The recent case of The Owners – SP No 91684 v Liu; The Owners – SP No 90189 v Liu [2022] NSWCATAP 1 considers these questions.

Shortly after section 137A of the Strata Schemes Management Act 2015 (SSMA 2015) came into effect, each owners corporation in this case passed a special resolution to amend the existing by-laws relating to short-term rental accommodation. The Tribunal at first instance held the by-laws in each strata scheme were invalid. This decision was upheld on appeal.

The by-law in question prohibited any short term rental arrangement where the lot is not the principal place of residence of the owner or occupier, and permitted short term rentals where the lot was the principal place of residence, but subject to conditions.

The two parts of the by-law found to be invalid pursuant to section 150 of the SSMA 2015 were those relating to:

  1. the power to deactivate access devices to the lot of any owner or occupier who was found to be in breach of the by-law; and
  2. the power of an owners corporation to recover the cost and expenses incurred by it under the by-law. These costs and expenses related to enforcement costs amongst other costs. The by-law had required lot owners to indemnify the owners corporation for these costs.

Power to deactivate access devices

In considering this clause, the Tribunal referred to the recent decision of Cooper v The Owners – Strata Plan 58068 [2020] NSWCA 250 where it stated:

“37. Access is an inherent property right. A provision such as this removes that property right with no preconditions; no stipulations as to how and when the breach is required to be “found” so as to trigger deactivation and deprive access; and once triggered, in what circumstances access is to be denied and for how long.

38. These provisions have inherent qualities that may impact severely on the fundamental rights of owners and occupiers at a price that exceeds and outweighs the benefits they seek to achieve.”

Accordingly, the Tribunal found that this clause ran afoul of section 150(1) of the SSMA 2015 and was harsh, unconscionable or oppressive.

Power to recover costs as a levy debt

The Tribunal found the indemnity provision whether the lot owners indemnified the owners corporation for its costs to be valid. The part of the by-law that was in question was whether money owing under the indemnity provision may be recovered as a levy debt.

In short it was found that any amount owed by a lot owner as a result of a breach of the by-law was not money for the administrative fund or capital works fund, and could not be characterised as “other recurrent expenditure” to make it part of the administrative fund. Further section 83 of the SSMA 2015 made it clear that levies are raised “in respect of each lot” and “are payable by the lot owners “in shares proportional to the unit entitlements”. Taking into account section 82 of the SSMA 2015, which was held out as the only provision allowing levies to be increased for a particular lot, the Tribunal found there was no power to make the by-law costs recoverable as a levy debt. This was because there was no statutory power to do so.

The Tribunal found that this clause ran afoul of section 150(1) of the SSMA 2015 and was beyond the power of the owners corporation.

The Tribunal declared the by-law invalid in its entirety reasoning that section 150 of the SSMA 2015 provided the Tribunal the ability to declare “a” by-law to be invalid but there was no power in section 150 of the SSMA 2015 to redraft or “tamper” with parts of the by-law, and the by-law (without the invalid parts) is not the same as what was passed by the owners corporation.

The takeaway from this case is that owners corporation’s should refrain from imposing sanctions in by-laws such as deactivating an access device (particularly with no conditions) as this would amount to removing a lot owner’s inherent property right. Further, caution should also be exercised when preparing recovery of costs by-laws so that it does not classify these costs as levy debts.

This is general information and should not be considered to be legal advice. You should obtain legal advice specific to your individual situation.

Authors: Jasmin H.Singh & Allison Benson