Civil and Administrative Tribunal New South Wales Medium Neutral Citation: David and Edith Younger v The Owners- Strata Plan No 57504 [2014] NSWCATCD 142 Decision date: 18 August 2014 Before: J A Ringrose, General Member Decision: 1. The application to re-allocate unit entitlements is dismissed pursuant to s 185(3) of the Act. 2. Each party is to bear their own costs of the application Catchwords: Re-allocation of unit entitlement Legislation Cited: Strata Schemes Management Act 1996 s 183 Cases Cited: Makita (Australia) Pty Limited v Sprowles (2001) NSWCA 305 Riana Pty Limited v the Owners - Strata Plan Number 22336 (2007) NSWSC 3 Category: Principal judgment Parties: David and Edith Younger (applicants) Representation: J S Meuller & Co for the applicant Doyle Edwards Anderson, Lawyers for the respondent File Number(s): SCS 13/16366 Publication restriction: Nil REASONS FOR DECISION BACKGROUND 1The applicants are the owners of lot 113 in Strata Plan 57504 in respect of premises located at 199 Regent Street, Redfern 2016. The original Strata Plan Number 57504 was registered on 15 July 1998. On 13 November 2001 a plan of sub-division number SP66863 was registered and the effect of that plan was to add lot 114 to the strata complex. Lot 114 initially comprised a common property plant room. At the time of registration of Strata Plan 66863 the surveyor preparing the plan decided to re-use the unit entitlement allocations of lots1- 113 from Strata Plan 57504 and to then add a unit entitlement for the additional lot 114. The complex comprises 112 residential units and two commercial units, namely lots 112 and 113. It would appear that the applicants acquired lot 113 in about August 2000. APPLICATION 2By an application dated 17 February 2013 Mr David Younger, as a co-owner of lot 113 in Strata Plan 57504 sought an order re-allocating unit entitlements on the basis of a valuer's report which was then attached to his application. He noted that a recent report commissioned by him and his wife indicated that the current allocation of 646 units was overestimated and that it should be less than 251 units. He stated that they had paid an excess for over 10 years and the financial burden was now too great and they were seeking leave to have the unit entitlement adjusted to the correct value. 3When the matter was listed before the Tribunal on 6 November 2013 the proceedings were adjourned by consent as it was noted that the AGM was due to take place on 12 November 2013. Interested parties opposing the orders sought were invited to write to the Tribunal by 26 November 2013 expressing reasons for their opposition. 4The respondent Owners Corporation was required to file any valuation report upon which it wished to rely by 17 December 2013. The time was subsequently extended to 7 February 2014. 5When the matter was listed before the Tribunal on 26 February 2014 leave was given to the parties to be legally represented and it was noted that the parties had filed all documents on which they wished to rely. The matter was thereafter listed for Hearing on 15 May 2014 and following the hearing, solicitors for the parties were directed to file written submissions by 29 May and 12 June respectively. APPLICANT'S EVIDENCE 6A valuation report dated 13 August 2012 from Mr W L Dubrow of Dubrow Valuations was attached to the application. Mr Dubrow noted that he was required to determine the reasonable unit entitlement for Strata Plan 57504 as at 15 July 1998 in accordance with s 183 of the Strata Schemes Management Act 1996. He noted that the subject property comprised a reasonably modern mixed use residential unit and commercial complex which included basement parking. He described the building as "basically a six level brick and concrete structure fronting Regent and Cope Streets at Redfern". He noted that the Strata Plan comprised 113 Lots which included a mixture of ground floor commercial space and upper level residential units. 7Mr Dubrow stated that the main issue in the valuation exercise was to determine the market value of all of the units and the unit entitlement to then determine whether the original allocation of the unit entitlements was unreasonable or incorrect. He stated that he had analysed sales of comparable units around the relevant date and had concluded that the unit entitlements issued as at 15 July 1998 were unreasonable. It is, however, the function of the Tribunal and not the valuer to determine, on the accepted evidence, whether the allocated unit entitlement is unreasonable. 