Terminate a basic community titles scheme

Schemes in a layered arrangement

A CTS in a layered arrangement cannot be terminated until it exits the layered arrangement. It then becomes a basic community titles scheme and can be terminated.

Agreement to terminate

To terminate a scheme:

• a motion to terminate the scheme must be passed by resolution without dissent

and

• all owners, and each lessee under a registerable or short lease, must enter into an agreement about termination issues.

Court order to terminate

The District Court may order that a CTS be terminated if the court considers it is just and equitable to do so.

An application to terminate can be made by:

• the body corporate
• a lot owner
• an administrator, if one has been appointed under the dispute resolution provisions in the Body Corporate and Community Management Act 1997 (BCCM Act).

When the court is making its decision, it must consider:

• how many owners voted in favour of termination (if a vote was held)
• market values
• economic and social effects that termination will have on
  • each owner
  • lessees
  • a caretaking service contractor
  • any other person contracted with the body corporate.

The court may also consider other factors it thinks are relevant.

Economic reasons for termination

A CTS can be terminated if there are economic reasons for doing so. The economic reasons must be backed up by evidence (in the form of a pre-termination report) and the body corporate must follow a particular process.

There are 2 situations where CTS can be terminated for economic reasons:

1. All of the lots are used for a commercial purpose and it is not economically viable for the scheme to continue.
2. Within 5 years of a pre-termination report being given to lot owners, it is not (or will not be) economically viable for the scheme to carry out repairs and maintenance to property or assets the body corporate must maintain.

An example of where a scheme may not be economically viable may be when the costs to maintain the common property are higher than the value of the scheme.

Process to terminate for economic reasons

The body corporate must follow this process to terminate a scheme for economic reasons:

1. Obtain a pre-termination report.
2. Pass an economic reasons resolution at a general meeting.
3. Prepare a termination plan.
4. Pass a termination resolution to proceed with the plan.
5. Appoint a facilitator to carry out the plan.

Read a flowchart on the process for terminating a community titles scheme for economic reasons.

Pre-termination report

To terminate for economic reasons, the body corporate must prepare a pre-termination report.

The pre-termination report must include:

• a market valuation of
  • each lot
  • the scheme land
• a document prepared by the body corporate that states

• the estimated value of each body corporate asset
• the nature and estimated value of each liability of the body corporate.

If all the lots in the scheme are used commercially, an extra report must be prepared about whether the lots can be used for an economically viable purpose. A person that is appropriately qualified must prepare the report. This must be included in the pre-termination report.

If all lots aren’t used commercially , the pre-termination report must also include 3 extra reports:

1. A structural engineer’s report on the condition of any property or assets the body corporate must maintain in a good or structurally sound condition.
2. An appropriately qualified person’s report about the work that must be done to maintain, repair, or replace the property or assets. This report must take the structural engineer’s report into account.
3. A quantity surveyor’s report estimating the cost of the work identified in the appropriately qualified person’s report.

The body corporate must not appoint a person who it knows or suspects has a conflict of interest in preparing the reports.

The committee can decide to obtain the pre-termination report unless it is:

• a restricted issue for the committee
• beyond spending limits that apply to the committee.

A copy of the pre-termination report must be given:

• to all lot owners
• at least 90 days before the general meeting where an economic reasons motion will be voted on.

Economic reasons resolution

Once a pre-termination report is obtained, the body corporate must pass a motion by majority resolution agreeing that there are economic reasons for termination. This is called an economic reasons resolution.

The motion must state the economic reasons for termination found by the pre-termination report.

Termination plan

The body corporate must then pass a motion by majority resolution  to decide to prepare a termination plan for the scheme. This is called a termination plan resolution.

Within 14 days of the termination plan resolution being passed, a notice of termination plan resolution (BCCM form 29) must be given to:

• the owner and registered mortgagee for each lot
• each person subject to a lease or sublease in the scheme for 6 months or more
• the caretaking service contractor for the scheme
• the letting agent for the scheme.

The economic reasons and termination plan motions may be considered at the same meeting.

Once the termination plan is prepared, a copy of it must be given:

• to all lot owners
• at least 120 days before the general meeting where a motion to pass a termination resolution (to implement the plan) will be voted on.

Termination resolution

A termination resolution is a body corporate decision to terminate a scheme according to the termination plan. It also refers to the way the votes are counted to pass the termination motion.

The body corporate can consider a motion to terminate the scheme according to the termination plan if:

• economic reasons and termination plan resolutions have passed
• at least 120 days have passed since the termination plan was given to lot owners.

Notably, when considering a motion to terminate:

• Motions proposing another way to terminate the scheme cannot be considered at the same general meeting.
• The motion can only pass if 75% or more of all owners within the scheme vote in favour of the motion.
• No proxies may be used for voting.
• Owners who owe a body corporate debt are entitled to vote.

Within 2 weeks of a motion to terminate being considered, a notice of termination resolution (BCCM form 30) about the outcome of the motion must be sent to:

• the owner and registered mortgagee of each lot
• each person subject to a lease or sublease in the scheme for 6 months or more
• the caretaking service contractor for the scheme
• the letting agent for the scheme.

If the termination resolution is passed, the notice must also be given to:

• Titles Queensland
• the relevant local government
• the proposed new owner of the scheme (if known)
• the Minister for Economic Development Queensland (if the scheme is in a priority development area).

Appointing a facilitator

If the termination resolution is passed, the body corporate must appoint a facilitator to help carry out the termination plan.

An instrument of appointment, which outlines the terms and conditions of the facilitator’s role, should be prepared.

If the facilitator will be performing a function of the body corporate or its committee or members, the appointment may only be made by ordinary resolution.

The body corporate must not appoint a facilitator who it knows or suspects has a conflict of interest.

Dispute a decision to terminate for economic reasons

It is possible to dispute decisions about termination for economic reasons.

You can dispute a decision about termination if the body corporate has voted on a motion to make:

• an economic reasons resolution
• a termination resolution.

Economic reasons motion disputes

An economic reasons resolution can be disputed by:

• an owner of a lot

or

• the body corporate (only if the motion does not pass).

If an economic reasons motion did not pass, a body corporate or lot owner who wants to dispute it must lodge a dispute within 90 days (the objection period) of the economic reasons motion being voted on.

If an economic reasons motion did pass, a lot owner who wants to dispute it must lodge a dispute within 90 days (the objection period) of being given a notice of termination plan resolution (BCCM form 29).

Disputes about motions for economic reasons resolutions must be decided by a specialist adjudicator.

If an application for specialist adjudication is lodged, the body corporate cannot pass a motion for a termination resolution until the dispute is resolved.

As long as the specialist adjudicator does not view the dispute as frivolous (i.e. unimportant or inconsequential) or vexatious (i.e. intended to cause annoyance or inconvenience), the body corporate must pay the costs for the adjudication.

Termination motion disputes

An application to the District Court disputing termination matters must be made within 90 days of the body corporate giving notice of the outcome of the termination motion (BCCM form 30), unless the court allows an application after that time.

An application can be made by:

• the body corporate
• the owner of a lot
• the facilitator
• each person who has a lease or sublease in the scheme for 6 months or more
• the caretaker service contractor for the scheme
• the letting agent for the scheme.

The body corporate may apply for an order to:

• vary the termination plan

or

• implement the termination plan if the termination motion did not pass.

A facilitator may only apply for an order seeking that each lot be sold under the termination plan.

An order seeking to vary the termination plan may only be applied for by:

• a person who has a lease
• the caretaking service contractor

or

• the letting agent for the scheme.