HOW TO DISPOSE OF COMMON PROPERTY WITHOUT DISPOSING OF COMMON PROPERTY

There are several reasons why a body corporate might want to dispose of common property within the scheme. For example, a facility may become too costly to maintain, a facility may be put to a better use or the body corporate may wish to sell part of the common property.

Ordinarily a resolution without dissent is required to dispose of common property. This can be difficult to obtain, particularly if the only user of the common property facility refuses to let the body corporate dispose of it.

Maintenance obligations

Whilst the common property exists, the Body Corporate must maintain it:

• in good condition; and
• to the extent the common property is structural in nature, in structurally sound condition.

This means that if a common property facility is not being used and is costing the body corporate significant funds, the body corporate must continue to carry out maintenance irrespective of the cost in doing so.

However, maintenance obligations do not require a Body Corporate to maintain the common property indefinitely. A Body Corporate may be entitled to decommission or dispose of an element of the common property if it is no longer needed. The adjudicator in Powerhouse Apartments [2017] QBCCMCmr 271 explained:

“The fact that a body corporate is obliged to maintain common property and assets does not mean it is required to retain them forever or keep them unchanged. Changes can be made if properly authorised. While the body corporate has an obligation to maintain assets, it has no obligation to replace an asset or improvement. When a body corporate asset or part of common property comes to the end of its useful life a body corporate can decommission or remove and not replace it, replace it with something similar (which is maintenance) or replace it with something different (which is an improvement).”

Disposal loophole

Step 1 – improvement

Common property can be converted to an asset of the Body Corporate by being detached from the balance of the common property for the Scheme. The adjudicator in La Porte D’Or [2002] QBCCMCmr 435 explained:

“[W]hilst a body corporate asset can become common property when it is installed as a fixture, I consider that if it is at some time separated or removed from the common property, then it can again become a body corporate asset. It does not for all time remain common property. I consider that it becomes common property so long as it is affixed to the common property, but if it is capable of being removed or annexed from the common property, then at such time, it again becomes a body corporate asset.”

Accordingly, a Body Corporate can resolve to detach an element of the common property for the Scheme, converting this element into an asset of the Body Corporate.

A resolution to detach an element of the common property for the Scheme would constitute an improvement to the common property. The adjudicator in Enderley Gardens [2012] QBCCMCmr 21 confirmed:

“[W]ork which would in effect decommission part of common property would amount to an improvement to common property. An improvement can include a non-structural change, and a change can include an addition, exception, omission or substitution.”

An improvement to the common property may be authorised by resolution of the committee, ordinary resolution or special resolution, depending upon the cost of the associated works and number of lots in the scheme.

Step 2 – disposal

Once a Body Corporate has detached an element of the common property for the Scheme, thereby converting that item into an asset of the Body Corporate, the Body Corporate can authorise the disposal of that asset by ordinary resolution or special resolution, depending upon the market value of the asset.

The adjudicator in Cedar Crossing Kenmore [2012] QBCCMCmr 422 endorsed this approach, and found:

“[I]n my view a fixture can revert to being an asset if it is detached from common property. … Accordingly I see no reason why a body corporate could not resolve to detach a fixture from common property (thereby reverting the item to the status of an asset), and then resolve to dispose of the asset.”

Conclusion

By proceeding this way, a Body Corporate may effectively side-step the need for a resolution without dissent and authorise the disposition of a portion of the common property for the Scheme by recording a:

• committee resolution, ordinary resolution or special resolution to authorise the detachment of an item from the balance of the common property; and
• ordinary resolution or special resolution to authorise the disposal of this item once it has been converted into an asset of the Body Corporate.

If your body corporate wishes to be guided through this process Mahoneys can assist in doing so.

Article Contributed by Todd Garsden, Partners & Connor Mahoney, Lawyer at Mahoneys Lawyers & Advisors.