Density and development – Structuring mixed use residential projects

Publication November 2016


Introduction

Mixed use development is part of the Queensland landscape in a range of contexts and densities. Legislation has developed in Queensland to provide flexibility for projects that integrate different uses and operating environments in one or more buildings, often with progressive development and staging and over more than one market cycle.

The seismic shift in thinking in Queensland came with new subdivision formats under the Land Title Act 1994 and the commencement of the Body Corporate and Community Management Act 1997 (BCCMA). Further changes made in 2005 (which we were specifically consulted on in an industry representative role and drafted in consultation with Government) reinforced and clarified connections between volumetric development and community titled formats.

The tools exist to facilitate mixed use projects, but achieving optimal results requires an understanding of how to best use them and how to deal with the limitations that still exist. In a series of articles beginning with this Update, we will look at tenure and governance for projects in various contexts, and address the interaction of legal structure with planning, delivery, operational and commercial objectives.

In this article we look at principles and issues for mixed use residential projects using a building management statement (BMS) overlay with community titles schemes (Schemes). This structure is common to mixed use residential projects where apartments, in one or more buildings, sit with other uses - retail, short term accommodation, hotel, or commercial.

The BMS structure is often seen as another “body corporate” overlay. The opportunity to tailor a structure to meet project objectives, mitigate risk and enhance outcomes for owners and occupiers can be lost with that perspective. Ensuring these arrangements are fit for purpose is also important in protecting asset values and market reputation.

Pick your structure

There are a number of options for structuring a mixed use apartment project but in general a decision needs to be made at the outset about using Scheme formats exclusively or integrating them within a BMS framework. Tenure and governance can involve a range of subdivision formats and associated instruments – one or more BMS documents, one or more Schemes or combinations of all of these, tailored to project contexts, development and operating requirements.

The following table summarises options for a residential project involving other uses and whether staged or developed in in one or more buildings. Combinations of these options may be adopted depending on the size and complexity of the project.

Development Scenario

Governance Option

Comment

Multiple Buildings – Mixed use Project

Project may involve:

  • Multiple buildings on common podium or other structures (basements, plaza).
  • Uses allocated to separate buildings (e.g. a hotel tower and a residential tower).
  • Multiple Buildings each containing mixes of uses (e.g. building 1 has hotel and residential and building 2 has commercial, retail and residential).
  • Multiple Buildings with homogenous uses (e.g. apartments in multiple buildings) with other uses in different areas of site (e.g. retail at ground or plaza levels).

Primary BMS

Applies to the lots on initial and subsequent subdivision to define use areas in the Project.

Primary BMS provides whole of site governance.

Secondary governance and tenure can be through Schemes or a secondary BMS. This depends on the interface between uses, buildings and the site as a whole.

Residential (or other) uses within each building or buildings may be established under a Scheme structure (including a layered arrangement of Schemes).

Scheme land within a building or buildings is a lot to which the Primary BMS applies.

Scheme arrangements are tailored to specific development requirements - staging or subsidiary Schemes.
Co-located uses remain as lots the Primary BMS level or to be further configured and with autonomous internal management.

A secondary BMS may also be used to address relationships between different uses in one or more buildings.

Mixed Uses within a building may be structured with reference to that building alone or as part of a use spread over multiple buildings (e.g. retail uses in multiple buildings or a common plaza or podium area).

Contiguity requirements of the Land Title Act need to be accounted for in establishing a Primary BMS structure.

Primary BMS

Primary BMS – key features:

Tailored to achieve balance between reciprocal rights, operating needs and autonomy.

Accounts for staging and interim or transitioning uses during and after construction.

Facilitate changes in uses to meet market changes during development.

Flexibility to address services and facilities use on a whole of project basis and as between parts of a project and to establish appropriate facilities management arrangements. Allows distinction between commercial facility management requirements and Scheme caretaking.

Can discriminate between owners and uses to maintain autonomy.

More flexibility for project level management and administration –can dictate level of owner involvement on particular issues in decision making.

More flexible cost contribution and sharing arrangements which are not limited by BCCMA.

Ability to bind bodies corporates to management group decisions.

More commercially appropriate dispute resolution – disputes are not trapped in the BCCMA regime.

A secondary BMS for part of a project offers similar benefits to Primary BMS when used to regulate subsidiary uses.
Scheme structures used as required within overall project and to quarantine Scheme management issues while committing to project level or building arrangements.

Market familiarity with Scheme structure is preserved without undue constraint on development and operating requirements.

Mixed Use - Stand Alone Building

Standalone building with mixed uses (e.g. commercial, residential, hotel etc.) 

