Bodies corporate supplying utility services - getting it right

 
The law in Queensland governing optional supplies of services by bodies corporate to occupants of their buildings is a patchwork. If bodies corporate are non-compliant with the laws, they face difficulties ranging in severity from inability to recoup charges all the way to regulatory fines. Compliance requires more intensive administration of body corporate affairs than usual, but bodies corporate may consider it is justified in light of the benefits of offering to supply utilities at the evidently cheaper rates than can be secured by occupants via one-to-one supplies from utility retailers.
Regulation “Modules” under the Body Corporate and Community Management Act say that a body corporate can supply for the benefit of owners and occupiers “domestic services: for example electricity, gas, water, garbage removal, airconditioning or heating.”
Requirement for agreement
Each Module states that the body corporate can charge for the services supplied, but only if there is an agreement in place with the user of the service. An important proviso is that the amount charged does not exceed the amount "necessary for reimbursing the body corporate for supplying the services". The amount recovered can include costs of installation, maintenance and operating costs.
There are no provisions which indicate how the agreement can be formed, and whether any formality is required. So while in various circumstances it might be claimed that an agreement has been formed by conduct (e.g., a proposed user asks for the service from the body corporate, the body corporate relies on the request and then invoices) or that some specific conditions have been adopted by reason of continuous invoicing where conditions appear on the rear of an invoice (i.e. the parking ticket cases), a body corporate should not take much convincing that it is better to have specific conditions agreed.
When thinking about written agreements, bodies corporate should consider whether the agreements should be in place only with the occupant of the lot, i.e. in the case of tenanted lots, whether there are any benefits in having agreements with owners. More on that later in this bulletin.
One last point – the privatisation of the utility suppliers has enabled direct supplies to bodies corporate at better rates than those available to individual consumers. There are mandated upper limits on the prices that the body corporate may charge . Are bodies corporate making sure that the rates they charge users do not exceed the ‘sum’ of the various costs of supply incurred by the body corporate?
Validity of agreement with the service supplier
We can quickly pass over whether the absence of user agreements affects the validity of the body corporate’s agreement with the supplier. The Supreme Court of Queensland recently ruled1 that there was no necessity to have user agreements in place prior to or during the term of an agreement with a supplier of the service.
Utilities legislation
Queensland legislation regulating the distribution of utilities requires an "on-supplier" (the body corporate) to have agreements in place with end users (called "receivers"). Where such agreements are not in place then serious statutory penalties can be imposed by the regulator on the body corporate. This legislation indicates agreements with receivers can be constituted in a number of ways, including being either written or oral. So the body corporate might be able to prove an agreement exists by referring to conversations or conduct, but putting in place processes for written agreements could ultimately be less time-consuming and less risky than endeavouring to prove the agreements exist in some other form.  
Charging for the supply – from users or through ordinary levies?
The Body Corporate regulations say that the Body Corporate; “must, to the greatest practicable extent, ensure the total cost to the body corporate (other than body corporate administrative costs) for supplying a service, including the cost of a commercial service, and the cost of purchasing, operating, maintaining and replacing any equipment, is recovered from the users of the service”.
This prohibits recouping the supply costs directly through levies.
Enforceability of bylaws about on-supplied services
Relying on a bylaw to recover electricity costs can be problematic. Under the Body Corporate and Community Management Act, if a bylaw is inconsistent with any Act then the bylaw is invalid to the extent of the inconsistency. Another section of the Act says:
“A bylaw (other than an exclusive use bylaw) must not impose a monetary liability on the owner or occupier of a lot included in a community titles scheme.”
In one case2, a body corporate sued a lot owner for charges of supply of electricity to its tenant (which the tenant had not paid). The body corporate relied on this registered by law;
“If the owner of a lot is not the occupier of the lot then the owner is jointly and severally liable with the occupier for payment of accounts for services supplied to the lot.”
The owner claimed that it did not know that the utility provider had discontinued individual customer billing. The body corporate could not supply any proof of an agreement between the body corporate and either of the owner or the tenant in relation to bulk supply electricity arrangements. A departmental adjudicator ordered that the owner was not liable for electricity consumed by the lot occupants, that the above bylaw was invalid, and that an amended set of bylaws must be registered.
In another case, an adjudicator overcame the absence of a user agreement because the dispute resolution laws permitted him to make a ruling that was "just and equitable to resolve a dispute ". Here, it was clear that the owner had known of the arrangement for bulk supply (it had in fact protested to the body corporate at one stage that it had not signed an agreement for the change over), and the adjudicator justified ordering the lot owner to pay the disputed amount on the grounds that the owner would otherwise have been unjustly enriched3.
The law has changed since the above cases were decided, and claims in relation to body corporate debts now have to be litigated through the Magistrates Court of Queensland or through QCAT. The approach adopted in the above cases might not be reflected in the future.
Drafting an agreement
A well thought out agreement would;
  • identify how charges will be imposed;
  • confirm when they fall due; and
  • provide some remedies for non-payment.
Bodies corporate could also consider whether an owner should "underwrite" costs of supply not recovered from its tenant. Absent that, non-recovered supply costs have to be recovered through the normal levy process. Bodies corporate should make provision for bad debts in any case.
A need for legislative change?
Bodies corporate that are seeking to implement utility supplies of obvious benefit to occupants should not, in ensuring recoverability of consumption costs, be affected by the vagaries of whether or not individual agreements have been formed. One might wonder whether an alternative and simpler threshold for liability might not be inserted into the legislation. For instance a general meeting passing a special resolution (or resolution without dissent) to adopt a bulk supply scheme would be more consistent with the overall thrust of the legislation for strata schemes.
Conclusion
A body corporate that proposes on-selling of utilities should carefully consider whether they have put in place the necessary background agreements to satisfy the requirements of the legislation and to optimise debt recovery.
1 Henderson and Anor v The Body Corporate for Merrimac Heights (2011) QCS 336
2 Ipanema (2010) QBCCMCmr 254
3 Markham Court (2009) QBCCMCmr 243
Yes

 


This update does not constitute legal advice and should not be relied upon as such. It is intended only to provide a summary and general overview on matters of interest and it is not intended to be comprehensive. You should seek legal or other professional advice before acting or relying on any of the content.