Month: September 2020

In our many years in acting in residential conveyances in Brisbane, one of the things that we have found buyers are often mystified by and understand poorly, if at all, is the body corporate for apartment or unit developments. This is often to the detriment of buyers who may enter into a contract to purchase a unit without any idea as to what to look for in an apartment development and how such schemes operate.

Will my new property have a body corporate? 

To begin with the basics, there are two major classes of residential properties in Queensland — standalone dwellings and units within a Community Titles Scheme.

For a standalone dwelling (typically a freestanding house), the owner has title to the entire residential lot (the parcel of land including all buildings and structures thereon) and there are no shared areas.

Residential dwellings that do not fit the above description are typically residential lots within a Community Titles Scheme. Such dwellings could be townhouses, units in a small six-pack development or apartments in a high-rise complex with hundreds of apartments. The way a Community Titles Scheme works is that there will be separate lots (typically the internal area of the unit itself). These belong to individual owners, plus a common area (comprising everything besides the separate lots, which typically includes gardens, lifts, pools, foyers, corridors and the exterior of the building). Together, all of the individual lots and the common property form the Community Titles Scheme.

What is a body corporate?

The common property of a Community Titles Scheme is owned by the body corporate, which is a corporate entity similar to a company. Just like a company, which is owned by its individual shareholders, the owners of the individual lots within the Community Titles Scheme all own shares in the body corporate. That is to say, the body corporate is comprised by the individual lot owners.

This is complicated by the fact that each lot owner has a differing share in the body corporate. This is called the interest entitlement. In some Community Titles Schemes, particularly older developments such as ‘six packs’, every lot owner has the same interest in the body corporate, regardless of the size of their individual unit. A common example is a six-pack development where each of the unit owners has a 1/6^th interest in the body corporate. This means that each lot owner has an interest in 1/6^th of the development’s common property.

For most larger developments, the allocation of interest entitlements is not equal. They may be influenced by factors such as the size of the unit or its position within the development. Therefore in a tower of 150 apartments, the owner of the four bedroom penthouse on the top floor may own a 2/150^th interest in the body corporate. The owner of a one-bedroom apartment on the ground floor may only have a 1/300^th interest.

The interest entitlement becomes very relevant in a situation where the lot owners vote to end the Community Titles Scheme and sell the land to a developer to redevelop, a situation which is becoming increasingly common with six pack-type developments. This means that upon the sale of the block of units, along with the value of their individual unit, each unit owner will be entitled to 1/6 of the value of the common property.

The flip side of this equation is contribution entitlements. This is the proportion of the total running costs of the body corporate which must be paid by each individual unit owner. To use the example of the 150 unit tower discussed above, where the body corporate may have expenses of at least $2 million per year, the owner of the four-bedroom penthouse will likely have to pay substantially more than the owner of the one-bedroom ground floor apartment.

Just like a company, all unit owners will vote on more important body corporate decisions, such as changing bylaws or major expenditures during annual meetings. The day to day running of most body corporates is undertaken by a small committee, which will deal with day-to-day matters. The committee are of course elected by the unit owners at large. The body corporate may also appoint a body corporate management company to deal with administrative matters such as the counting of votes and keeping of minutes.

Am I paying too much in body corporate fees? What are average body corporate fees for Brisbane?

As touched on above, all body corporates have expenses. For a six-pack type development, this may entail insurances, fire and safety inspections and compliance, mowing, gardening, painting of the common areas, and day-to-day maintenance. For a larger more luxurious development, they may include a far wider range of expenses including lift maintenance, pool maintenance, or an on-site manager. In short, the expenses of the body corporate are those which relate to the common property and the building itself (excluding the interiors of the individual lots).

Just as the individual unit owners each have shares in the common property, they also pay their share of the body corporate’s expenses. These payments are called body corporate levies or body corporate fees. They are typically paid quarterly and a ‘discount’ will typically apply where they are paid on time. We are often asked what the average body corporate levies are in Brisbane.

