Introduction

With the increasing number of people living in strata schemes, many owners are trying to find ways to add more value to their unit, townhouse or villa by way of renovations and/or obtaining exclusive use rights over valuable areas of common property located within their building. As part of this process, the majority of owners are told that they need to engage the services of a specialist strata lawyer to draft the relevant motion and a common property rights by-law (aka “special by-law”) pursuant to sections 108, 141 and 143 of the Strata Schemes Management Act 2015 (“SSMA”) which grants the owner the special privilege to carry out their renovations, the exclusive use over those sections of the common property required to retain their works and which transfers the maintenance and repair obligations of the works and the exclusive use area to the owner. The Special By-law must then be approved by special resolution at an owners corporation’s general meeting.

In an ideal world, the owner’s by-law will be passed and registered.  However, there will be times where the owner’s by-law is not passed at the general meeting.  What can an owner do in this situation?

In this article I propose to cover the subject of an owners corporation’s unreasonable refusal to make a common property rights by-law under section 149 of the SSMA.  All references to a by-law is to a common property rights by-law.

The SSMA gives an owner who has a proposal to carry out renovations that will affect common property and/or who seeks to obtain exclusive use over common property that is rejected by an owners corporation the right to apply to the NSW Civil and Administrative Tribunal (“Tribunal”) for an order under section 149 of the SSMA to make the by-law.

The Tribunal will only overturn the decision of the owners corporation if it considers that the decision was unreasonable. The expression “unreasonable” is not defined in the SSMA. It is therefore to be given its ordinary, everyday meaning: see Curragh Coal Sales Co Pty Ltd v Wilcox (1984) 1 FCR 461.

The Tribunal may consider a decision “unreasonable” if the decision is: not reasonable; not endowed with reason; not guided by reason or good sense; not based on, or in accordance with, reason or sound judgment;; exceeding the bounds of reason; immoderate; capricious; exorbitant: OC SP 69481 v Want [2013] NSWCTTT 440.

In deciding whether a decision is “unreasonable”, the standard to be applied is that of a hypothetical reasonable person: see Patterson, Garth, Owner of Lots 51 and 52 [1999] NSWSS66. Put another way, the test of what is reasonable is an objective test. This requires the existence of facts which are sufficient to induce that state of mind in a reasonable person: see George v Rocket (1990) 170 CLR 104 at 112. Hence, a decision by an owners corporation to withhold consent to an owner’s proposal to renovate would be reasonable if there was, on the material before the owners corporation, a sound basis for making that decision. Conversely if there was no such sound basis the decision would be unreasonable: Carroll and OC SP865 v Alldritt [2013] NSWCTTT 525.

In determining whether the decision of the owners corporation to reject a common property rights bylaw is unreasonable, the Tribunal must consider:

(a)        the interests of all owners in the use and enjoyment of their lots and common property; and

(b)       the rights and reasonable expectations of the owner seeking the rights under the common property rights by-law (“the Applicant”).

In considering the decision of the owners corporation, it is not simply a matter for the Tribunal to determine whether it is beneficial or reasonable for the Applicant to carry out the works, to keep and maintain the works and to have the benefit of the subject by-law in respect of same. The issue

is more complex and the Tribunal must weigh up the interests of all owners in the use and enjoyment of their lots and common property versus the Applicant’s rights and reasonable expectations: see Graziani v The Owners – SP37657 [1998] NSWSSB 53. The Tribunal needs to consider how the interests of all of the owners in the use and enjoyment of their lots and of the common property would be affected if the proposed common property rights bylaw were to be made and, as against those interests, consider the rights and reasonable expectations of the Applicant.  The Applicant bears the onus and evidentiary burden of demonstrating that the owners corporation’s decision was unreasonable. The owners corporation does not have to prove that it acted reasonably in withholding its consent to a proposed by-law: Bartlett v Owners Corporation SP1429 [2011] NSWCTTT 219.

Ultimately, in assessing the question of the reasonableness of the decision of the owners corporation the Tribunal needs to decide whether the owners corporation exercised sound judgment or good sense (see the decision in Patterson).

Cases

There have been many cases decided by Adjudicators (and, on appeal, the former Consumer, Trader and Tenancy Tribunal – now NCAT) concerning decisions made by owners corporations of residential apartment buildings to reject by-laws that would permit owners to carry out renovations without having obtained the necessary statutory approval of the owners corporation concerned.

In Rielly & Ors v Owners SP18687 [2007] NSWCTTT 58, the Tribunal upheld an owners corporation’s rejection of a by-law that would have permitted two of the four top floor owners of an apartment building to build into and above the attic space above their units. The Tribunal concluded that the owners corporation’s refusal to make the by-law was reasonable because (relevantly) owners were concerned about the detrimental impact the building works would have on the building’s structural integrity and those concerns were not adequately addressed by an engineer’s report obtained by the owners who wanted to build; and the owners offered to pay compensation to the owners corporation to obtain exclusive use of the attic space but refused to show the other owners a valuation report they had obtained on the question of compensation.

In Reen v Owners Corporation SP300 [2008] NSWSC 1105, the Supreme Court of NSW held that an owner’s failure to pay an owners corporation compensation in return for the grant of exclusive use of a common property garage was not unreasonable.

More recently, in Ainsworth v Albrecht [2016] HCA 40, the High Court of Australia held that it is not unreasonable for a lot owner to refuse a motion to grant a common property rights bylaw if the grant would materially affect their property rights.

Conclusion

It is not always an easy task to determine whether or not an owners corporation has unreasonably refused to make a by-law. There is a tendency for complex issues to arise including, but not limited to, boundary issues, the issue of payment of monetary compensation to an owners corporation in consideration for the grant of the rights and expert opinions. Therefore, it is recommended that your obtain legal advice sooner rather than later so that you know you have put your best strata application forward the first time.

Pobi Lawyers

Michael Pobi has been a specialist strata lawyer for 10 years. His firm Pobi Lawyers provides specialist strata and community title law legal advice and legal representation in the NSW Civil and Administrative Tribunal and the Courts in relation to strata disputes and building defect claims.

Disclaimer

Please note that the information contained in this article is for information purposes only. It is not legal advice and should not be relied upon. You should obtain legal advice before you take any action or otherwise rely upon the contents of this article.

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