Canberra’s ambition to be the “coolest little capital” depends on bringing variety and vibrancy into its urban environments. Mixed use developments are on the up. Residential owners are being injected into adaptively re-used commercial precincts, and vice versa. Braddon, New Acton, the Kingston Foreshore and Barton’s Realm precinct incorporate a range of residential, commercial and retail uses within individual sites, with some having received international recognition. The old Manuka precinct will be next, with the Territory having floated the concept of an $800 million redevelopment involving new hotels, serviced and residential apartments, 140,000m2 of retail and office space, underground car parking and a stadium revamp.
These exciting ideas require a legal framework that is as adaptive and as flexible as the developments themselves. However, Canberra’s planning system has not kept up. Construction and operation of mixed use developments are riddled with complexities and challenges stemming from the competing interests of the different unit owners using different parts of the buildings. The ACT statutory framework does not recognise or facilitate the intricacies of mixed use and instead offers a “one size fits all” approach to development. The full potential of sites cannot be realised. Disharmony is created amongst owners down the track, seriously detracting from their commerce and their comfort.
In this Property Reporter, Moulis Legal partner Daniel Moulis examines the conundrums of mixed use precincts and the legal ideas that have been employed by other jurisdictions to overcome them.
Living together in today’s urban environments
Living or working in a box in a pile of other boxes entails the sharing of all of the things that allow you to enjoy your box. Each owner is given title to part of the building (a “unit”) and a say in the building’s usage and the operation of things like walkways, gardens, lifts, foyers, and swimming pools. Each owner becomes a member of an entity, referred to as a body corporate or strata/owners corporation, which administers the rules for the building and its surrounds and makes decisions about its upkeep. The owners corporation has statutory and (in the ACT) leasehold obligations to maintain the building’s integrity and its systems, keep it clean, and to insure it, amongst other things. The owners corporation collects a contribution (or “levy”) from each unit owner to pay for all of the costs involved.
Mixed use developments mix uses up. Typically, commercial and retail uses will be sited at street level, with apartments, hotels and sometimes offices upstairs and in separate towers. The podium will often incorporate plazas and basement car parking for all occupiers and for the public. Public transport routes will often bisect the site, in underground stratum or other carved-out parts of the land.
In the ACT, only one unit plan can be registered against one title. Under the present law, horizontal or vertical groups of units on the same block and the arrangements necessary for their interdependencies are not catered for.
Same bed, different dreams
Mixed users have different ideas about how a site should be used and managed. Residential owners – frequently young people and retirees – are not interested in paying a share of the costs that go towards enhancing the commercial interests of other users. Disagreements about how common property can be used, and by whom, are common in mixed use. For example:
Some of these things can be dealt with by good design separation on the part of developers and their architects. However adaptive reuse – such as in the case of heritage preservation or conversion of office buildings – can be a completely different story.
Inflexible titling and decision-making models
Ideally, different classes of owners could own different parts of buildings in mixed use developments or could pay costs in different proportions. However, in the ACT there is no easy mechanism for either to be achieved. ACT land law assumes a block (lot) will have one body corporate in charge. To return to our box analogy – you can’t have separate groups of boxes within the one big box.
Body corporate decision making rules are basic. Special resolutions (not more than one third of votes against) and unanimous resolutions (at least one vote in favour, no votes against, where every member must vote) simply cannot be achieved for resolutions that are significant to one or other group of owners. For example, an unopposed resolution is needed for specific unit owners or specific classes of unit owners to pay disproportionate contributions. On the face of it, this would allow a mixed use owners corporation to split costs between different classes of owners and thereby reduce the likelihood of future disputes. But, realistically, an unopposed resolution in a mixed use development is close to impossible to achieve.
Special resolutions are needed for “special” purpose funds. On the face of it, a mixed use building could utilise a special purpose fund well, however a mixed use body corporate might never achieve that kind of resolution. Even if the owners corporation did achieve a special resolution, a hostile “outvoted” unit owner might decide to dispute the fairness of that decision.
An owners corporation also cannot lease or receive any income from the common property. Out of a concern that owners might be “ripped off” by unscrupulous developers, a plethora of legal restrictions apply to service agreements. If such restrictions did not apply, common property could be better utilised as a commercial tool and asset for a mixed use building.
Ideally, the law could allow for the division and cost-sharing of shared property amongst different users from the outset. Instead, ACT land lawyers are forced to suggest unique and essentially untried property separation models and to prepare contorted operator agreements which sail very close – too close – to the statutory winds. And where that is not achieved, future deadlocks develop and positive change is pretty much impossible.
Follow the money
Unit owner contributions are calculated on the basis of individual unit entitlement. For a mixed use development, disputes about contributions can arise because one class of owners is obligated to pay for services which are solely or mostly used by another class of owners. Ideally, an owners corporation should be allowed to allocate different costs to the owners of the units incurring that cost. Whilst the law contemplates this, in reality it doesn’t work, because resolution requirements are just too difficult to satisfy.
Additionally, contributions can become significant due to the range of costs involved in running a mixed use building. Unhappy unit owners or classes of unit owners increase the likelihood of disputes in decision making about the building, and approving budgets and owner contributions.
Owners corporations should be permitted to split budgets, with a view to recognising different classes of owners. More innovatively, one development could have sub-owners corporations under a head owners corporation. Under this model, different types of owners can live and work happily in their own “groups of boxes” with a fair distribution of costs.
Escalating (not resolving) disputes
Disputes are common for mixed use buildings. Disgruntled owners who are outvoted by another class of owners can appeal to the ACT Civil and Administrative Tribunal. Remedies sought via ACAT are essentially subjective and discretionary in nature, thus in reality anything could be alleged by a scorned unit owner, and then ruled upon by ACAT.
If the legal frameworks were to be structured in a way that gives visibility to the positions of different owners in the one development the possibility of disputes arising would be significantly reduced.
Practice in other jurisdictions
It is not as if the ACT does not have models that it could consider adopting.
New South Wales has long allowed stratum subdivisions within the one lot or building to be separately titled, and for the separate titles to then be unit titled, and is not unique amongst Australian jurisdictions in this regard. In July this year reforms will come into effect with the aim of facilitating mixed use development and urban renewal even more. The new laws will streamline the use of Strata Management Statements that govern the relationship between unit owners and owners corporations representing different parts of a mixed use precinct, the arrangements as to the common property and shared facilities, the dispute resolution processes to be employed, and the decision making processes for owners corporations. Strata Management Statements are registered documents which give all interested parties visibility of the legal framework in place.
Queensland facilitates mixed use development through the use of Building Management Statements. Developers sign up all lots to the Building Management Statement which sets the rules for building management, maintenance of common property and the distribution, cost, and use of any shared services at the outset. The development concerned is thereafter managed and administrated by a committee that deals with individual owner complaints and also settles disputes.
Being cool requires some effort
To live up to its “coolest little capital” reputation, Canberra will need to review and ultimately restructure its legal and planning framework for mixed use developments. To the government’s credit, it has now turned its attention to the problem and has placed some more resources into this important project.
It is to be hoped that the debate will get underway in earnest and that the ACT will introduce the long overdue statutory change that is needed to encourage and facilitate high quality, harmonious urban developments.
For more information, please contact Daniel Moulis on +61 2 6163 1000 or email@example.com.
This newsletter presents an overview and commentary of the subject matter. It is not provided in the context of a solicitor-client relationship and no duty of care is assumed or accepted. It does not constitute legal advice.