Why Owners Corporation Rules Should Always Be Drafted By Legal Practitioners
By Nicole Wilde
9 August 2016
The recent Supreme Court of Victoria case of Owners Corporation PS 501391P v Balcombe  VSC 384 (22 July 2016) has helpfully established legal principles for determining whether a registered Owners Corporation Rule will be valid and enforceable. An Owners Corporation does not have an unlimited statutory power to make and register any rules it sees fit. Rather, the scope of an Owners Corporation’s power to make rules is confined by the restrictions that are express and/or implied in the legislation that grants the power.
In the Balcombe case, the Supreme Court declared that one of the registered Owners Corporation Rules was invalid and unenforceable. It is not known who drafted the registered invalid Rule. However, in our view the Balcombe case makes clear that the preparation of Owners Corporation Rules which impact interests in land, is “legal work” that should only be undertaken by a qualified and insured legal practitioner. This is especially so in light of the significant expense an Owners Corporation can incur in seeking to enforce compliance with a registered Rule that is subsequently declared invalid and unenforceable.
The Balcombe Case
In the Balcombe case, the Supreme Court considered the legal question of whether an Owners Corporation in Victoria has the power under the Owners Corporations Act 2006 to make a Rule prohibiting the use of a residential lot for a trade or a business. The Rule in question relevantly stated:
“…the Proprietor or Occupier of a residential Lot must not use that Lot or any part of the Common Property for any trade or business nor permit others to do so…” (the Rule)
When determining whether an Owners Corporation Rule is valid or invalid, each case will require consideration on its own facts and evidence to determine whether there is sufficient connection between the Rule, the statutory purpose of the Owners Corporations Act 2006, the evidence of the circumstances in which the Rule will operate and the existence and dimensions of the actual or threatened mischief sought to be addressed (the Test).
Having considered the legislative framework that grants Owners Corporations the power to make rules, and applying the Test, the Supreme Court in Balcombe made the following relevant findings:
The Rule is invalid;
The Owners Corporations Act 2006 (and the legislation that preceded it), only gives an Owners Corporation very limited powers to regulate conduct issues on private lot property;
An Owners Corporation does not have the power to substantially interfere with the use to which a lot owner puts their freehold privately owned lot property;
Planning legislation is the mechanism that governs the use(s) to which a lot owner can put their private lot property to;
If Parliament intends to give Owners Corporations the right to substantially interfere with a lot owner’s use of their private lot – then that would need to be made express in the legislation – such a right cannot be implied in the legislation as it currently exists.
On the topic of legislative change, we now briefly discuss the Owners Corporations Amendment (Short-stay Accommodation) Bill 2016 which was introduced on 24 May 2016.
The Owners Corporations Amendment (Short-stay Accommodation) Bill 2016 (the Bill) proposes to expressly give Owners Corporations a degree of power over the effects of recalcitrant short-stay customers and operators. Whilst the Bill was introduced prior to the Balcombe case being heard and decided, both the Bill and the Balcombe case interestingly, use similar language of ‘substantial interference’, for example:
The Balcombe Case
“…The relevant legislation does not disclose any intention for owners corporations to have power to substantially interfere with lot owners’ proprietary rights; or for owners corporations to effectively have an unappellable right to overrule uses permitted under planning legislation…” [paragraph 1(b)]
“…I do not consider that the Parliament conferred powers on bodies corporate for the Statutory Purpose of substantially interfering with rights and privileges usually attendant upon freehold owners…” [paragraph 124]
Proposed section 159A
Complaints—short-stay accommodation arrangements
An owner of a lot, an occupier of a lot or a manager may make a complaint to the owners corporation about an alleged breach by a short-stay occupant of the conduct proscriptions applying to shortstay accommodation arrangements.
For the purposes of subsection (1), a short-stay occupant breaches a conduct proscription applying to a short-stay accommodation arrangement by engaging in any of the following conduct—
a. unreasonably creating any noise likely to substantially interfere with the peaceful enjoyment…
b. behaving in a manner likely to unreasonably and substantially interfere with the peaceful enjoyment…
It is yet to be seen whether the Bill will be enacted and Tisher Liner FC Law shall keep our valued clients updated in this regard.
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