BCCM Report

What & how of Lot entitlements

By BCCM

Community titles schemes are established under the Body Corporate and Community Management Act 1997 (the Act) by registering a community management statement (CMS) with Titles Queensland. An important part of the CMS is the schedule of lot entitlements. The schedule explains how the cost of running and maintaining the body corporate and common property is shared between the owners.

This article outlines what a lot entitlement is, and how lot entitlements are decided, applied and adjusted.

Lot entitlements

Lot entitlements in a community titles scheme set out each owner’s: share of the costs associated with the running of the body corporate, share of common property and the body corporate assets, lot value in order to calculate government rates and other charges and voting rights, in some circumstances.

The lot entitlement is a number allocated to a lot in a community titles scheme. It must be a whole number and it cannot be zero.

There are two types of lot entitlements:

1. Contribution schedule lot entitlements (contribution schedule), which are used to calculate: each owner’s proportionate share of the body corporate expenses, the value of an owner’s vote if a poll vote is held. 2. Interest schedule lot entitlements (interest schedule), which are used to calculate: each owner’s share of the common property and the body corporate assets, the value of the lot for calculating local government rates and charges; the proportion of insurance payable for each lot and common property. Lot entitlements are set by the original owner (developer) of the community titles scheme. The schedule of lot entitlements is found in the scheme’s CMS.

You can obtain a copy of a scheme’s CMS by contacting Titles Queensland (1300 255 750).

How lot entitlements are decided

Contribution schedule - two principles are used for deciding the contribution schedule:

1. The equality principle - which states that the contribution lot entitlements should be equal unless it is just and equitable for them not to be equal (for example, it may be just and equitable for one lot to have a higher contribution lot entitlement if it is a commercial lot that uses more water than other lots).

2. The relativity principle - which states that lot entitlements should be based on the relationship between the lots according to a number of factors, which may include: the structure of the scheme, the nature, individual features and special characteristics of each lot, the use of each lot, how each lot affects the cost of maintenance of the common property and the market value of each lot. The CMS will state which principle applies to a scheme.

Interest schedule

The interest schedule is decided using the market value principle, which states that the interest schedule lot entitlement must reflect the market value of each lot included in the community titles scheme, unless it is just and equitable not to reflect the market value principle. The CMS must state whether the market value principle applies or explain why it does not.

How lot entitlements are applied

Lot entitlements are relevant to a number of different aspects of the operation of a body corporate.

Owner contributions

Each year, the body corporate adopts an administrative fund budget and a sinking fund budget. These budgets are based on the expected expenditure by the body corporate over the next 12 months, and the anticipated capital expenditure over at least the next nine years after that. These expenses are then divided among the owners based on their contribution schedule lot entitlements.

For example, if a lot has three lot entitlements and the total number of lot entitlements for the scheme is 30, the owner is required to pay 10 per cent of the total amount of levies for the scheme.

Expenses will only be divided equally between owners if the contribution schedule is equal.

Insurance

If the body corporate is required to take out building insurance, the premium may not be divided among the owners according to the contribution schedule.

The division of building insurance costs between owners will instead depend on the plan of subdivision that applies to the scheme, and whether an owner’s lot shares a wall with another lot or common property.

In a scheme created under a building format plan of subdivision (previously BUP), the cost of building insurance is divided among the owners based on the interest schedule of lot entitlements.

In a scheme created under a standard format plan (previously GTP), the cost of building insurance is usually divided among the owners on the basis of the cost of reinstating the buildings. More information on insurance premiums and how they are calculated can be found on our website.

Poll vote

When deciding a motion by ordinary resolution at a general meeting, each lot is usually allowed one vote. However, the Act does allow an owner to request a poll vote to decide an ordinary resolution. A poll vote takes into account the contribution schedule as an alternative way of deciding a motion. There are strict laws regarding the way a poll vote can be requested, and the way poll votes are counted.

Terminating a scheme

A scheme may be terminated by the body corporate. When a scheme is terminated, the body corporate is dissolved and the (former) owners are entitled to a share of the body corporate assets based on their interest schedule lot entitlements immediately before the termination of the scheme.

How lot entitlements can be changed

There are three ways to change the contribution schedule:

1. By passing a motion by resolution without dissent at a general meeting. 2. By decision of a specialist adjudicator or the Queensland Civil and Administrative Tribunal (QCAT).

3. In limited circumstances, by agreement of two or more lot owners.

General meeting: resolution without dissent

contribution schedule by passing a motion by resolution without dissent at a body corporate general meeting. A resolution without dissent is a vote where the motion is passed if no one votes against the motion. The notice of the general meeting must explain the proposed changes to the contribution schedule and the reasons for the change. The reasons for the change must be consistent with either the equality principle or the relativity principle (see above). Once the motion has passed, the body corporate must record a new CMS with Titles Queensland within three months of the decision. The new CMS must include the adjusted contribution schedule. The lodgement of the new CMS is paid for by the body corporate. Owners in schemes registered under a Specified Two-Lot Scheme can decide to change a contribution schedule by written agreement between the owners. Once a written agreement has been reached between the owners, the body corporate must lodge a new CMS including the new contribution schedule.

Decision of a specialist adjudicator or QCAT

An owner can apply for an order from a specialist adjudicator under Chapter 6, Part 8 of the Act, or an order from QCAT, to adjust a contribution schedule. However, applicants must provide one of the following reasons for the adjustment: the body corporate has passed a motion by resolution without dissent to adjust the lot entitlements, however the owner believes the new contribution schedule does not reflect the principle used, the owner believes an adjustment of the contribution schedule is required because there has been a material change to the scheme (for example, a lot or lots have been added to, or removed from, the scheme). The scheme was established after the 2011 amendments to the Body Corporate and Community Management Act 1997 and the owner does not believe the contribution schedule follows the principle used to set the lot entitlements. matters when determining whether the contribution schedule follows the principle used to set it: which principle was used to decide the contribution schedule, the information available in the CMS about how the deciding principle was applied, if the equality principle was the deciding principle, the reasons the applicant believes the contribution schedule does not reflect the equality principle, the applicant's reasons for seeking an adjustment, and any matters raised by respondents to the application supporting the claim that the entitlements are consistent with the deciding principle.

Agreement of lot owners

The owners of two or more lots can agree in writing to redistribute their lot entitlements, but only among themselves. The owners of all the lots affected by any redistribution must agree in writing. Additionally, the redistribution must not adjust the total number of contribution schedule lot entitlements for the scheme. The body corporate must lodge a new CMS within three months of being notified of the redistribution.

The cost of preparing and lodging a new CMS must be paid for by the owners of the lots affected by the redistribution.

Adjusting the interest schedule

The body corporate can change the interest schedule lot entitlements by passing a resolution without dissent at a general meeting. A lot owner can also apply to a specialist adjudicator or QCAT for an order to adjust the interest schedule lot entitlements.

The order of the specialist adjudicator or QCAT must be consistent with the market value principle. Lot entitlements play an important role in the running of community titles scheme, which is why it is important to understand their purpose and how they are applied. More information about these and other body corporate issues can be found at: www. qld.gov.au/bodycorporate.

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