Australia: What does it mean for a body corporate to act reasonably?

Often a body corporate or its committee is accused of acting unreasonably by someone that considers its stance to be unfair or adverse to their interests. That inevitably leads to a debate on what 'reasonable' means. A recent decision has given the industry an answer.

It started with one owner's plan to join together an external deck and daybed to his villa to create a larger external space. That required exclusive use of about 5m² of common property air space next to both of these external areas.

The grant of exclusive use of the common property had to be authorised by resolution without dissent. At the general meeting, 50% of the voters opposed it.

Ordinarily that would be the end of the matter. However, an adjudicator in the Office of the Commissioner for Body Corporate and Community Management has the power to make an order to give effect to a motion that required a resolution without dissent if they are satisfied that the motion did not pass because of opposition that in the circumstances is unreasonable.

After weighing up the arguments for and against the proposal, an adjudicator agreed that the opposition was unreasonable and made an order allowing it to proceed.¹ That order was recently overturned on appeal to the Queensland Civil and Administrative Tribunal (QCAT) in Re Body Corporate for Viridian; Kjerulf Ainsworth & Ors v Martin Albrecht & Anor [2014] QCATA 294 (Viridian), which was a 49 page decision that will make the industry reconsider what it means for a body corporate to act 'reasonably'.

A recent news article accessible here also gives an overview of the case.

Is there a test for determining whether a body corporate is acting reasonably?

While the obligation to act 'reasonably' is a cornerstone of body corporate legislation in Queensland, many avoid the term in commercial contracts at all costs and opt for defined measures (ie giving 'reasonable' notice of termination of a supply contract v giving 90 days' notice of termination of a supply contract).

However, the Body Corporate and Community Management Act 1997 (Qld) cannot predict every circumstance that might come before a body corporate and then set guidelines to determine whether it is acting reasonably. Instead, it leaves a body corporate with an obligation to act reasonably and the burden falls on an aggrieved owner to demonstrate that in all the circumstances the body corporate acted unreasonably. Adjudicators in the Commissioner's Office then have to settle the debate.

In the matter recently decided by QCAT, the debate ultimately turned on the affect of the proposal on the architectural design and intent for the scheme. This was important as the scheme had received multiple awards for its architectural design and owners had paid millions of dollars for their villas.

The owner that wanted to join his decks obtained two expert opinions that the proposal would be sympathetic to that architectural design. The opposing owners had their own expert opinions that the proposal would compromise the architectural design and intent (ie to limit external use). The adjudicator assessed these competing opinions and held that she was not satisfied the opposing owners demonstrated that the proposal materially offends the integrity of the architectural design.

That approach was criticised by QCAT. In the appeal, QCAT considered the arguments and evidence put forward by the opposing owners and found that there was nothing in those arguments "inherently implausible or unreasonable if one gives any respect to the notion of architectural intent and architectural integrity."²

The obligation to act reasonably does not mean the body corporate has to make the correct, best, fairest or most preferable decision. It will ultimately depend on the circumstances of each case, but a very important factor is whether there is a logical and understandable basis for the body corporate's decision.

So it wasn't for the adjudicator to balance the competing arguments and decide which she preferred. It was to assess whether there was a logical and understandable basis to the opposition having regard to all relevant circumstances.

Two parties could disagree on an issue, yet both could have reasonable grounds for the position they hold. The argument does not have to be resolved in order to settle whether a body corporate is acting reasonably.

Viridian is already having an impact in the industry. In recent matters, adjudicators have:

• Refused to find that a body corporate was acting unreasonably despite conflicting professional opinions. That adjudicator refused to determine which side had the better argument or which professional opinion was more preferable.³
• Upheld a committee's decision to refuse a pet application after applying the approach set down in Viridian and validating concerns other adjudicators in previous matters found were not 'good reasons' for a refusal or could be overcome by conditions of an approval.⁴

Conclusion

It may seem as though a great deal of work is required to demonstrate that a body corporate is acting unreasonably. It should.

The obligation to act reasonably exists to protect those that deal with bodies corporate from being subjected to arbitrary or capricious decision-making, such as deciding to take a certain course because of the colour of someone's hair. It does not exist to advance the interests of some over the interests of others. It is not there to enable adjudicators to stand in the body corporate's shoes and make what they consider to be the correct or most preferable decision. QCAT put it in these terms:

"The exercise of deciding whether a Body Corporate has acted unreasonably does not in my view necessarily or even ordinarily require any "balancing of competing interests". To act reasonably in the sense contemplated by s. 94 does not imply even-handedness, a conciliatory approach or even a recognition of the interests or wishes of others."⁵

Viridian will empower bodies corporate and protect their decisions. It could be one of the most influential decisions in the strata industry for the coming years.

Footnotes

¹Viridian Noosa Residences [2013] QBCCMCmr 351.

²Viridian at [116].

³Winchcombe Carson [2014] QBCCMCmr 432 at [67].

⁴Pacific Vistas [2014] QBCCMCmr 433

⁵Viridian at [105].

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.