Single BMS Framework and Scheme

As with multi-building project a BMS integrates uses in a single building while balancing essential reciprocal rights with autonomy for internal management of particular uses as required.

A Scheme structure applies for the residential components tailored to suit specific development requirements (for example any staging or subsidiary Scheme requirements).

Single BMS Framework and Scheme

Similar flexibility and advantages to those set out above apply in managing the interface between different uses in a single building.

An alternative to the BMS framework would be a layered arrangement of Schemes in the building with a principal scheme body corporate. However, this will involve putting retail, commercial and hotel uses (for example) into separate Schemes and regulation modules all under the BCCMA regulatory framework which may not be appropriate or optimal for those assets. 

Apartments - Single Building

A residential apartment tower or low or midrise residential project in attached built form. 

 Scheme Structure

In a single residential apartment tower, a Scheme structure is used, tailored to suit specific development requirements (for example any staging or subsidiary scheme requirements).

Limited non-residential uses can be accommodated within a single Scheme structure (e.g. limited retail at ground level). Once non-residential uses expand the scope for a single Scheme to accommodate those different uses becomes limited.

Scheme Structure

A Scheme is the applicable format in general.

In projects involving mixes of multi-level / attached / semi attached or detached residential product in a Scheme structure, differentiation may be made between built form by use of additional Schemes – either linked or stand alone depending on project configuration.  

There are high density easements and/or BMS arrangements that can be adopted for smaller projects.

Residential only – Multi Stage and Mixed Format

May involve multiple buildings in stages with a mix of density

  • medium density in town homes or low to midrise product and higher density apartments in higher rise buildings.

Development may be staged and facilities may be shared or quarantined to particular stages or owners. 

CTS Structure

In a multi-staged residential project, a Scheme structure can be used, tailored to suit specific development requirements for staging and subsidiary Schemes - created to reflect differing product mix and / or subdivision formats.

Forecast development parameters can be embedded in the Scheme structure to preserve development rights.
Limited non-residential uses can be accommodated in any stage under the Scheme structure or in subsidiary Schemes.

In a multi-building project, a BMS or easements might also be considered to achieve an allocation of rights between stages.

Tilting requirements where mixed subdivision plan formats are used for different product have to be accounted for in the Scheme structure and may necessitate use of a layered arrangement of Schemes - relevant to mixes of high and medium density development in a project (apartments, town houses and detached dwellings with private yards or courtyards).

CTS Structure

Generally a Scheme structure will be appropriate although a BMS can be considered to provide overarching rights between components and non-Scheme development may also be incorporated using a BMS or easements or on proximity.

Particular facilities and amenities might be provided by way of exclusive use allocations of common property or body corporate assets to particular groups of owners – for example, a particular recreation facility may be allocated to owners in a particular building or stage on an exclusive use basis.

A single Scheme may be progressively expanded or there may be multiple Schemes if staging profile warrants – for example in a large scale community style development having a principal Scheme may be beneficial for purpose of:

  • separation of common property and facilities through exclusive use allocations among subsidiary Schemes; and
  • Allocation of body corporate assets held at principal Scheme level.

Important Matters for tenure and governance under a BMS framework

There are a number of critical matters to be considered in structuring tenure and governance arrangements using a BMS framework with one or more residential Schemes. These matters feed into the project delivery and sale arrangements, especially for the sale of apartments off the plan, letting of retail and commercial areas and appropriate recognition of the operational requirements for different uses. Too often these factors are not considered or are not addressed adequately.

Understanding content requirements

The BMS offers tailored arrangements but content limitations under legislation must be observed. The BMS is a registered instrument. It identifies lots to which it applies and attracts indefeasibility. Covenants in a BMS benefit and burden the lots and bind and benefit successors in title where they run with the lots.

Achieving optimal leverage and development outcomes means understanding the scope of the covenants that will run with title, how legislative content restrictions operate and how development and operating arrangements can be accommodated. The BMS is an overarching governance framework for a project and has to be able to be implemented and administered for the lifecycle of the project.

Potential owners and occupiers of all components expect security of tenure and undertake due diligence on rights and obligations. Deficiencies in BMS arrangements will adversely impact marketability and value assessments for project assets. Fixing deficiencies retrospectively or in the middle of a sales campaign has potential consequences for disclosure and certainty of contractual enforcement. Accordingly, the ability to “design” BMS arrangements that are legally and commercially certain is crucial to both disposal and to operating phases of a project. Establishing BMS content with reference to off the plan sales disclosure while reserving development options is an essential part of framing the BMS.