8Mr Dubrow noted that the building had a frontage to Regent Street and a rear access from Cope Street with two basement levels which were primarily used for parking. He observed that the ground floor of the complex comprised two commercial units which had a frontage on to Regent Street and ten residential units which could be accessed via Cope Street as well. The upper level floors accommodated residential units with lift access and common property areas including a gymnasium, games room, tennis court, swimming pool and spa. 9He stated that he had inspected lot 113 internally and he described it as a single level ground floor commercial unit. He claimed to have considered the size, configuration, exposure, outlook and access of each unit and as a guide he considered the relative values of the subject units by analysing the actual sale prices achieved for units both before and after the relevant date. 10In relation to the valuation procedure, Mr Dubrow noted that he primarily analysed the actual sales of each of the units in the complex and analysed reasonably comparable properties that had sold in the immediate and surrounding areas as at 15 July 1998. He also considered market movement as a rate per month between the date of each sale to allow for market movement and the adjustment of unit values. 11A schedule of each sale relied upon was attached to his report with material obtained from R P Data. 12Based upon an analysis of the data, Mr Dubrow ascribed a value to unit 113 of $635,000.00 and a unit entitlement of 251. 13In his further report dated 14 October 2013 Mr Dubrow was asked to determine the unit entitlements for Strata Plan 57504 as at 13 November 2001, being the date of the subsequent amendment by Strata Plan 66863. 14He again incorrectly assumed that the valuation exercise was to determine the market value of all units and the existing allocated unit entitlement and then determine whether the allocated unit entitlement was unreasonable or incorrectly allocated. For this purpose he analysed comparable sales of units around 13 November 2001 including analysis of sales of the subject units. He concluded that the unit entitlements issued as at 13 November 2001 were unreasonable and incorrectly allocated. This conclusion goes beyond the scope of his qualifications (See Riana Pty Ltd v The Owners-Strata Plan No 22336 [2007] NSWSC 1033 at para 49) 15For the purposes of his valuation Mr Dubrow claimed to have inspected various units throughout 2012 and 2013. 16He described the building complex in the same manner as in his earlier report and noted that he had inspected lot 113 and has seen inside some of the lots on various levels and spoken to "a number of occupants". He also viewed photos of the unit lay outs and fit outs which he found on the RP Data Sales system. 17Mr Dubrow noted that in his assessment of the value of the property he had primarily analysed actual sales of each of the units in the subject complex and analysed reasonably comparable properties that had sold in the immediate surrounding areas as at 13 November 2001. He also claimed to have analysed market movement on a rate per month between each sale allowing for market adjustment for units that had sold before and after the relevant date. He noted that he also considered the size, configuration, exposure, outlook and access of each unit and considered the relevant values of the units by analysis by analysing the actual sale prices received for units both before and after the relevant date. 18In relation to the commercial strata units Mr Dubrow was able to refer to sales of four commercial strata units in 1997, 1998 and September 2001in the Redfern area. He also referred to other units outside the area in Alexandria, Surry Hills, Glebe, Petersham and Rozelle. He noted that there was limited directly comparable retail or commercial sales evidence available in the immediate area and he considered that commercial and retail sales outside of the area were generally superior to the subject location. He did not provide detailed reasoning for this observation other than notation such as "superior location and exposure". 19Mr Dubrow was cross-examined by Mr Doyle on behalf of the respondent and he stated that he had attended the building up to five times between 2012 and 2013. A total attendance time was approximately 3 hours during which time he internally inspected Lot 113 although he could not recall when that inspection took place. He noted that he inspected inside one of the lots on the 4th floor but agreed that he had actually inspected only 2 to 3 lots including lot 113. He knocked on doors and he suggested that he would have spoken to approximately 16 or 17 occupants. He had no notes or photos of the units he inspected and he did not produce the material from the RP database other than in a graph form. He claimed to have assessed the outlook of many of the units by simply reviewing internet information but he conceded that advertising material would be likely to embellish the outlook of units rather than to detail matters that would detract from a potential sale. 20Mr Dubrow claimed that he adjusted the value of lot 113 up by 10% from the sale date to the date of the 2001 valuation but he produced no statistics to support this other than to indicate that he relied on his experience. 