Article: the difficulty of repealing an exclusive use by-law

In order for an owners corporation to repeal an exclusive use by-law that confers on the owner of a lot, or the owners of several lots, certain rights or privileges to use a part of the common property, section 52 of the Strata Schemes Management Act 1996 (“SSMA”) requires the written consent of the owner(s) of the lot(s) concerned. In general, this means the written consent of the owners receiving the benefit of the common property in question.

 

Having said the above, the Strata Schemes Adjudicator has the power, under the SSMA, to repeal an exclusive use by-law if the lot owners concerned unreasonably refuse to consent to the repeal of the exclusive use by-law.

 

In Croyden & Anderson v The Owners – Strata Plan No. 1583 [2015] NSWCATCD 104 the NSW Civil and Administrative Tribunal overturned an Adjudicator’s earlier order and found that lot owners who had the exclusive use of common property car spaces pursuant to an exclusive use by-law were acting reasonably in refusing to provide their written consent to the Owners Corporation’s proposed repeal of the by-law.

 

Facts:

The Owners Corporation made Special By-Law 1 on 1 April 1991 which granted the owners of Lots 12 and 15 from time to time the exclusive use of 1 car space each, situated on the common property;

 

At an Annual General Meeting held on 10 September 2013, the Owners Corporation attempted to have Special By-Law 1 repealed. The owners of Lots 12 and 15 objected to the repeal and did not give their written consent to the Owners Corporation.

 

The Owners Corporation argued that it proposed to obtain revenue from the common property car spaces by either renting out or selling the car spaces. Since Lots 12 and 15 had never paid any money for the exclusive use of the car spaces, the Owners Corporation argued that the interests of all owners in the use and enjoyment of their lots and common property outweighed the rights and reasonable expectations of the lot owners deriving a benefit under Special By-Law 1.

 

The owners of Lots 12 and 15 argued that the Owners Corporation and all the owners in the building had the opportunity to, and did, make their decision in 1991 in relation to the conditions Special By-Law 1 would contain, and it was now too late for the Owners Corporation to change its mind. Furthermore, the repeal of Special By-Law 1 would have extinguished a valuable proprietary interest that Lots 12 and 15 had in the car spaces without any compensation to them.

 

Findings:

The Tribunal decided to uphold Special By-Law 1 and allow the lot owners’ appeal on the following basis:

 

  • The fundamental and only real motive for the Owners Corporation to repeal Special By-Law 1 was to regain control of the common property car spaces and to obtain revenue, for which end purpose there had been no explanation given by the Owners Corporation.
  • The Owners Corporation had the responsibility to manage and control the use of the common property, as well as the responsibility to manage the strata plan’s finances. However, there was no legal obligation on the Owners Corporation to rent out or sell the common property merely because it is or may become a valuable asset;
  • The Tribunal agreed with the owners of Lots 12 and 15 that the Owners Corporation had its chance to make its decision regarding the conditions in Special By-Law 1 in 1991: it cannot have another ‘bite at the cherry’ now.
  • There had been no material change in the circumstances, other than the Owners Corporation had simply changed its mind and now sought to rent or sell the car spaces for value.
  • The exclusive use by-law created a proprietary interest that Lots 12 and 15 had in the car spaces, which enhanced the value and utility of their lots. The Tribunal should not lightly extinguish that proprietary right unless there were good reasons for doing so.

 

Lessons learned:

 

An exclusive use by-law can be hard, if not impossible, to repeal if an owners corporation does not have the written consent of the lot owner(s) with the benefit of the exclusive use by-law.

 

If owners corporations are concerned about making money from lot owners using various parts of the common property (for example, parking spaces), they should ensure the original exclusive use by-law incorporates a fee as a condition for the making of the by-law, and this requirement is expressly in place at the time the exclusive use by-law is made. It may be too late to repeal or amend the by-law later.

 

Furthermore, an owners corporation may wish to include a ‘sunset clause’ in the by-law, providing that the right of exclusive use will expire on a particular date. This would cater for any unforeseen circumstances arising many years down the track, where an owners corporation may decide it wishes to regain control over the relevant area of the common property.

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