21 Apr 2011

Queensland developers must review their disclosure statements now

Changes to the Body Corporate and Community Management Act 1997 (Qld) (BCCMA) will mean that previously accurate disclosure statements for proposed / off-the-plan lots will now be inaccurate.

In addition, a failure to comply with the new obligations in the Body Corporate and Community Management Amendment Act 2011 (Qld) (Amendment Act), most of which came into force on 14 April 2011, may give buyers the right to terminate an otherwise enforceable contract.

As a result, sellers will need to review their disclosure statements now.

The key changes at a glance

The key changes to the BCCMA introduced by the Amendment Act are:

  • changes to those provisions relating to lot entitlements, including a new requirement to use deciding principles (Deciding Principle) when determining contribution schedule lot entitlements (CSLE) and interest schedule lot entitlements (ISLE) for schemes established on or after 14 April 2011;
  • new drafting requirements for community management statements (CMS) in schemes established on or after 14 April 2011;
  • additional disclosure obligations altering compulsory disclosure requirements for existing / registered and proposed / off-the-plan lots; and
  • additional contract termination rights for buyers relating to the new lot entitlement principles and drafting requirement for CMSs.

Changes to lot entitlements for schemes established on or after 14 April 2011

Previously, the BCCMA required CSLE to be equal unless otherwise just and equitable (this is now known as the "equality principle").

The Amendment Act includes an alternative method of calculating CSLE – the "relativity principle". When deciding CSLE under the relativity principle, the lot entitlements must clearly demonstrate the relationship between the lots by reference to 1 or more relevant factors. The factors to be considered are:

  • structure of the community titles scheme;
  • nature/features/characteristics of the lots;
  • the purpose of the lots are used;
  • the impact the lots may have on the costs of maintaining the common property; and
  • the market values of the lots.

Generally speaking, ISLE for schemes established on or after 14 April 2011 must be consistent with the "market value principle", which requires ISLE to reflect the respective market values of the lots, except to the extent which it is just and equitable in the circumstances for the individual lot entitlements not to reflect the respective market values.

In the case of a lot created under a standard format plan/volumetric plan of subdivision, market values must be decided without regard to buildings and improvements.

The Amendment Act does allow for an exception to the "market value principle" for schemes which are established on or after 14 April 2011 if a contract for a lot included in the scheme was entered into before 14 April 2011. In this case the previous determination mechanism will continue to apply.

Changes to CMS drafting requirements

The CMS for a scheme established on or after 14 April 2011 must (in addition to existing requirements):

  • state the contribution schedule principle (ie. relativity or equality) on which the CSLE have been decided;
  • if the CLSE have been decided in accordance with the equality principle and are not equal, explain why they are not equal;
  • if the CLSE have been decided in accordance with the relativity principle, include sufficient details about the principle to show how individual CSLE for the lots were decided by using it;
  • if the ISLE reflect the respective market values of the lots, state that the ISLE reflect the respective market values of the lots; and
  • if the ISLE do not reflect the respective market values of the lots, explain why they do not reflect the respective market values of the lots.

These requirements will also apply to CMS for schemes established before 14 April 2011 if:

  • the contribution schedule for the scheme is adjusted on or after 14 April 2011 and, after the adjustment, the deciding principle for the CSLE for the lots included in the scheme is decided under either the relativity principle or equality principle; or
  • the interest schedule for the scheme is adjusted on or after 14 April 2011.

New disclosure requirements for contracts entered into on or after 14 April 2011

Disclosure statements for existing / registered lots must now attach a copy of the CMS and disclosure statements for both existing / registered and proposed / off-the-plan lots must now also state:

  • the extent to which annual contributions are based on CSLE and ISLE for the community titles scheme; and
  • that CSLE and ISLE are set out in the CMS for the scheme.

As a result of the new requirements for CMS and disclosure statements under the Amendment Act, previously accurate disclosure statements for proposed / off-the-plan lots will now be inaccurate, so further disclosure statements will need to be given in respect of these lots.

This will only allow buyers to terminate under the BCCMA on the basis of the further disclosure statement if they can show that they would be materially prejudiced by the change.

New additional termination rights: existing / registered lots

In relation to existing / registered lots, a buyer may now terminate a contract of sale prior to settlement where:

  • a new CMS is recorded after the contract is entered into but before settlement and the buyer would be materially prejudiced if compelled to complete the contract given the differences in the new CMS;
  • the copy of the CMS attached to the contract is different to the CMS most recently advised to the buyer, and the buyer would be materially prejudiced if compelled to complete the contract given the difference; or
  • where the seller is the original owner (ie. the developer) for the scheme and the buyer reasonably believes the CSLE are inconsistent with the principle on which they were decided, and the buyer reasonably believes the buyer would be materially prejudiced if compelled to complete the contract.

The other pre-existing termination rights under the BCCMA still remain.

New additional termination rights: proposed / off-the-plan lots

In relation to proposed / off-the-plan lots, a buyer may now terminate prior to settlement where the CMS most recently advised to the buyer does not:

  • state the deciding principle on which the CSLE have been decided;
  • where the equality principle has been applied and the CSLE are not equal, explain why CSLE are not equal (under the equality principle);
  • where the relativity principle has been applied and there are insufficient details to show how individual CSLE were decided (under the relativity principle); or
  • if the ISLE do not reflect the market value of the lots, include an explanation as to why the ISLE do not reflect the respective market values of the lots,

and the buyer would be materially prejudiced if compelled to complete the contract.

A buyer may also terminate in relation to proposed / off-the-plan lots if:

  • the seller is the original owner (ie. the developer) for the scheme; and
  • the buyer reasonably believes the CSLE or ISLE are inconsistent with the relevant deciding principle; and
  • that the buyer reasonably believes that the buyer would be materially prejudiced if compelled to complete the contract.

This termination right will expire 30 days after the buyer receives his or her copy of the contract.

The other pre-existing termination rights under the BCCMA still remain.

How does this affect you?

It is important for each seller of lots in a community titles scheme to take the following steps to ensure compliance with the new obligations introduced by the Amendment Act:

  • review and alter CMS for schemes which have not yet been established so that they comply with the new entitlement principles;
  • review and alter disclosure statements to ensure that they include the additional information required by the Amendment Act; and
  • provide a further disclosure statement to existing purchasers to rectify the inaccuracies arising as a result of the additional requirements introduced in the Amendment Act.

A failure to comply with the new obligations in the Amendment Act may give buyers the right to terminate an otherwise enforceable contract.


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Clayton Utz communications are intended to provide commentary and general information. They should not be relied upon as legal advice. Formal legal advice should be sought in particular transactions or on matters of interest arising from this communication. Persons listed may not be admitted in all States and Territories.