Control Period and Turnover Disclosure
The Unit Titles Act 2010 (UTA) treats a developer as being in control of a unit title development from the date the unit plan deposits until the date the developer (or its associates) owns or controls less than 75% of the votes in the body corporate. Associates are defined widely and include the developer’s agents, trustees or representatives or anyone who acts jointly or in concert with the developer.
Immediately the control period ends, a developer must give notice of this to the body corporate.
Once the notice is received, the body corporate must then have a meeting within 3 months.
At that meeting, a developer needs to issue its “turnover disclosure statement” to the body corporate. That includes all of the information that developers will have received from its contractor, subcontractors and design team – as builts, operating and maintenance manuals, warranties for the body corporate together with details of any remaining consent conditions to be complied with and any service or maintenance contracts that the developer has entered into on the body corporate’s behalf.
These disclosure requirements won’t impact the pre-sales contracts in the same way the other disclosure statements required under the UTA do. Buyers don’t have a right of cancellation if these disclosure requirements are not met. This disclosure statement will be issued after settlement – although developers should note the notice to the body corporate should be issued be immediately after settlement where the bulk of the units are sold down to third parties on one day. A developer is liable to the body corporate for the contents of the turnover disclosure statement. A developer who fails to issue the turnover disclosure statement (or one that issues it only in part) will remain liable to the body corporate for this. There is also an ongoing duty on a developer to rectify inaccuracies in any information provided in the turnover disclosure statement as soon as the developer knows about them.
At the meeting, the developer also needs to deliver a statement setting out any interest that the original owner or any associates has in any contract or arrangement the body corporate has entered into at any time up to and including the date of the turnover disclosure statement. This is largely directed to management contracts, although could be relevant to rights retained by the developer for the next stage of the development, infrastructure cost sharing arrangements, licences granted by the bodies corporate to the developer or its associates etc.
In addition, developers have duties imposed on them under the UTA to exercise reasonable skill, care and diligence and to act in the best interests of the body corporate when putting in place service contracts that the body corporate is a party to. Service contracts are any contracts for services for a term of 1 year or more that the body corporate is committed to by the developer. These contracts must have terms that strike a fair balance between the interests of the service contractor and the body corporate, that are appropriate and that don’t adversely affect the body corporate’s ability to carry out its functions. This duty applies to all service contracts, not just contracts that the developer or its associates are party to.
If the developer’s duty is found to be breached, then the developer or an associate are liable for compensation if the body corporate has suffered loss or damage as a result. Service contracts that have been entered into during the control period might also be terminated if the contract is harsh or unconscionable. Applications for compensation must be made within 3 years of the control period ending, but applications for orders terminating contracts are not time-barred under the UTA. Once again, these provisions apply to all service contracts, not just ones the developer or its associate are parties too. There must be a contract of service though, so arguably this does not extend to leases or licences. It could include, for example, management contracts or term maintenance contracts.
These provisions are largely aimed at protecting new bodies corporate from inappropriate management contracts, although as we have noted, they are wider in application that that. It is possible to create a well-balanced management regime that works for the body corporate and owners. This needs to be part of the sales pitch, but also needs to be designed to fit the building and its likely occupants. For sophisticated high-rise residential or mixed use buildings, skilled management is essential in order to protect the long term value of the building for owners. The typical body corporate manager service does not usually go far enough, focused as it is on administrative services, compliance with the Act and acting at the direction of the body corporate to arrange repairs and maintenance. But a developer putting any arrangement in place needs to ensure it is putting the body corporate’s interest first. Not focusing on maximising the sale value of any management rights.