An appropriate BMS framework

The BMS is not intended to replicate a body corporate structure.

A properly drawn BMS will avoid administrative duplication and secure appropriate reciprocal rights and obligations to allow the project to function cohesively but with required autonomy for each use. This is particularly important in terms of the different approaches to asset management, maintenance and operation that follow with different use types.

In significant projects, infrastructure will often require appropriate facility management arrangements beyond the scope of residential caretaking arrangements typically associated with stand-alone apartment product. Increasingly, energy supply and management and other services introduce regulatory overlays and providing best practice outcomes requires recognition in the BMS and other tenure structures. This is relevant, for example, for embedded electricity networks and supply arrangements but also communications infrastructure and other services. A BMS allows these matters to be implemented across project components, including at Scheme level, provided the impact of subdivision and management arrangements is properly accounted for. Provisions in the Land Title Act concerning BMS management group decisions binding bodies corporate (despite limitations on delegation under the BCCMA) also need to be considered in framing facility management arrangements and the role of the BMS management group.

While assessment of building costs, maintenance programs and forecast capital expenditure requirements can and should inform the BMS and its administration, replication of the Scheme contribution structure under a BMS will not be appropriate or necessary in many cases. Commercial and other non-residential owners may not fund capital expenditure from recurrent periodic contributions built up over time. Requiring them to do so may create conflict and adversely impact return metrics, values and complicate cost recovery in leases. In TOD developments, operating transport infrastructure usually requires specific controls and requirements that would not be consistent with a “residential” contribution regime.

Cost allocations at BMS levels may flow through to underlying Schemes and the BMS cost regime will be a key part of determining statutory disclosure to residential buyers. Poorly thought out BMS arrangements can be the source of changes to disclosed material that may trigger termination grounds under off the plan apartment sales.

Decision making and the management group structure also needs careful consideration. The management group under a BMS does not have to regulate or decide matters about every aspect of the project. The scope for management group decision making should be limited to the core reciprocal rights arrangements and respect autonomy for internal management for different uses, including the role of the body corporate for a residential Scheme. Decision making can be more flexibly dealt with than under a Scheme structure where voting entitlements and processes are prescribed more narrowly. For example, decisions on certain matters may be preserved to a particular owner as may be the case where operating transport infrastructure and crown land is involved or where a particular facility, although shared, is critical to a particular owner (e.g. a loading dock or parking area).

The management group can also be a vehicle for binding bodies corporate to decisions about matters where they would otherwise not be empowered to delegate functions under the BCCMA (as a result of provisions in the Land Title Act). This is, for example, relevant to establishing and preserving facility management arrangements; a level of delegation to a facilities manager may of mitigate issues that can arise where infrastructure requirements are beyond the scope of the body corporate committee or onsite manager to handle or where requiring multiple bodies corporate to concur about a service requirement for infrastructure is inefficient. Facilities management rights may themselves become an asset of the project.

Understanding the operation of term limitation provisions for body corporate contracts in this context is however important as bodies corporate will still be a party to facility management arrangements as owners established through the agency of the BMS management group. Such arrangements are also required to be the subject of disclosure and planning for these arrangements at the outset is relevant to ensuring disclosure to buyers is accurate. Even if precise contract terms are not fixed or known when the BMS is initially drafted, the scope for these arrangements can be anticipated both contractually and form a cost view point.

Dispute resolution is potentially more flexible under a BMS. Using a layered arrangement of Schemes brings with it the BCCMA framework for dispute resolution. While disputes as defined under the BCCMA do not extend to all types of commercial matters, a BMS offers the ability to prescribe alternative or multiple dispute mechanisms which may be more suitable to the relationships between different owners in a mixed use project.

Tenure and Planning Road Map

The BMS must work within the requirements of titling legislation and must compliment planning approvals. The BMS can be a mechanism that provides security for planning objectives and outcomes to meet assessing authority requirements. This can range from securing access and essential infrastructure and facility rights for a use to mitigating perceived amenity impacts. The BMS should be developed as part of the architectural and planning concept and in conjunction with the approvals process.

In significant mixed use projects the interaction between public and private open space and other publicly accessible areas is often critical to approvals and satisfying assessing authority requirements. The BMS can assist in addressing these matters and providing a balanced solution that preserves commercial objectives. For example, public cross links and access through sites can be preserved through an internal BMS covenant matching approval conditions requiring access to be maintained and preventing any owner limiting access to designated areas. The combination of a planning approval condition and BMS term may be a better solution (from an assessing authority view point) than a public thoroughfare easement because that type of easement by legislation requires maintenance responsibility to be borne by the Council.

