By Chantelle Gladwin, Partner and Maike Gohl, Partner
When auditing Body Corporate municipal accounts, Schindlers often discovers that the account is still in the name of the developer. Legally, this is incorrect, and it can cause significant prejudice to all parties concerned. In Part 1 of this article we consider whose responsibility it is to open bulk utility accounts for the Body Corporate and whether you can just change the name of the account rather than open new owns. In Part 2 we consider the consequences of not holding the account in the name of the Body Corporate, specifically how disputes can arise between the various parties as to the liability on the account, and how they can be remedied.
Whose responsibility is it to open the Body Corporate’s bulk water/electricity accounts?
We are often asked this, and it’s a tricky one. Our view is that it is the developer’s responsibility to hand over the bulk utility accounts to the Body Corporate at the first AGM, and that by this time the developer (acting in conjunction with the Body Corporate) ought to have opened new bulk utility accounts in the name of the Body Corporate. It is the developer’s responsibility to hand over everything in a manner that puts the Body Corporate in “the driving seat” and allows the Body Corporate to legally deal with all aspects of the scheme – which entails opening new bulk utility accounts in the name of the Body Corporate – because otherwise the Body Corporate can’t transact on or manage or sue on the municipal accounts without the assistance of the developer (which might cease to exist at a later stage). However, it is the responsibility of the trustees to ensure that the scheme is able to transact, manage and sue on their own accounts, and if the developer has not taken the necessary steps, to take those steps itself, to open new utility accounts in the name of the Body Corporate. Often the parties get distracted by blaming each other for the perceived failure to open the new accounts, but this is short sighted because they fail to recognise that both parties had a responsibility to attend to this and both parties are prejudiced until such time as the issue is sorted out.
Can’t you just “change the name” of the account from the Developer to the Body Corporate?
No, you can’t. This would be unlawful. Each owner must have their own account, and when an owner passes transfer to the next person, the old owner’s account must be paid up and closed or if there is any credit to be refunded to the old owner, that credit must be refunded and then the account must be closed. If you have the new owner “taking over” the old owner’s account, you could have the situation where the new owner becomes responsible for the unpaid debts of the old owner, and you also find that the credit belonging to the old owner is utilized unknowingly by the new owner. The correct way to do it in law is to open new accounts for the Body Corporate, and to have all charges, and payments made by the Body Corporate into the developer’s account since inception of the scheme, taken off the account and put onto the Body Corporate’s account. (This is not only the correct way of doing things, but will save you a lot of headaches in the future).