The simple answer is that body corporate levies vary widely in accordance with the nature of the development, its facilities and how well the scheme is maintained. At the time of writing in 2019, it is common for older units in a brick six-pack scheme to have levies as low as $4,000 per year in Brisbane given the relative lack of facilities. For average larger and newer developments with lifts to maintain, body corporate levies of at least $6,000 per year for a two bedroom or $8,000–$11,000 for a three bedroom. For a luxurious or river-adjacent high-rise development in the inner city which may have an on-site manager, opulent common areas and upwards of four lifts to maintain, levies may be well into the $8,000–$12,000 range for a two bedroom and $12,000–$20,000 for a three or four bedroom. In luxurious river-adjacent buildings in suburbs like Kangaroo Point, South Bank, the Brisbane CBD or the Gold Coast, body corporate levies for the largest apartments may be upwards of $25,000 per year.

The levies advertised for newly-constructed developments may be misleading, as the levies are often grossly underestimated by the developer. When the unit owners realise the true costs of running the Community Titles Scheme within the first few years after settlement, the levies will often increase substantially.

Whether the levies are worth paying is an equation which will depend upon the needs of the purchaser. For instance, a value minded investor who has no intention to live in the property may be suited to a simple six pack-type development, noting that the rent or capital gain attainable in such developments may be correspondingly lower and the common areas may be unimpressive. For an owner-occupier who wants immaculately maintained common areas, short wait times for lifts and facilities such as a pool or on-site manager, paying higher levies may equally make sense.

When considering the amount of body corporate levies when buying a unit, it may be useful to compare the levies with the amount it would cost to pay building insurance for and maintain a freestanding house. In a community titles scheme, the body corporate pays for building insurance, mowing and garden maintenance, and for the painting and maintenance of the exterior of the building. When considering the costs that may be incurred in owning a freestanding home in the same location as the apartment development, such as home insurance, pest control, the work and expense involved in mowing and maintaining a pool or garden, and the large periodic expenses of exterior painting and roof replacement, which over a ten-year period may easily average well in excess of $10,000 per annum, the cost of body corporate levies is often put into perspective.

What to look for when buying a Brisbane unit – Prevent body corporate disputes QLD 

One thing which buyers often fail to consider is the state of harmony within the body corporate. As touched on above, the unit owners within a Community Titles Scheme vote on numerous motions, including the election of committee members. The word ‘politics’ should spring to mind here. Whilst many Community Titles Schemes are impeccably managed with a good state of harmony between residents, there are others in which the unit owners may be divided into rival ‘camps’, divided by personal enmity or differences of opinion over the running of the scheme, which may result in the delaying of necessary maintenance or unnecessary legal expenses being incurred by the body corporate. We are able to conduct searches of body corporate records and decisions of the body corporate adjudicator for prospective buyers to ascertain the state of harmony within a particular scheme.

In inner city areas, the body corporates of many larger developments have retained large and well-known on-site management companies from the hotel industry who run short-term letting businesses on behalf of the unit owners. These developments will usually be advertised online as if they were hotels, and travellers may book accommodation within the developments using standard online hotel booking websites. The units in these developments are usually owned by investors and may be less attractive to owner occupiers. Many owner-occupiers looking to purchase an apartment in an inner-city location may wish to ensure that the development is managed for the benefit of owners and long-term tenants and is not advertised as a hotel.

High-rise developments constructed during the last several years may also have a low ratio of lifts to apartments compared to older high-rise developments. While it was previously common for a high-rise (that is, 20 levels or higher) development to contain 4–6 lifts, some newer developments of this scale may contain only 2 lifts – this could result in extremely long wait times on weekdays during the morning and afternoon peaks.