21Mr Dubrow did use worksheets where he detailed calculations of growth per month and adjustments that he made from the actual sales of the lots. It is difficult to determine from the worksheets the basis upon which his adjustments were made as he simply provided reasoning such as "minor adjustment from the actual sale price", "adjusted from sales 3, 4 and 5 for size". RESPONDENT'S EVIDENCE 22The respondent did not ultimately seek to produce any valuation evidence. By a letter dated 22 November 2013, the solicitors for the Owners Corporation noted that they had engaged a Mr Mark Casemore as a valuer but on 20 November 2013 he advised them that he was no longer in a position to assist with this valuation. They indicated that they would seek to engage a new valuer to prepare a report and an extension of time was granted to enable a report to be provided. By 7 February 2014 the Owners Corporation had not produced any valuation evidence and when the matter was listed for Directions on 22 February 2014 the solicitors for the Owners Corporation indicated that they did not intend to file any valuation evidence. 23No other submissions were received in support of the application apart from those provided by the applicant and it is noted that Dr Kevin McAsaac by letter dated 26 November 2013 indicated that he had not received appropriate notice but that he supported the Owners Corporation in opposing the orders sought in the application. 24The Tribunal also received a letter from Catherine Lezer as owner of lot 109 in Strata Plan 57504 expressing oppositions of the orders sought on the basis of what she described as "some obviously inconsistencies in the report". She noted that identical units with the same aspect did not have the same entitlement and the three identical sized units, one with a city view and two without were noted whereby the unit with the city view had a lower unit entitlement than the other two in the valuation report of Mr Dubrow. Ms Lezer noted further that she did not believe the report addressed the fact that most units in the Strata Plan were mezzanine studios despite being referred to as one bedroom by real estate agents. She suggested that a bedroom must contain an outside window and the majority of the bedrooms in the Strata Plan did not. She claimed that unit entitlements were set on a proper basis at the inception of the Strata Plan and that all owners had purchased on this basis. Although some parts of her letter were clearly hearsay the nature of her submission was apparent from her letter. 25Mr Doyle, on behalf of the Owners Corporation submitted that the applicant bore the onus of establishing that the allocated unit entitlements were unreasonable. He submitted that there was no obligation on the respondent to establish an alternate case and that the respondent was permitted to test the applicant's case to establish whether the case was sufficient for the Tribunal to make the orders sought. He submitted that the valuation reports of Mr Dubrow should be given no weight or very little weight. He referred to the obligations imposed on an expert and based on the reasoning of Makita and submitted further that only 2 to 3 lots were actually inspected and a maximum of 16 further lots were viewed from the front door. He submitted that even if the Tribunal accepted that not all lots need to be inspected as proposed in the reasoning of Riana in the report should still have little weight because only 2.6% of the units within the scheme had been inspected and 16.7% of the total units had been viewed or observed from the front door. He submitted that this would provide a basis for either rejecting the report or giving it very little weight. DECISION 26Strata Plan number 57504 (the original Strata Plan) was registered on 15 July 1998 and Strata Plan of sub-division SP 66863 was registered on 13 November 2001. The effect of the subsequent plan of sub-division was to add a lot 114, which was created on the top floor from the common property plant room, to the Strata Scheme. 27The initial plan of sub-division comprise some 113 lots and it would appear that when the new lot 114 was added in November 2001 the unit entitlement allocated to the other 113 lots was retained and the unit entitlement for lot 114 was then added. It is clear that the surveyor chose to re-allocate the unit entitlements from Strata Plan 57504 and add a unit entitlement of the new lot 114. 28The present application initially included a valuation prepared by Mr Dubrow and dated 13 August 2012. That valuation purported to determine that the values and unit entitlements of all lots as at 15 July 1998 being the date when the original Strata Plan was registered. 