporate was, in the first instance, responsible for the maintenance of utility infrastructure which was common property, the Body Corporate was not responsible to maintain utility infrastructure “to the extent that the utility infrastructure relates only to supplying utility services to the owners Lot”.

Owltown argued that because the common property foyers on the ground and first level (which the elevator serviced) only provided access to Lot 8, then the elevator ‘related only’ to Lot 8.

In response, the owner of Lot 8, represented by Stratum Legal, made submissions in the adjudication application including as to how the lift was actually used. That included photographs and other evidence that the lift was used by:
1. Body Corporate cleaners, including who clean the upper-level foyer;
2. Body Corporate and private contractors, needing access to the first level and the roof beyond; and
3. Other Lot Owners and Occupiers, including who would use the elevator to access the first-floor toilets.
Before the Adjudicator, the owner of Lot 8 was successful. The Adjudicator found that the lift didn’t ‘relate only’ to Lot 8. Owltown then appealed to the Appeals division of QCAT.

Member Barlow QC, comprising the Appeal Tribunal, found in favour of Owltown. In doing so the learned Tribunal Member applied a ‘but for’ test. That is, but for the existence of Lot 8, would it be necessary to have an elevator at all? There had been evidence before the Adjudicator, which Member Barlow QC relied upon, that without Lot 8 it would not have been necessary to have an elevator in the building at all.

The owner of Lot 8 appealed to the Court of Appeal. In his decision Justice Bond (with whom Fraser and McMurdo JJA agreed), determined that the QCAT Appeal Tribunal had erred by applying the ‘but for’ test. By applying that test Member Barlow QC had, in effect, treated as irrelevant relationships between utility infrastructure and the supply of utility services to other Lots or the Common Property.

To put this another way, even though it might be true that without Lot 8 an elevator wasn’t needed, that did not mean that the elevator ‘related only’ to Lot 8. Instead, it related also to the common property (by allowing visitors, workmen or contractors to move between the two floors) and it also related to the other Lots (by providing the occupiers of those Lots the amenity of being able to access the upper-floor, including the upper floor toilets, by using the elevator).

In reaching its decision, the Court of Appeal laid down the following test to determine whether utility infrastructure ‘relates only’ to a given Lot:
1. First undertake an objective identification of, and gain an understanding of:
a. the nature and function of the particular utility infrastructure concerned;
b. the type of utility services which it supplies; and
c. the lots or common property to which those services are supplied.
2. Then, against that background, determine the extent to which the utility infrastructure concerned could be said to relate only to the supply of the services to the particular Lot concerned.

In the case of Norwinn that meant, including because of the findings of fact of the Adjudicator below as to who used the elevator, that it could not be said that the elevator related only to Lot 8. The elevator also related to the Common Property and to the other Lots.

The upshot of the Court of Appeal’s decision is that there is now a clear test to determine when the owner of a given lot needs to pay the maintenance costs of a given item of utility infrastructure. While some examples are obvious (for example air conditioning units located on the common property), other examples are less so, but potentially just as important. For example, a security or intercom system is likely to have elements throughout the scheme land which are the liability of the lot owner to maintain and not the Body Corporate.

This article was contributed by Michael Kleinschmidt – Stratum Legal.