RECENT TERMINATION OF MANAGEMENT RIGHTS—WHAT WENT WRONG?

In October 2024 in Linali Pty Ltd v Body Corporate for Crown CTS 41282 [2024] QCAT 446, Member Lumb of the Queensland Civil and Administrative Tribunal ordered the Body corporate to pay the Caretaker $311,958 by January 2025 because the Body Corporate improperly terminated a Caretaking Agreement and Letting Agreement.

Critical mistakes were made, and key lessons must be learned. It’s essential for bodies corporate to adopt these insights to prevent a similar outcome.

Background

The Caretaker entered into a Caretaking Agreement and Letting Agreement with the Body corporate by Deed of Assignment made in October 2018.

The Body corporate gave remedial action notices to the Caretaker dated in May 2021 and September 2021. It is not known what allegations were made in the May Notice, however it seems to be matters surrounding the performance of duties relating to common property. The September notice alleged a failure to carry out various duties including aerating garden beds, cleaning fire sprinkler pipework, conferring with the Committee’s nominated representative, keeping common property in good order and repair, carrying out reasonable directions, and supervising contractors.

On 2 November 2021, the Body corporate resolved at a general meeting to terminate the Caretaking Agreement. A notice was sent to the Caretaker terminating the Caretaking Agreement in reliance on that resolution. As part of the termination, the Body corporate did not permit the Caretaker to access the Caretaker’s office at the scheme.

On 12 January 2022, the Caretaker asserted that termination of the Caretaking Agreement by the Body corporate was unlawful and, as a result, the Caretaker elected to terminate the Caretaking Agreement.

On 17 March 2023, the Caretaker also elected to terminate the Letting Agreement based on the Body corporate’s refusal to allow the Caretaker to access the office.

The Caretaker alleged the May and September Notice were both invalid, the Body corporate’s resolution to terminate the Caretaking Agreement was unreasonably made, the Body corporate was in breach of the Letting Agreement, and that the Body corporate should pay damages to the Caretaker as a result.

Were the remedial action notices invalid?

Member Lumb determined the May notice was invalid because it did not state, as required by the regulation module, that the Body corporate may terminate the Caretaking Agreement if the Caretaker did not comply with the May notice.

The reasons for this included:

1. the intent of the regulation module is to put a person on notice that a failure to comply with a notice may result in the relevant agreement being brought to an end;
2. while the precise words of the regulation module need not be stated in the notice, the words that are stated must have the effect of putting the person on express notice that the relevant agreement may come to an end;
3. the Body corporate generally reserving its rights (one of those rights being the right to terminate the relevant agreement based on a failure to comply with the notice) was not enough to comply with the requirements of the regulation module.

Member Lumb determined that the September notice was invalid because 34 of the 37 breaches identified by that notice did not provide a basis for termination.

The reasons for this included:

1. the Body corporate did not press 31 of the 37 alleged breaches at the hearing;
2. of the six alleged breaches that were pressed:

a. three alleged breaches were upheld, being:

i. the Caretaker failed to aerate the garden beds monthly;
ii. the Caretaker did not clean the fire sprinkler pipework in the basement monthly;
iii. the Caretaker made a conscious choice to confer only with the Body corporate manager not the Committee’s representative;

b. three alleged breaches were not upheld, being:

i. the changing of the locks on the Caretaker’s office door did not constitute a failure to keep the common property in good order and repair;
ii. not removing the A4 piece of paper affixed with sticky tape to a camera in the Caretaker’s office as requested by a direction given by the Committee did not constitute a failure to carry out reasonable directions because the direction itself was not reasonable;
iii. an allegation that the Caretaker did not supervise contractors engaged in work on the common property because there was no detail provided about when that occurred or what supervision required.

Did the Body corporate act reasonably in resolving the motion to terminate the Caretaking Agreement?

The motion resolved by the Body corporate to terminate the Caretaking Agreement was based on an alleged failure by the Caretaker to comply with the May and September notices.

Member Lumb determined that the:

1. resolution on 2 November 2021 was invalid because the resolution was based on an invalid May notice and no termination right had arisen based on the September notice because the September notice had not yet been given to the Caretaker;
2. resolution on the motion to terminate a caretaking or letting agreement is subject to the Body corporate’s duty to act reasonably; and
3. Body corporate acted unreasonably in resolving that motion because:

a. there was no valid remedial action notice in existence at the time of the resolution or any failure to comply with such a valid notice (as the May notice was invalid and the September notice had not yet been given to the Caretaker). There were no circumstances existing at the time of the resolution justifying termination;

b. the resolution purported to delegate the decision to terminate the Caretaking Agreement to the Committee, but the decision to terminate such an agreement is a restricted issue for the Committee.

Did the Body corporate breach the Letting Agreement?

Member Lumb determined that by the Body corporate refusing the Caretaker access to the office, thereby not allowing the Caretaker to operate the letting business, the Body corporate committed a substantial breach of the Letting Agreement.

This is because access to the Caretaker’s office was so fundamental to the Letting Agreement and the operation of the letting business, and not allowing such access breached the implied term of cooperation.

What damages was the Body corporate ordered to pay?

By purporting to terminate the Caretaking Agreement when it was not entitled to do so, and in breaching the Letting Agreement, the Body corporate’s conduct amounted to a renunciation or repudiation of both agreements.

Ironically, this entitled the Caretaker to terminate the Caretaking Agreement and Letting Agreement (which it did) and seek damages.

Member Lumb was empowered to order damages to the extent that it would place the Caretaker in the same position as if the agreements had been performed. Experts calculated damages for both parties based on loss of future profits.

Experts gave evidence for the Body corporate and Caretaker about the various expenses, discount rates and approaches that should be taken to arrive at the appropriate assessment of damages.

After considering the experts’ evidence, Member Lumb ordered the Body corporate to pay the Caretaker $311,958.

The usual rule in the Tribunal is that each party bears its own costs. However, the Caretaker sought that the Body corporate pay its costs of the proceeding. The Tribunal considered it appropriate to do so and ordered the Body corporate to pay 85% of the Caretaker’s costs on the District Court scale. This will require a cost assessment process to occur and is likely to result in the Body corporate paying a significant amount of money to the Caretaker for costs.

This case serves as a critical reminder of the following:

1. despite the terms of an engagement or authorisation, where a purported ground of termination falls within the scope of the regulation modules, the requirements of that regulation module must be followed in order to validly terminate the engagement or authorisation;
2. a remedial action notice must strictly comply with the regulation modules otherwise it will likely be invalid and any resolution relying on that notice will also be invalid;
3. a Body corporate’s resolution on a motion to terminate a caretaking or letting agreement is subject to the duty to act reasonably;
4. a termination motion should only be considered at a general meeting if a right of termination has arisen based on a failure to comply with a valid remedial action notice and must not delegate that decision to the Committee;
5. the nature and number of any unremedied breaches following the giving of a remedial action notice is an important factor that influences whether a decision to terminate is made reasonably.

Summary

In Linali Pty Ltd v Body Corporate for Crown CTS 41282, the Queensland Civil and Administrative Tribunal decided that the Body corporate improperly terminated the Caretaking and Letting Agreements, ordering them to pay $311,958 in damages. The tribunal found the Body corporate’s remedial action notices were invalid and that their resolution to terminate was unreasonable, as it relied on invalid notices and delegated the decision to the Committee.

Additionally, the Body Corporate’s refusal to grant the Caretaker access to the office breached the Letting Agreement. The case highlights the importance of strict compliance with the regulation modules and the duty to act reasonably in termination decisions.

Article Contributed by Brendan Pitman, Partner, Grace Lawyers