As a property developer, when should I use a Building Management Statement and how is it to my advantage?
This is the second in a series on Building Management Statements (BMS). For general commentary on BMS please refer to our earlier report at the following link:
(insert link to earlier report)
The statutory framework for a BMS is set out in Part 4 Division 4 of the Land Titles Act 1994 and also in Section 294A-J of the Land Titles Act 1994 for Leasehold Land.
The BMS is like a partnership agreement specific to the specific property to which is relates. It will generally be used where there are two large groups having an interest in the ownership, use and operation of one particular building or site.
Most commonly they arise in multi-level mixed-use strata title developments.
There have been a number of attempts to legislate for mixed-use developments with some specific Acts for specific projects such as the Sanctuary Cove Act 1985. In 1993 the Mixed-use Development Act was introduced but was met with little support or use. More recently the general framework to permit Building Management Statements came into force at the same time as the titles office became authorised to recognise volumetric subdivisions in 1997.
How did this need arise?
In the early days of unregulated mixed-use developments, large projects would be developed with a large and valuable retail component on the ground and possibly the first floor with a large number of strata title units, often 100 units or more above them, in a residential tower. All of these lots including the retail lots were included as lots in one building unit plan or more recently a Community Management Statement.
The problem here is that the retail operators and owners have vastly different interests and desired outcomes from those of the residential owners in the apartments above them. However, they were all thrust together with their different perspectives at the one annual general meeting of the body corporate. As you can imagine this caused friction and very interesting body corporate meetings.
As a general rule the retail owners would be outvoted by the vast number of residential owners and limitations may be placed on their ability to trade by the residential owners. Hot topics included restrictions on movement of persons through the foyer into the commercial spaces or restaurants, limitations on carparking, operating hours of the commercial premises and restaurants, and attempts to limit noise, fumes or smells interfering with the residential owners after dark.
As a consequence, retail and commercial spaces in these compendious developments became less and less popular and therefore less and less valuable. The yield on sales of such commercial lots in predominantly residential projects continued to increase (ie prices dropping) making them virtually unviable for developers to incorporate.
The solution arose through the volumetric subdivision and the BMS as outlined above. By this method the developer could carve out a large three dimensional space which would incorporate all of the commercial development including retail, restaurants, businesses and so forth. These could be held as one large lot or could be split up into separate commercial community title scheme. The balance of the building would contain all of the residential apartments and common facilities like foyers, lifts, carparks, etc and could be subdivided on a residential community titles scheme. Thus these two large bodies are established and their relationship between each other and the use of the site is regulated by the BMS, which is effectively the partnership agreement between them.
This process can provide a fairer system in that there are two large bodies negotiating with each other and representing their members on a relatively equal footing. This is immensely preferable to a large group of residential owners ganging up on the individuals in strata title commercial lots without those commercial owners having any real recourse.
The Commercial Result
It has long been a stated objective of Government to encourage mixed-use developments. For the reasons outlined above the commerciality of these developments proved unsatisfactory until the BMS and volumetric subdivision regime was introduced. As a consequence these schemes, mixed-use developments are becoming much more common and much more viable for developers and continuing operators.
At a practical and commercial level, we have seen the yields on these commercial volumetric spaces continuing to decline (meaning increase in prices for those lots) since the general adoption of volumetric subdivision and BMS’s. The system seems to be working relatively well at this time.
So, how is a BMS in a volumetric subdivision created?
In short, by the developer at the commencement of the project in consultation with experienced lawyers, realtors and other advisors. GLG have vast experience in this area, and we can help you in the planning and decision making.
As noted in Episode 1, apart from the brief regulations in the Property law Act the area of law is largely unregulated leaving the site developer to determine the respective contributions of the commercial vis-a-vie the residentials lot under each of the various headings of expenses such as electricity, maintenance, land tax, cleaning and so forth.
Please tune into Episode 3 in this series where we investigate in more detail the considerations relevant to developers in the creation of a volumetric subdivision and the biases they may wish to include or avoid in preparation of their BMS and the commercial impact the various options may have on the commercial outcomes in the development.