29In a subsequent report of dated 14 October 2013, Mr Dubrow set out to value the lots and determine the units entitlements as at 13 November 2001 being the date when lot 114 was integrated into the Strata Plan. No valuation report has been provided on behalf of the respondent or any other persons who have expressed an interest in putting forward submissions in this matter. 30S 183 of the Strata Schemes Management Act 1996 enables the Tribunal to make an order allocating unit entitlements. The section, so far as it is relevant, provides:- 183 Order for re-allocation of Unit Entitlements (1) Tribunal may make order allocating unit entitlements. The Tribunal may make an order allocating unit entitlements among the lots that are subject to a Strata Scheme in the manner specified in the order. (2) Circumstances in which order may be made. An order may be made only if the Tribunal considers that the allocation of Unit entitlements among the Lots; (a) was unreasonable when the Strata Plan was registered or when a Strata Plan of sub-division was registered, or (a1) was unreasonable when a revised schedule of unit entitlements was lodged at the conclusion of a development scheme, or (b) became unreasonable because of a change in the permitted land use, being a change (for example, because of a rezoning) in the ways in which the whole or any part of the parcel could lawfully be used, whether with or without development consent. (3) Matters to be taken into consideration. In making a determination under this section, the Tribunal is to have regard to the respective values of the Lots and (if a Strata Development contract is in force in relation to the Strata Scheme) to such other matters as the Tribunal considers relevant. 31Sub-section (4) requires that the application be accompanied by a valuation certificate specifying the valuation at the time of the registration or immediately after the change of permitted use of each of the lots to which the application relates. Sub-section (5) requires the person providing a certificate for the purposes of sub-section (i4) to be a registered valuer under the Valuers Act 2003 authorised under that Act to make such a valuation. 32The applicants are the registered proprietors of lot 113 in the Strata Scheme and are by the operation of sub-section (8) able to bring an application under the section. 33Mr Moir, solicitor on behalf of the applicants submits that the relevant date is 13 November 2001 when lot 114 was added to the Strata Scheme and accordingly that the relevant valuation prepared by Mr Dubrow is that which he completed on 14 October 2013. Parties have however, referred to the unit entitlements which were allocated by Mr Dubrow in both of his reports and to the certificate of unit entitlement annexed to the Strata Plan. It is to be noted that in many instances the values and unit entitlements determined by Mr Dubrow in his two reports, differ from the unit entitlements allocated when the Strata Plan was registered and further, there are differences between the valuation prepared by Mr Dubrow as at the date of registration in 1998 and the valuation he prepared based on the registration of the further lot in 2001. In many instances the unit entitlements determined by Mr Dubrow for the same lots in 1998 and 2001 vary by more than 10%. The variations have not been explained in his later report. 34Mr Moir, on behalf of the applicants, submitted that the valuation and resultant unit entitlement allocated to lot 113 which is owned by the applicants was clearly unreasonable. He argued that, when compared to residential lots and in particular compared to lots 15 and 29, the value and unit entitlement ascribed to lot 113 was clearly unreasonable. He submitted that, as a matter of fairness, the owners of lot 113 should not be required to pay strata levies at a level of 2.7 to 3 times what they ought to be paying. 35There are only two commercial units within the strata scheme, namely lots 112 and 113 and it is apparent that the unit entitlement allocated to both of those lots when the strata plan was originally registered, it is significantly greater than the unit entitlement ascribed to the residential lots. Mr Moir submitted that if the allocation for lot 113 was shown to be grossly incorrect compared with other lots that this would demonstrate a consistent error and imbalance across the entire allocation which would then demonstrate that the entire allocation was unreasonable. 36Mr Doyle, on behalf of the respondent submitted that the valuation report of Mr Dubrow should not be accepted as a proper basis upon which to re-allocate the unit entitlements. He has argued that Tribunal was required to have regard to the value of all lots prior to making an Order under s 183 of the Act and there was insufficient evidence to satisfy the Tribunal as to the value of the lots within the scheme. He pointed out that in cross-examination, the valuer agreed that he had only inspected 2 or 3 lots and that he had viewed approximately 16 other lots from the front door. This represented a physical inspection at best of 2.6% of the units with an observation from the front door of only 16.7% of all units. Mr Doyle argued that upon a consideration of the principles in Makita (Australia) Pty Limited v Sprowles (2001) NSWCA 305 and Riana Pty Limited v the Owners - Strata Plan No 22336 (2007) NSWSC 33 the Tribunal would not be satisfied that there was sufficient evidence to establish that the initial allocation of unit entitlement was unreasonable. 