In other scenarios, the design and subdivision requirements of the project may impact dedications and require consideration of the interaction of BMS provisions with other instruments including covenants and easements. In circumstances where transport land is involved (as defined under the Transport Infrastructure Act 1994 – which includes busways, rail corridor land and other transport related land and facilities) a BMS can be registered over freehold and crown land. Integration of private and public facilities may involve acceptance of volumetrically defined areas to fit with optimal design and operating requirements. This can raise issues for assessing authorities who often have preconceived ideas about the format and configuration of dedicated areas and infrastructure, and in some cases, about the use of infrastructure as a shared service as opposed to requiring separate infrastructure to be provided for each use.

Subdivisional requirements and future development

Preconditions apply to registration of a BMS. At least one volumetric lot and one standard format balance lot must be in existence at registration. As such the BMS is inextricably linked to the subdivision sequence for a project. Allocating balance lots (containing surface, airspace and subsurface areas not incorporated in other volumetric lots) can be a critical part of controlling development and operating rights and arrangements.

The BMS must be drafted with a clear understanding of the subdivision pattern and the timing for establishment of tenures, particularly Schemes for residential components and any secondary BMS for a particular building (if applicable). If this is not adequately accommodated there may be flow on effects for establishing Schemes and for sales of interests in the project. For example, a BMS may anticipate the creation of a development lot to be subsequently included in a Scheme as a stage of development. In turn, this needs to be reflected in forecasts for development in the community management statement for the Scheme. There are different timing points at which this could occur (on Scheme establishment or subsequently) which could affect development rights in that Scheme and cost contributions of owners and disclosure in the pre-sales phase.

Each lot to which a BMS applies must be a lot entirely or partly contained in, or entirely or partly containing, 1 or more buildings. However, a BMS may also apply to lots that don’t meet this criteria if the lot is the subject of a building development approval – being a development approval or compliance permit, under the Sustainable Planning Act 2009, for development relating to a proposed building or buildings. Vacant lots for future development or lots within Buildings can be brought within the BMS framework and a coherent future development regime can be embedded in the document. Where a large project involves future re-development of already improved land but approvals are not finalised for that redevelopment, those lots may still be made the subject of the BMS so as to preserve rights that may be required for the future development – for example, future access or shared services and facility rights.

In a staged project, future development provisions in a BMS will marry with planning approvals and subdivision sequencing. It is important from a pre-sales disclosure view point that future development provisions at BMS level are reflected and linked appropriately to the forecasts of development in any community management statement for a relevant Scheme. Disconnects in that regard may affect a developer’s rights to control staged development or create inconsistencies that trigger further disclosure unnecessarily.

The BMS may provide certainty required to allow for accelerated title creation (and disposal) for use segments in a project which can have significant commercial implications. For example, we have been involved in major mixed use projects where title is created and transferred before construction and contemporaneous development rights secured - site integrity is maintained for assessing authority requirements.

The BMS can be used to preserve areas for shared and future uses, to change conditions of access and availability during development - for example, to allow interim use of an area for or during construction, to allow multi-use of a facility such as allocating parking rights to different time periods, to transition use arrangements as development is completed, including parking and other facilities access and to allow for progressive delivery of stages within buildings or across buildings. Contributions to costs for facilities and areas can be staggered accordingly and to mitigate cost imposts on owners in bodies corporates pending development completion.

Rights to introduce or change uses in a project can also be enhanced by using a BMS to regulate types of development and stages of development. The BCCMA provisions that require notification of use changes in forecast development do not apply to lots under a BMS that are not part of a Scheme. This allows for a more flexible relationship between proposed uses, disclosure of use intents in pre-sales and changes to planning approvals over time.

Conclusion

A properly considered tenure and governance framework will work with and form part of project planning, delivery and disposal arrangements and support asset values and operation for the lifecycle of the Project. We work with developers and consultant teams to provide this framework and manage implementation under it.

Norton Rose Fulbright have been involved with volumetric and Scheme formats since they were introduced in Queensland legislation and have consulted to Government and for industry on legislative changes and policy for 20 years. A hallmark of our project work is the establishment of robust yet flexible project arrangements that tie concept, planning, construction, design, disposal and operation together coherently.

Our project book includes some of the most innovative and dynamic developments in Queensland’s urban fabric, both competed and currently being constructed. We bring that knowledge and expertise to every project we work on. For more information about the issues in this article or any other aspect of mixed use and Scheme development in Queensland please contact Matthew Derrick. For enquiries about similar development issues for Projects in other Australian States you can contact our other listed Partners.


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