Paul Anderson | September 2011 | Business & Property
A recent Court of Appeal case discusses the ability of an Owners’ Corporation to enter into arrangements to use facilities on a site at a distance from the strata building.
Who does it impact? Owners’ Corporations and owners of individual lots in a strata building.
What action should be taken? Owners’ Corporations and their advisers should be aware of the decision when entering into Facilities Agreements. A recent Court of Appeal decision of Casuarina Rec Club Pty Limited v The Owners – Strata Plan 77971 questioned the validity of by-laws made under the Strata Schemes Management Act, 1996 (the “SSM Act”) in respect of property not part of the common property.
Facts The Owners’ Corporation of a resort at Casuarina Beach entered into a Facilities Agreement with the appellant, a recreation club 15 minutes walk down the road whose facilities included a gymnasium, pool and tennis courts. The Facilities Agreement entitled lot owners to use the facilities of the appellant for an annual contribution payable to the respondent Owners’ Corporation. The primary judge found that the Facilities Agreement was invalid because the by-laws authorising it were beyond the powers of the Owners’ Corporation. The resort had 114 units, swimming pools and a restaurant. At least 80 units had been sold. However, 60 units were available for lease by the general public from purchasers and the developer for short term holiday purposes.
TurkAlert
Strata by-laws and the tyranny of distance
Strata by-laws and the tyranny of distance
2
Legislation
By-Laws
Section 43 of the SSM Act provides:
The by-laws in question were original by-laws that came into force on registration of the strata plan and were in the following terms:
43 What can by-laws provide for? 1. By-laws may be made in relation to any of the following:
22.1
The Owners’ Corporation has the power and function to enter into the Facilities Agreement to provide access to the Facilities for Residents.
27.1
Without limitation to its other powers, the Owners’ Corporation has the function to and the power and authority to appoint and to enter into other agreements to provide for Services to the Common Property or Residents as necessary including but not limited to: ‌..
a. Safety and security measures; b. Details of any common property of which the use is restricted; c. The keeping of pets; d. Parking; e. Floor coverings; f. Garbage disposal; g. Behaviour; h. Architectural and landscaping guidelines to be observed by lot owners; i.
Matters appropriate to the type of strata scheme concerned.
2. Sub-section (1) does not limit the matters for which by-laws may be made. 3. The regulations may prescribe model bylaws which may be adopted as the bylaws for a strata scheme. 4. A by-law has no force or effect to the extent that it is inconsistent with this or any other Act or law.
(4)
An agreement and authorisation to enter into an agreement relating to the use of Residents of Facilities (such as gymnasium facilities).
Submissions Counsel for the respondent argued that to be valid, a by-law must relate to the use and enjoyment of the site or the common property. Later he amended this argument to suggest that the amenities must be on site or immediately adjacent thereto. Counsel for the appellant argued for a less restrictive view, namely that the SSM Act must be construed to give a wide view of the power to make by-laws provided that they must not contravene the law, must not be made in fraud of the power to make by-laws and must not be unreasonable.
TurkAlert
Paul Anderson | September 2011
Strata by-laws and the tyranny of distance
3
Primary Finding The primary finding of the Court of Appeal was that a valid by-law under the SSM Act must have a clear nexus between the subject matter and the use or occupation of the subject property. So far as by-laws relating to amenities are concerned, the amenities must be capable of enhancing the occupiers’ use and enjoyment of the premises. However, valid by-laws were not limited to the site or common property. Ultimately, it was a question of fact and degree. MacFarlane, JA gave the example of a bylaw relating to the use of a tennis court on an immediately adjacent property which would be valid and a by-law relating to the use of a tennis court in London which would be unlikely to be regarded as having the requisite connection. The Court held that the by-law was valid. Although the recreation centre was not adjacent to the resort, “it was sufficiently close to enable the inference to be drawn that a right of access to it would be capable of enhancing the occupier’s enjoyment of the units at the resort”.
Related Findings The Court also made the following interesting findings: >> A provision in the form of a model by-law cannot be held to be invalid. Neither can a by-law dealing with the same subject matter as a model by-law. >> The power to make by-laws should be generously construed, subject to the doctrine of fraud on the power and with the proviso that an unreasonable by-law will be held to be invalid. >> Buyers of a lot in a strata scheme buy with notice of an original by-law as distinct from a by-law that was subsequently added by amendment to the original by-laws. It is very rare that an original by-law will be held to be invalid. As a corollary, in the case of an original by-law, “people have vested rights which are not likely to be diminished by an amendment at the behest of the majority.”
>> One reason relied upon by the primary judge was that, “whilst it was doubtless of value to some occupiers to have free use of tennis courts and the like, these persons should pay for the right rather than have the costs borne by all owners.” However, Young JA countered that before giving any weight to this argument, one would need to know whether the existence of a Facilities Agreement added to the capital value of the units. >> Young, JA also took comfort by analogy by from the cases involving easements where it has been held that the dominant and servient tenements need not be contiguous provided that they were “sufficiently close”. For example, a right given to the owner of a property by easement to have free admission to the zoo or a local cricket ground could not be said to have sufficient nexus but the right to use a close by communal garden would qualify.
Conclusion The case is very useful in that it clarifies the degree of connection to the subject matter required when an Owners’ Corporation makes by-laws under the SSM Act. The related findings are also very interesting in clarifying the extent of the power of an Owners’ Corporation to make by-laws and will be of significant use in similar cases in the future.
TurkAlert
Paul Anderson | September 2011
Strata by-laws and the tyranny of distance
4
For more information, please contact: Paul Anderson Partner T: 02 8257 5742 M: 0418 491 395 paul.anderson@turkslegal.com.au
TurkAlert
Paul Anderson | September 2011
Sydney | Level 29, Angel Place, 123 Pitt Street, Sydney, NSW 2000 | T: 02 8257 5700 | F: 02 9239 0922 Melbourne | Level 10 (North Tower) 459 Collins Street , Melbourne, VIC 3000 | T: 03 8600 5000 | F: 03 8600 5099 Insurance & Financial Services | Commercial Disputes & Insolvency | Workers Compensation | Business & Property
www.turkslegal.com.au