Reply To: Backdated special levy for 'hotel' use

Great advice everyone – I can see that this is a complex issue to navigate. I will consult legal advice – thankyou for pointing me in the right direction 🙂

Further to the information I’ve already provided above, I thought I’d provide some further detailed background information directly from the Accountant’s report (included below). There are a couple of key assumptions which don’t seem right to me:

1. In determining the amount of liability for each lot leased to the hotel, the Accountant assumed “short term accommodation is replaced with permanent residents”. I think this assumption is flawed, as it essentially assumes the hotel traded the entire time at 100% occupancy rate…

2. In regard to the Accountants’ point about increased wear and tear on the common areas due to increased traffic, I would argue that when I’ve attended the complex to perform an inspection of my lot, have noticed passing private residents in the corridors wheeling bicycles and those 2-wheel tote-type shopping trolleys. The use of cleaning trolleys has been raised in the Accountant’s report regarding increased wear and tear of common areas (corridors), however these private items (bicycles, shopping carts etc) have not.

I accept that the use of lots for short-term (hotel) may result in increased insurance premium (the Accountant estimates a 25% reduction in premiums if the complex was not used as a hotel).

I accept that the use of lots for short-term (hotel) may result in increased electricity usage (e.g. laundry facilities).

I am concerned that I am being levied (retrospectively) for fees based on these assumptions which seem to be in the OC’s favour.

On another point, the invoices I’ve received have 7 day terms (e.g. issued on ½, due on 8/2), but I believe Section 31(2a?) of the Owners Corporation Act 2006 stipulates that the due date needs to be 28 days from the date the invoice is issued. Am I reading that correctly?

Unfortunately this situation does sound more and more like a cash-grab as I dig further and there seems to be a fair amount of animosity towards the hotel owners from the owners of residential lots (who form the majority of the OC) 🙁

Appreciate any further thoughts 🙂

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The following is some information directly from the report which provides further background to my above points:

Instruction 1 to Accountant from Owners Corporation:

“To review the expenditure of the owners’ corporation and identify what costs and expenses substantially benefit the owners’ whose units are used for the short-term accommodation business. So far it appears that insurance costs are higher, and it is thought there will be a higher rate of wear and tear to the common parts.”

Response from Accountant to instruction 1:

1.1. I reviewed the reported income and expenditure during the Review Period to identify costs incurred by the Owners Corporation, which were likely to be of a lesser amount if short term accommodation was not provided. In my opinion, the relevant costs are predominantly those that may vary due to:
a. foot traffic (residents, guests and or cleaning staff and frequency of passage)
b. insurance requirements (insured cover and incremental risk)
c. elevated compliance requirements arising from changes (if any) in building classification.

1.2. Short term accommodation facilities represent 59.75% of all Lots and 56.16% of all Entitlements. These facilities are spread throughout the Latrobe Building and vary on a level by level basis.

1.3. Prima facie, short term accommodation is likely to attract increased foot traffic and perhaps a lesser care factor (behaviour of permanent residents versus short term guests) resulting in increased wear and tear and higher cost for cleaning, repairs and maintenance. For example, I assume that every time a short term accommodation room is vacated it is cleaned. Therefore, the cleaners and their trolleys are likely to move through the Common Property areas more frequently (than if short term accommodation was not provided).

1.4. In addition, I understand that buildings are classified depending on their scale and use. Buildings that include “hotel like” accommodation usage attract a higher classification, which may contribute to additional compliance requirements (perhaps in terms of fire protection facilities and insurance cover etc) and additional costs.

1.5. To allocate cost based on usage is problematic because there are many variables that impact usage including foot traffic statistics (by type of user) and the relevant data is not maintained.

1.6. In the absence of the data, I have relied on cost estimates provided by third party service providers on the assumption that short term accommodation is replaced with permanent residents (or self- occupied) and 24-hour reception is not required.

1.7. In this regard, I note the following:
a. Cleaning costs are estimated at $43,884 per annum based on an undated quote from XXXXXX Pty Ltd for $45,168 per annum (excluding GST) and a quote dated 15 October 2018 provided by YYYYYYY of $42,600 per annum (excluding GST). For the purposes of my assessment I have adopted the midpoint of $43,884. These quotes were obtained by [the OC management company] and I assume that they meet the requirements of the Owners Corporation.
b. Insurance premium is estimated at 25% less (based on correspondence with the current insurance broker).
c. Utilities (laundry electricity usage) estimated at $3,701.25 (for the 3 year period to 30 June 2018 based on $4,935 over the 4 year period 1 July 2011 to 30 June 2015 or simple average of $1,233.75 per annum)

1.8. In addition, in my opinion, the following expenses are likely to be lower but quantification of the potential saving is speculative:
a. Lift and garage door maintenance
b. Air conditioning service and maintenance.

Instruction 2 to Accountant from Owners Corporation:
“To provide a schedule of charges by Owner (in accordance with Lot Liabilities for the plan of subdivision) for extraordinary items to the managers, so that they can raise the appropriate invoices.”

Response from Accountant to instruction 2:

2.1. For the purpose of my assessment, I assume that the Lots and Entitlements identified as currently “short term use” have been continuously used in that way during the Review Period.

2.2. Appendix 8 contains a schedule of paid expenses (cleaning and general caretaker expenses $930,627 and insurance of $274,314) together with estimated allowances.

2.3. As at 30 June 2018, but for the short term accommodation and 24-hour reception services provided to the Apartment Building during the Review Period, in my opinion the Owners Corporation’s operating expenses would have been lower by some $695,718, (during the Review Period) represented by savings in:
a. Cleaning and caretaker costs of $627,140 ($623,439 and further adjustment of $3,701 for estimated laundry electricity usage for FY16 to FY18)
b. Insurance premiums of $68,578.

2.4. For the purpose of my assessment, I assume that $695,718 is to be charged by way of a special levy payable by the Lot Owners involved in short term accommodation (based on Entitlements per Lot, on a pro-rata basis). Short term accommodation accounts for 17,244 Entitlements (across 141 Lots) or 56.16% of total Entitlements of 30,703.