When being unreasonable isn’t enough: NCAT’s discretion in the reallocation of unit entitlements

Section 183(1) of the Strata Schemes Management Act 1996 (NSW) (the Act) confers a discretion on NSW Civil and Administrative Tribunal to reallocate unit entitlements when the original allocation is found to be unreasonable. The recent case of Rita Sahade v The Owners Strata Plan No 62022 & Ors [2015] NSWCATCD 5 emphasises the discretionary nature of this power.

Background

 The case was originally brought by the applicant before the Consumer, Trader and Tenancy Tribunal in 2012. The Tribunal dismissed the application. The applicant appealed to the District Court, and its decision was then the subject of appeal to the Court of Appeal, who remitted the case back to the Tribunal in respect of the following issues:

• Whether the original allocation of unit entitlements (UE) was unreasonable;
• If so, whether the UE should be reallocated; and
• If so, the appropriate allocation of UE.

Relevant Considerations

 In making its determination, the Tribunal identified several considerations relevant to the decision to alter UE:

• Market value of the lots (noting this is a mandatory and primary consideration, though not the only consideration);
• UE forms part of bundle of rights as part of realty and ownership of unit;
• UE forms part of market value due to the degree of control and fees/responsibilities associated with UE;
• Units are sold and bought on the basis of known rights (i.e. known UE);
• UE forms basis for liabilities and payments; and
• UE controls power of management of OC and determines quorum.

The Tribunal found that the original UE allocation was unreasonable based on market value yet decided not to exercise its discretion to alter UE on the basis that:

• Control of the scheme would change fundamentally with an altered UE;
• By purchasing the property with 40% of the schemes UE, it was clear to the applicant at the time of purchase that she wasn’t buying a controlling share;
• It was likely to result in compulsory management and/or deadlock if one unit given such control – which was not the legislative intent of the Act; and
• The unopposed evidence of original owner showed the original reason for UE allocation was to prevent one lot acting without the support of at least one other lot.

The Tribunal also reaffirmed that in such matters it is the applicant who bears the onus not only to demonstrate that there was unreasonableness in the original UE allocation, but also to persuade the Tribunal why it should order a reallocation of UE, with the Act conferring a discretion and not an obligation on the Tribunal to alter UE allocation.

For information about unit entitlements generally or responsibilities of lot owners in relation to their unit entitlements, please contact our office.