A balancing act: New termination process for uneconomic community title schemes

The Body Corporate and Community Management and Other Legislation Amendment Bill 2023 (the Bill) introduced into the Queensland Parliament last month proposes a number of significant reforms to the Body Corporate and Community Management Act 1997 (Qld) (the Act).

One of the main policy objectives of the Bill is to deliver a key action of the Palaszczuk Government’s 2022 Queensland Housing Summit, by reforming body corporate legislation to allow for the termination of an uneconomic community titles scheme (Scheme) to facilitate renewal and redevelopment.

We discuss the new process for bodies corporate to terminate an uneconomic Scheme and the potential impacts on the property rights of lot owners.

How to terminate a Scheme

Under the current Act, a Scheme can only be terminated with the support of all lot owners and lessees under registrable or short leases (i.e. a resolution without dissent) or by order of the District Court.

The Bill generally preserves these grounds for termination but provides greater detail on what the District Court must consider when deciding a termination order. However, a new mechanism is being proposed for termination involving ‘economic reasons’. Under the new mechanism, a termination motion can proceed with the support of only 75 per cent of all lot owners voting in favour of the motion.

The Bill defines ‘economic reasons’ to be the following reasons:

• it is not economically viable for the Scheme to continue (if all of the lots are used for a commercial purpose); or
• the Scheme will not be economically viable within five years to carry out repairs or maintenance to parts of the property for which the body corporate is responsible. This ground is not limited to Schemes which are purely commercial (i.e. it can apply to Schemes which are for, or include, residential uses). 

These reforms seek to bring Queensland in line with the approach in New South Wales for terminating a Scheme, after the 2016 reforms were introduced to Part 10 of the Strata Schemes Development Act 2015 (NSW).

Termination process

The Bill proposes a new process for terminating uneconomic Schemes which considers the property rights of lot owners. This process comprises the following key steps:

1. preparing a ‘pre-termination report’ to assist the body corporate in deciding whether there are economic reasons for termination
2. a general meeting is held by the body corporate, where an ‘economic reasons resolution’ is to be passed by a majority resolution. The ‘economic reasons resolution’ is not the actual resolution that determines if the Scheme will be terminated – rather it is a resolution that decides that economic reasons for termination exist to support the termination of the Scheme
3. if the resolution is passed, the body corporate may also pass a termination plan resolution. This requires the body corporate to prepare a termination plan which sets out important information for lot owners regarding the potential process for undertaking a sale of the Scheme and for terminating the Scheme
4. the termination plan is provided to lot owners for consideration and a general meeting is held to consider a motion to implement the plan’s terms and terminate the Scheme. It is at this resolution where 75 per cent or more of all lot owners need to vote in favour of the motion for the termination to proceed
5. if the motion for a termination resolution is passed, the body corporate must notify certain parties with an interest in the Scheme of the resolution and must appoint a person as a facilitator to assist the body corporate in implementing the termination plan
6. the Scheme can be terminated through lodging and recording relevant documents under the Land Title Act 1994 (Qld) and the body corporate is dissolved.

Where economic reasons do not apply, a Scheme would still require support from all lot owners, or by order of the court, to be terminated.

Implications on property rights

The reforms aim to provide a new approach that balances the termination benefits whilst appropriately respecting individual lot owners’ property rights.

The main driver behind the reforms is to better facilitate the renewal and redevelopment of ageing or uneconomic Schemes in a way that provides increased housing opportunities.

In such cases, selling the scheme land for termination and redevelopment may be more economical than requiring lot owners to pay large contributions to enable the body corporate to meet its statutory obligations to maintain key elements of the Scheme in a good and structurally sound condition.

However, the reforms may have significant implications, particularly where a lot owner is unwillingly required to sell their lot, and financial impacts on service providers and contractors engaged by the body corporate.

It is proposed the Act will incorporate a number of protections and safeguards in this regard:

• requirements for professional reports and other information to inform decision-making about economic reasons
• minimum requirements for compensation of lot owners, lessees, and caretaking service contractors
• review and dispute resolution pathways, including provisions to reduce lot owners’ exposure to costs associated with proceedings relating to a proposed termination
• District Court to have broad discretion in deciding whether it is just and equitable to make a termination order in disputes about termination resolutions and plans.

Other notable reforms

The Bill proposes further reforms to the Act, specifically:

• allowing bodies corporate to tow a vehicle on common property, so long as they act in accordance with other legislation or another law, without the need to comply with the formal by-law contravention requirements
• allowing bodies corporate to make by-laws to prohibit smoking in outdoor areas of lots and in common property. The Bill also provides that any regular smoking by an occupier is considered a nuisance, hazard, and unreasonable interference if it affects other occupiers, invitees, or people lawfully on common property
• prohibiting bodies corporate from making by-laws which ban lot owners from keeping animals, or by-laws which restrict the number, type or size of animals that may be kept.

Moving forward

The Bill has been referred to the Legal Affairs and Safety Committee to conduct an inquiry to consider whether the Bill is further considered to become law. 

If you have any questions about the proposed reforms or the applicability of the changes to your circumstances, please get in touch with a member of our team below.

Disclaimer
The information in this article is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavour to provide accurate and timely information, we do not guarantee that the information in this article is accurate at the date it is received or that it will continue to be accurate in the future.

Published by:

Darren Anderson

Robert Lyons

Thao Nguyen

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