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Masterclass Query: To stay or go with an Origin Energy Serviced Hot Water agreement


This blog is based on a query raised by a Main Beach Committee Member at our 2021 Masterclass for Gold Coast apartment owners. It is based on a 2011, Origin Energy 'Serviced Hot Water' agreement. If your Body Corporate has a similar agreement, please be aware that you should look at the specific terms of your Body Corporate's agreement as a starting point.


In 2011, the Main Beach Body Corporate for an apartment building signed an agreement with Origin Energy Pty Ltd under which:


Origin:

  • agreed to remove the Body Corporate’s old hot water units and install hot water heaters, flues and storage tanks (“the installed infrastructure”) on our building’s common property valued at $48,818 (including GST);

  • retained ownership of the installed infrastructure;

  • remained responsible for maintenance of the installed infrastructure at Origin’s cost;

  • would enter into hot water supply agreements and gas supply agreements with the residents of each unit in our building and be responsible for issuing invoices to, and collecting payments from, each of those residents.

The Body Corporate agreed that:

  • Origin would be contracted as the natural gas retailer to supply the natural gas to the building for hot water and gas cooktops at set rates, with the minimum quarterly bill being $3,183.84+ GST per quarter ($12,735.36 in the first year - increased by CPI in July each year);

  • it would give Origin the contact details of the names and addresses of all owners and occupiers of the lots (to help Origin enter into hot water supply and gas supply agreements with them);

  • the term of the agreement would be for 6 months, which would roll over indefinitely for further 6-month periods unless a party terminated upon 6 months’ written notice prior to the next renewal date;

  • it would have the right to terminate the agreement at any time upon delivering Origin 6 months’ written notice of intention to terminate and paying Origin the amount equal to the value of the installed infrastructure as set out in the ‘sliding scale’ of decreasing value over time from the date the installed infrastructure was installed in the building.

The Sliding Scale of decreasing value of the installed infrastructure is as follows:


Valuation of Water Heating System

For the purposes of clause 11.1(a), 11.4(b) [of the Origin agreement] the value of the installed infrastructure is as follows:


 

Considerations for the Body Corporate and its Committee


It has now been more than 10 years since the installed infrastructure was installed.


After 10 years, if Origin has not, in the past 12 months, spent any money on the installation of new or replacement equipment, then the value of the installed infrastructure is NIL.


However, if the Body Corporate terminates the agreement:

  • Origin will remain the owner of the installed infrastructure unless Origin agrees to transfer ownership to the Body Corporate; and

  • Origin will no longer be responsible for the maintenance of the installed infrastructure.

  • There remains a question whether under the agreement, Origin still has the right to

    1. Remove the installed infrastructure;

    2. Transfer ownership of the infrastructure to the Body Corporate for the value in the ‘sliding scale’ of decreasing value; or

    3. Forfeit ownership of the installed infrastructure to the Body Corporate in exchange for the payment of the sum of $1.00 on request.

 

the (nuu) co's practical recommendations


A Body Corporate has a duty to act reasonably in the discharge of its functions and exercise of its powers. Therefore, the (nuu) co’s practical recommendations in this case are that the time has likely come for that the Committee for the Body Corporate to now investigate (with qualified assistance as necessary):

  • What is the current condition of the installed infrastructure (which is now over 10 years old) – what is the anticipated life left? When will it require removal and replacement? How much is replacement likely to cost the Body Corporate? For example, the installed infrastructure in this case, to seek quotes for replacement from an appropriately qualified and licensed plumber are:

· 2x Raypack 507 Internal hot water heaters with flue;

· 2x Rheem 430 litre storage tanks

· Primary loop pumps

· All interconnecting pipe work and valving

  • What is the current likely annual cost of maintaining the installed infrastructure? Because the Body Corporate needs to factor in that Origin would no longer be responsible for maintenance costs if the agreement is terminated.

  • If the current installed infrastructure is worth the Body Corporate keeping, whether Origin will agree to transfer ownership for a nominal sum of $1.00 in a brief ownership transfer agreement, if the agreement is terminated;

  • Whether there are any other alternative natural gas retailers with whom the Body Corporate can seek quotes for common property natural gas supply and the cost savings to the Body Corporate and/or residents of those alternatives, if the Origin agreement were to be terminated;

  • If the agreement is terminated, the internal process for the Body Corporate to notify residents so that they may take the opportunity to renegotiate their existing hot water supply and gas supply agreements with Origin or alternative natural gas suppliers servicing their area.

Ultimately, the outcome of the investigation will better inform the Body Corporate's available options and way forward. Depending on which option is chosen, appropriate resolutions will have to be drafted and passed (by the Committee (if it is a decision the Committee is permitted to pass) or by the owners.

Hot water heater

Hot water storage tank


Note: This suggested course of Committee action represents the opinion of the author as to practical steps the Body Corporate Committee could take to investigate whether it is economically viable to consider terminating the Origin Energy Serviced Hot Water agreement that relates to their Main Beach apartment building and does not constitute legal advice. It is open to a Body Corporate to seek independent legal advice on the meaning and effect of any hot water agreement like the Origin Energy ‘Serviced Hot Water’ agreement generally discussed in this blog.

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