Requirement for the Body Corporate to act Reasonably  

31 January 2017

Not only are Bodies Corporate, and more relevantly Committee’s faced with statutory obligations, competing owner’s interests and the problems that come with external trades, it is now, more than ever, faced with its statutory obligation to act reasonably.

A recent Queensland Civil and Administrative Tribunal case, The Sands Gold Coast Pty Ltd v Body Corporate for the Sands (No 2) [2016] QCAT 365 (22 September 2016) has placed significant emphasis on the Body Corporate’s statutory obligation to act reasonably and especially in cases on termination of caretaking and letting agreements.

The Tribunal held that a Body Corporate must act reasonably in administrating the common property and in carrying out its functions, and in making decisions about these things. This is required by section 94(2) of the BCCM Act. There is also a requirement for the committee to act reasonable in making a decision under section 100(5) of the Act and, a further obligation under section 152(1) which requires the Body Corporate to administer, manage and control the common property reasonably and for the benefit of lot owners. These obligations (while seemingly broad) are applicable to each and every decision the Body Corporate and Committee makes. They have also played a key role in recent decisions regarding the termination of management rights, for example The Sands Gold Cost Pty Ltd v Body Corporate for the Sands (No 2) [2016] QCAT 365 (22 September 2016).

The Body Corporate is obligated, by the statutory provisions, to act reasonably in making decisions and exercising its functions and this includes its decisions about the content of directions, Remedial Action Notices, and its decisions about termination of service contracts. The evidential burden of proof is upon the Body Corporate to show that the Manager was in breach of the agreements and that the statutory and/or contractual provisions were complied with, but the Manager has the evidential burden of proof to show that the Body Corporate has acted unreasonably.

So one might ask, what is reasonable?

The reasonableness of a Body Corporate’s decision is a question of fact. An objective test that balances all the factors accordingly to the ordinary meaning of the term reasonable.

The Body Corporate must act reasonably when making its decisions. This implies that the Body Corporate must consider each breach, the reasonableness of the remedy sought and the reasonableness of the time period provided on its merits. While your Caretaking Agreement may provide for a 14 day remediation period, the Tribunal will look at whether it’s possible for the Caretaker to actually remedy the breach within that timeframe, or should a greater timeframe be provided. This becomes problematic when remedial action notices often include a variety of different breaches. Accordingly, should there be one breach which requires a remedy which is time consuming, the Committee should consider providing all breaches with a greater remediation period or issuing two remedial action notices.

The issue of reasonableness comes into play in all body corporate decisions, however we are seeing time and time again, a large empathise on this duty in termination of caretaking and letting agreements. Accordingly, bodies corporate and committees must ensure to obtain legal advice regarding the alleged dispute, the process of termination, and the crucial elements which must be satisfied in the initial remedial action notice. Time and time again, Committees are endeavouring to save their owners costs by drafting and issuing their own remedial action notice. These notices must be drafted to the letter of the law, and if not, will be rendered void and of no effect by the Tribunal, that is once the body corporate proceeds through the entire termination process. Should this be the case, owners will not only be paying for the body corporate’s own legal fees but perhaps the legal fees of the Manager who challenged the validity of the notices.

We strongly recommend for all Committees to gain legal advice from the outset, it is then fully equipped and aware of the process and likely costs ahead.

Please contact our Jessica Cannon if you have an issue with your Manager/Caretaker and require legal assistance.