37Whilst experts often generalise from experience it is fundamental that they identify in their report to a Court or Tribunal the factual assumptions and observations which they are applying their experience to; Arnott's v Trade Practices Commission (1990) 24 FCR 313. In Western Australian Planning Commission v Arcus Shop Fitting Pty Limited (2003) WASCA 295 McLure JA with whom Anderson and Steytler JJA agreed set out the following exposition of the correct approach by a valuer applying the comparable sales method; "as a matter of principle a valuer using the conventional approach should explain the steps in his reasoning and analysis from his basket of sales evidence to his opinion as to value. The correct principle is, in my view, that the valuer must review as far as possible a process of reasoning actually employed so as to enable the Court to evaluate the evidence in the experts conclusions; (Makita (Aust )Pty Limited v Sprowles (2001) 52 NSWLR 705)" 38In his valuation report of 14 October 2013 Mr Dubrow noted that he had primarily analysed the actual sales of units in the subject complex and analysed reasonably comparable properties that had sold in the immediate and surrounding areas as at 13 November 2001. He claimed to have also analysed the market movement on a rate per month between each sale to allow for market movement adjustment of units that have sold both before and after the relevant date. He claimed to have considered the size, configuration, exposure, outlook and access of each unit and the relative values of the subject units compared to actual sale prices achieved. 39In relation to his valuations of lots 112 and 113 Mr Dubrow noted that there was limited directly comparable retail or commercial sales evidence available in the immediate area. As a result he considered sales of commercial and retail strata lots in surrounding areas although he found that each of the sale properties considered was superior to the subject lots for reasons which were unfortunately not explained in any detail in his report. He used expressions such as "considered to be in a far superior location", "superior location and exposure to the subject", "considered far superior". He also took into account his sale price paid by the applicants for lot 113 when they purchased it on 9 August 2000. 40In Riana Pty Limited v the Owners - Strata Plan No 22336 (2007) NSWSC 1033 Rothman J noted that Makita was clearly a rule of evidence and experts opinions which did not comply with the rules in Makita were admissible before a Tribunal and a Tribunal was entitled to give them such weight as was appropriate. Although giving an expert opinion too much weight did not in itself amount to an error of law. His Honour observed that the determination that the unit entitlements were unreasonable was a matter for the Tribunal and not the expertise of the valuer (see paragraph 49 of the judgment). His Honour noted further at paragraph 48 that the Tribunal did require the respective values of each lot and it would be incapable of making an order without having before it the values of each lot at the respective date and to do so would constitute an error of Law (See also Anderson Stuart Ors and v Treleaven and Anor (2000) NSWSC 283). 41In Fenton Nominees Pty Limited v Valuer General (1981) 27 SASR 258 Wells J considered the onus carried by a party objecting to a valuation or allocation of units. His Honour observed; "There is no such thing as an ideally correct value for a given piece of land; neither of two valuers may be incorrect in valuing land at a figure that differs from the figure arrived at by the other valuer". 42Although there appears to be a significant difference in the value ascribed to lots 112 and 113 by the person responsible for allocating unit entitlement initially and those determined by Mr Dubrow, I am not satisfied that he has given reasoning sufficient to justify a finding that the allocation of units entitlements was unreasonable when the Strata Plan was registered or when a Strata Plan of sub-division was registered. The commercial properties referred to in the reports from Mr Dubrow appear to have a significantly higher raw square meterage price than that which he ultimately allocated to lot 113. His reasoning for the allocation of a significantly lower square meterage rate has not been sufficiently explained in his report and although it is the only report before the Tribunal for the purposes of the present application I am not satisfied that the applicants have discharged the onus imposed upon them by s 183. 