In the recent case of Capcelea v The Owners – Strata Plan No 48887 [2019] NSWCATCD 27, the Tribunal found that it was unreasonable for an owners corporation not to approve a lot owners by-law for work to a terrace area.

The decision provides valuable insight into how lot owners and owners corporation should deal with disputes in relation to common property rights by-laws.

If you are a lot owner, or on the strata committee of an owners corporation, it is important to understand that your actions, or omissions, in addressing the dispute may ultimately become evidence in legal proceedings and have ramifications down the track.

Capcelea is the owner of a lot in Strata Plan No. 48887. The strata plan is located in Bondi Junction. It comprises a 13 storey building with 76 individual lots.

Capcelea’s lot includes a terrace which forms part of the street boundary. There are bushes along the edge of terrace to provide screening and privacy from the street.

Capcelea wanted to undertake some internal renovations to the bathroom, replace the sails over the terrace and install some additional features on the terrace. The additional features included the waterproofing of the terrace.

By-laws were prepared in relation to the proposed works. An Extraordinary General Meeting was convened on 18 September 2018. The by-laws were refused at the Extraordinary General Meeting.

Capcelea commenced proceedings in NSW Civil and Administrative Tribunal claiming:

1. That the owners corporation unreasonably refused to make a common property rights by-law.

2. That the Tribunal order the owners corporation to consent to the work proposed in the by-laws.

How does the Tribunal determine what is unreasonable?

The Tribunal reasoned that:

– The test of unreasonableness is an objective test based upon its ordinary meaning as found in the Macquarie Dictionary – “agreeable to, based on, or in accordance with sound judgment”. Emphasis was placed on the words “sound judgment”.

– The test concerns the unreasonable refusal to make the by-law however the Tribunal may also consider whether the content of the by-law itself is reasonable and the Tribunal may make changes to the by-law accordingly.

– The test is applied to the state of affairs which existed at the time of the refusal, in this case, the Extraordinary General Meeting held on 18 September 2018.

– The test involves the Tribunal weighing up not only the interests of the owners who refused the by-law but also the rights of the owner wanting the by-law and their expectation that the refusing owners take their rights into account when making a decision.

– Minutes of the Extraordinary General Meeting may be relied upon as evidence however a lack of detail or incomplete minutes may compromise the weight of that evidence.

– Individual owners, who voted for or against the by-law, may also give evidence as to their reasons for doing so.

– The chairperson of the Extraordinary General Meeting may give evidence which may be accepted as the owners corporation’s reasons for refusal in the absence of any views to the contrary.

– Personal dislike between the person wanting the by-law and members of the strata executive may also be relevant.

Did the owners corporation act unreasonably in refusing the by-laws?

The Tribunal found that:

– The owners corporation did not have evidence that there is any existing restriction, by way of a by-law or otherwise, restricting the use of the terrace. There was no basis to the owners corporation arguing that the terrace should be maintained as it was when they purchased the lot.

– The owners corporation did not have evidence that changing the terrace would impact upon the original design intent of the building or its amenity. The point being the terrace was not visible from the street.

– There was no evidence from the owners corporation that the changes to the terrace would increase disturbance due to additional noise or privacy intrusions as compared to its current use.

– There was no issue raised by the owners corporation that passing the by-law created a precedent as there was no other lot which had a similar terrace.

– Apart from members of the strata committee, there was no objection from any other lot owner to the original and amended development applications submitted to the council.

– As the by-law provided for a new waterproofing membrane, which is common property and therefore the responsibility of the owners corporation to maintain, the installation of new waterproofing provided compensation to the owners corporation as it saved the owners corporation the cost of maintaining the waterproofing membrane.

– The by-law included a professionally prepared design with detailed plans and expert reports which were not assessed by an expert on behalf of the owners corporation and was not criticised. It was unreasonable to oppose the by-law without supporting it with technical assertions.

The Tribunal Member said in his decision that:

“A lot owner has a right to enjoy and add amenity to an external part of his or her lot and a reasonable expectation to use and equip it as he or she reasonably wishes to do. It will improve privacy from overlook.”

“There was direct evidence from the applicants of their complaints about the descent of bottles, glasses, an umbrella, food, vomit and other items from the levels above onto the terrace, some of it landing very close to the applicants or their guests. This was a clear safety hazard and a detriment to amenity.”

“There was also direct evidence, not contradicted, from the applicants about the inability to stand on the terrace’s current unshaded surface in hot weather because of the heat in the surface material.”

“The applicants’ proposed by-laws placed the burden of remediation and maintenance of the terrace waterproofing and drainage on the applicants, with appropriate indemnities.”

The Tribunal found that the owners corporation had acted unreasonably withholding consent where there was no material before the owners corporation at the Extraordinary General Meeting which provided a sound basis for that decision.

The Tribunal ordered that the operative date for the by-laws was the date of the Extraordinary General Meeting at which they were refused, 18 September 2018.

Further insight obtained

The Tribunal also elaborated on the rights available to lot owners in relation to the unreasonable refusal of works and reasoned that the works could also be claimed pursuant to sections 126 or 232 of the Strata Schemes Management Act 2015 in the case where the works was not the subject of a common property by-law.

The take home point

Both lot owners and owners corporations need to conduct themselves reasonably from the outset when dealing with disputes in relation to the approval of by-laws.

The lot owner should ensure that it provides the owners corporation with all of the information required to properly assess the by-law in advance of the Extraordinary General Meeting which may include a professional design with detailed drawings and engineering reports.

Owners corporations should ensure that they undertake their due diligence and consider all of the information presented by the lot owner and provide reasons for refusal which may later be relied upon should legal proceedings eventuate.

Disclaimer: Please note that the information contained in this article is not legal advice and should not be relied upon. You should obtain legal advice specific to your circumstances before you take any action or otherwise rely upon the contents of this article.