Body corporate by laws

As with a country, state or company, Community Titles Schemes have a ‘founding document’, similar to a constitution, which sets out the fundamental rules for how the scheme is to operate. In Queensland, this document is called the Community Management Statement. It sets out the interest and contribution entitlements, as well as the bylaws of the scheme.

It is important that prospective owners read the bylaws in full before committing to the purchase of a unit, as they may contain important provisions such as restrictions on pets or requirements for the owner of a given unit to maintain certain courtyard or external areas. We can perform a search to obtain a copy of the community management statement so that prospective purchasers are aware of any bylaws to which they will become bound.

As with a law passed by a state of federal parliament in Australia, certain bylaws may be ‘struck down’ by the courts (or in this instance, the body corporate adjudicator) in the event that they are deemed to be unenforceable or unreasonable. With appropriate legal advice, an individual unit owner may contest a bylaw that they deem to be unfair by making an application to the adjudicator.

One of the most important types of clauses found in most employment agreements utilised by Australian businesses are restraint of trade clauses. These are clauses which restrict (or purport to restrict) the employee from certain forms of conduct which may be detrimental to the employer after the employment has ended.

The proper utilisation of restraints of trade in employment agreements can provide substantial benefits and protections for employers. The law surrounding these clauses, however, is complex. Improperly drafted restraints of trade are often held to be unenforceable by the courts.

For that reason it is important that businesses have an understanding of the basic considerations relating to these clauses and ensure that they are drafted by professionals to reflect the needs of the business. They also need to cover relevant legal requirements, rather than using one-size-fits all precedents which may not be worth the paper they are written on.

What types of behaviour can a restraint of trade restrict?

Theoretically, a restraint of trade provision may restrict an employee from engaging in numerous types of conduct after the employment ends, provided that such conduct protects a legitimate business interest of the employer as discussed below. In practice, the most common types of conduct which employers seek to restrict under restraint of trade provisions are:

1. Working for a business (as an employee, director, sole trader or in any other capacity) which is in competition with the employer (non-complete clauses)
2. Soliciting the clients of the employer (non-solicitation clauses)
3. Recruiting the employees of the employer (non-recruitment clauses)
4. Using the employer’s confidential information (confidentiality clauses)

Restraint of trade clause and genuine business interests

The default position at law is that restraint of trade provisions are null and void. The reason for this is that for policy reasons, the courts do not wish to restrain an employee from using their skills and labour to earn a living in their chosen field after they have moved on from service with their employer. This would be both unfair to the individual employee and contrary to the public interest.

The economy relies upon individuals being able to use their skills and labour to start businesses and create economic growth. Individuals must be free to apply such skills, which they may have paid dearly to acquire, to earn an income in the open market.

Accordingly, restraints of trade are by default void for being contrary to public policy. It is only where special circumstances justifying the restraints can be proven by the employer that restraint of trade provisions will be enforceable. In order for such special circumstances to arise, the employer must be able to show that the restraint of trade clause goes no further than is reasonably necessary to protect a legitimate business interest.

This means that employers must consider the nature of the interests they are seeking to protect in utilising the clause. They must also consider an appropriate scope for the operation of the clause to maximise the chance that the clause will be enforceable. Employers cannot simply seek to utilise a blanket clause to insulate themselves from competition in the free market.

The onus is on the party seeking to enforce the clause (inevitably the employer in circumstances where they become aware that a former employee is engaging in conduct to which they object) to show that the clause goes no further than necessary to protect the legitimate business interest. In determining if the clause is reasonable, the court will have regard to the particular circumstances of the case. Plus other general factors which may be considered in every case. These factors include:

1. The relative bargaining position of the parties when the employment agreement (including any applicable restraint of trade provision) was entered into. For instance, it may be that the employee had no choice or reasonable prospect of negotiating the agreement. It may also be that the agreement had to be signed instantaneously without the employee having the opportunity to obtain legal advice as to its terms
2. Any comments made or correspondence exchanged at the time the restraint of trade clause was negotiated
3. Whether any additional amount of compensation was provided to the employee in consideration of the restraint of trade clause
4. The nature of the employer’s business and the employee’s role within the business. For instance, it may be that the employee was in frequent direct contact with the clients of the employee, tending towards the justification of a non-solicitation clause. Also, where the employee had little or no direct contact with clients, it would become difficult to justify a non-solicitation clause
5. The duration that the restraint of trade provision purports to be operative (discussed below)
6. The geographical area within which the restraint of trade provision purports to be operative

Will the restraint of trade be enforecable? Duration, geography and cascading provisions 

As outlined above, in considering whether a restraint of trade provision goes no further than is necessary to protect a legitimate business interest (and whether it may therefore be enforceable), the court will consider the duration and geographical area in which the provision purports to operate.

For instance, it may be reasonable to restrain an employee who deals directly with clients from seeking to solicit clients of the employer for several months following the end of the employment. The employee may have become privy to confidential information as to the detailed imminent needs of the client. They may have also become aware of details of any agreement currently existing between the employee and the client.

Conversely, it would clearly be unreasonable to seek to restrain such an employee from soliciting clients of the employer years later. The confidential information may no longer be relevant, and this would be tantamount to an attempt to limit free competition. For this reason, restraint provisions upheld by the courts tend to be limited to operating within a duration of three months to one year from the end the employment.

Similarly, for a business with one office in Brisbane’s inner west and servicing clients within that area, it may be reasonable to restrain an employee from working for a competitor of the employer or soliciting the employer’s clients (within a reasonable duration) in Brisbane’s inner western suburbs. On the other hand, it would clearly be unreasonable for the same employer to restrict employees from competing with them state-wide or nation-wide.

This would mean that the employee would be unable to derive an income from their services within the city or state in which they live (or even potentially after moving 4,000 kilometres west to Perth!). Accordingly, the courts are disinclined to uphold restraint of trade provisions which are not limited by geography or which purport to operate within an unreasonably wide geographical area.

As a result of the above considerations, it is important that restraint of trade provisions are drafted to incorporate a series of cascading subclauses relating to duration and geographical area. They must be separate and distinct from one another. Such subclauses might define the restraint period to be one year, then six months, then three months, then one month.

The restraint area may be defined as Queensland, then a 100 kilometre radius from a particular suburb, then a 10 kilometre radius from the suburb, followed by a 5 kilometre radius and so on. Each of these subclauses must be separate from each other.

This way, if the court holds that one of the broader duration or geography provisions is unenforceable, they may continue down the series of cascading provisions until they reach a level which is reasonable and enforceable.

This prevents a scenario in which the entire restraint of trade provision (which may have otherwise been entirely reasonable) is held to be void by reason of an overly broad duration or geographical restriction. If the restraint provision is drafted to be effective within ‘Queensland’ and for ‘1 year’ without cascading provisions, and the court finds these duration and geographical restrictions to be unreasonable, the court will not seek to rewrite the provision — they will simply hold that it is unenforceable.

How can I create an enforceable restraint of trade clause in my employment agreement?

Restraint of trade provisions can be an invaluable means of protecting the legitimate interests of a business as employees move on to seek alternative opportunities. If the relevant clause is not properly drafted, and due consideration is not given to the needs of the business and the employee’s role, there is a strong probability that the employee will not be able to rely upon the clause. Accordingly, it is imperative that all employment agreements, including restraint of trade clauses, are professionally drafted by a solicitor from the outset.

Where an employer believes that a former employee may be in breach, it is important to contact a solicitor as soon as possible for advice. In some circumstances, a properly drafted letter will cause the former employee to cease the offending conduct and may preclude the need for litigation.

In other circumstances, it will be necessary to determine whether the clause is enforceable, and whether the conduct is in contravention of the clause. If so, proceedings to restrain the former employee from continuing to engage in the offending conduct will commence. This may include a claim for monetary damages.