43Having regard to the principles enunciated in Makita and Riana, I am not satisfied that the report provides a sufficiently reliable basis upon which to determine that the allocation of the unit entitlements is unreasonable. 44In addition to the reasons to which I have just referred, it is necessary to have regard to the recent decision of the Court of Appeal in Sahada v the Owners Strata Plans 62022 (2014) NSWCA 208. In that case Basten JA with McColl JA agreeing found that it would be inconsistent with the nature of the power and the test of "unreasonable" allocation under s 183 of the Strata Schemes Management Act if an order was solely determined by the respective values of the lots at the time of registration. 45Baston JA held; 17 Section 183(1) confers a power on a Tribunal; there is no explicit indication that there are any particular circumstances in which the power is coupled with a duty to make a particular kind of determination. Section 182(2) imposes a statutory pre-condition to the exercise of the power namely "only if" the Tribunal is satisfied as to at least one of the three evaluative criteria specified. In substance, each criterion is identified by reference to a test of "unreasonableness" at one of a number of specified times .... 18 Subsection (3) may be described as identifying mandatory considerations, namely matters the Tribunal "is to have regard to". Only one specific matter is identified, namely "the respective values of the Lots". Where there is a strata development contract in force the range of possible matters is left open ended by the use of the words "such other matters as the Tribunal considers relevant". His Honour observed at paragraph 24 that the conferral of a power with no express obligation and the setting of a test of "unreasonable" allocation should be sufficient to reject the proposition that "respective values" was to be the only criterion. The Court left open the further question which arose, that is whether, in determining the unreasonableness of the original allocation or deciding to make an order varying the allocation, or in both circumstances, the Tribunal should take account of (respectively) the significance of the consequences of the original allocation and the effect of re-allocation. 46Sackville AJA with whom McColl JA agreed found that s 183(1) of the Strata Schemes Management Act conferred a discretion on the Tribunal to allocate unit entitlements where their original allocation was found to be unreasonable. The issue of control arising from unit entitlements was not held to be relevant because it established unreasonableness, it was rather relevant because it was a matter that the Tribunal, having found the original allocation to be unreasonable, should take into account when determining whether an order to re-allocate unit entitlements should be made in the circumstances. 47I am not persuaded that I should rely upon the report of Mr Dubrow to establish that the allocation of unit entitlements was unreasonable because; (a)There is in my view insufficient reasoning within the principles of Makita to demonstrate that the values in unit entitlements allocated to the commercial lots were such as to make the whole unit entitlement unreasonable and, (b)The allocation of entitlement amongst the units is dependent upon a consideration of the value of all units at the relevant date. Mr Dubrow has conducted an extremely limited inspection of the residential units within the subject property and he has provided limited reasoning for the valuations he has arrived at in relation to those units. Applying the principles in Riana Pty Ltd v The Owners -Strata Plan No 22336 (supra) I am not satisfied that I should rely on this report for that purpose. 48It is noted that the applicants are the only unit owners, out of 114 lots, to make application for a variation of unit entitlement. They purchased the unit in 2000 on the basis of the unit entitlement which was then allocated. They acquired with the unit the degree of control allocated under the original unit entitlements. The present application has been brought more than 12 years after their purchase of the unit 113 and I am not persuaded that the discretion should be exercised to vary the unit entitlement in these circumstances. Even if I had accepted that the report of Mr Dubrow demonstrated an unreasonable allocation of unit entitlements within the meaning of s 183 of the Act it would not in my view be appropriate to make the order sought by the applicants. John A Ringrose General Member Civil and Administrative Tribunal of New South Wales 18 August 2014 I hereby certify that this is a true and accurate record of the reasons for decision of the Civil and Administrative Tribunal of New South Wales. Registrar DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 11 September 2014