As we reported last week, when the owner of two properties in a Sydney Olympic Park complex challenged their identical by-laws restricting short-term holiday lets, an NCAT member had found them to be ‘harsh, unconscionable or oppressive‘ and ordered them to be rescinded.
A Tribunal Appeals Panel subsequently rejected appeals by the owners corporations concerned.
The by-laws had been based on a pro-forma by-law supplied to its members by the Owners Corporation Network. That by-law had been altered by the owners corporations concerned.
However, aware of the endless potential for other legalistic challenges in the future as commercial (non-resident) short-term rental hosts try to side-step strata law, the OCN has reissued the by-law with a couple of tweaks to take into account the recent NCAT ruling.
Here OCN Executive Officer Karen Stiles explains how and why the by-law had been altered. In the interest of clarity, accuracy and transparency, the following document is published in its entirety, unedited and without comment.
In 2019 we commissioned a proforma by-law to empower members to prohibit short term letting by non-resident owners.
The strata by-laws world is always evolving. It need only take a challenge from an interested person to a settled by-law to progress such evolution.
And that is what happened in January 2022. An owner in a Sydney strata scheme who, in 2021 had challenged their scheme’s by-law prohibiting Short Term Rental Accommodation arrangements (“STRA”), faced an appeal from the owners corporation to the NCAT Appeal Panel (“Panel”).
The by-law in question was a modified version of the 2019 OCN pro-forma by-law for STRA which was developed over two years ago in 2019. Our by-law was a comprehensive response to the exploding prevalence of short term rental accommodation arrangements in a statutory environment that was not keeping pace. Please note that the OCN does not endorse the modifications in the by-law in question.
Question 1 – “deactivation of access devices”
For our purposes, the Panel considered two aspects of a clause in the modified STRA by-law. One of the aspects purported to give the owners corporation a right to deactivate owner or occupier access devices to their lot and common property if they are in breach of the by-law. (The term “access devices” was not defined but accepted in its ordinary meaning, it seems). However, the by-law was intended to apply to all owners and occupiers: – those whose lot is not their principal place of residence as well as those whose lot is their principal place of residence.
As it tries to apply to all owners and occupiers, you can imagine that a breach of this by-law may occur in several ways. For some owners and occupiers, that breach arguably may occur if they enter into unauthorised STRA arrangements in the first place. For other owners and occupiers, however, a breach arguably may occur if they enter into STRA arrangements permitted under the by-law but at some stage fail to provide all the details of their “Guest”, for example or fail to update that information as required under the registration process.
Those possible breaches do not carry the same weight. They will have very different impacts on the strata scheme. Yet, because the owners corporation reserved “the power to deactivate access devices to the Lot of any Owner or Occupier…found to be in breach“, the consequences are the same.
The Panel confirmed that this aspect of the clause – intended to cover owners and occupiers without limitation and to operate without preconditions, stipulations as to how a breach would be established and details of how long deactivation would last – is “harsh, unconscionable or oppressive” under the Strata Schemes Management Act 2015 (“SSMA”). The reason given for that is that it interferes with an inherent property or fundamental right of a strata owner or occupier to access their property. The “price” payable of the impact of denial of such an inherent or fundamental right was found to outweigh any benefits that deactivation of access devices might achieve.
The OCN does not disagree that this aspect of the clause was too broad in its intended reach. Given that it applies to all owners and occupiers regardless of the nature of their breach, complete denial of access to their lot for any contravention of the by-law does appear to be “harsh, unconscionable or oppressive“.
Importantly, this aspect of the clause was one of the clauses modified from the 2019 OCN pro-forma by-law.
More importantly, the corresponding clause in the 2019 OCN pro-forma by-law is easily contrasted. It does not seek to cover all owners and occupiers. It only applies to owners and occupiers for whom their lot is not their principal place of residence. It spells out the steps an owners corporation will take regarding suspected “breach” of the by-law and – where those steps have been followed – informs that continued breach will result in deactivation of security devices being used by persons who are not authorised to use the common property according to the conditions of the by-law.
That process is one that builds in a logical order. It is not capricious. It does not cut corners. If the steps taken in the process build without resolution, it becomes clear that the deactivation of security devices will extend to unauthorised STRA guests only. Deactivation does not apply to owners or occupiers.
Question 2 – “Levy debt”
The Panel also considered the effect of another aspect of the same clause in the modified by-law. This aspect of the clause was to give an owners corporation power to recover costs and expenses incurred pursuant to the indemnity given to the owners corporation.
The Panel confirmed the owners corporation is entitled to an indemnity from claims, costs, demands and administrative and legal expenses under the by-law. However, the recovery of costs pursuant to that indemnification cannot be treated as a “levy debt“. It decided that an owners corporation purporting to reserve “power” to do so is in fact an owners corporation that is acting “beyond power“.
The reason given by the Panel is that levies under the SSMA can only be raised in certain circumstances and a breach of a by-law is not one of those circumstances. An appropriate order from a Court or Tribunal would be required first to enliven any such opportunity. So, the Panel decided an owners corporation who believes a breach of a by-law has been substantiated is not automatically entitled to treat such costs as it would a levy and attach those costs to the lot.
For many years owners corporations have adopted by-laws referring to treating or collecting costs incurred in enforcing the by-laws as if they were levy debts or contributions under the relevant SSMA. The 2019 OCN pro-forma by-law continued that wide-spread practice and the costs recovery clause in question appears in our by-law. In fact, the owners corporation did not see it necessary to address this issue in the Panel case.
We are also satisfied that our 2019 OCN pro-forma STRA by-law is distinguishable from the modified by-law at the centre of the Panel case. It is deliberately narrower in application to only certain owners and occupiers for whom their lot is not their principal place of residence. And it is more conscious of legal procedure by setting up a considered framework regarding enforcement.
We also believe our 2019 OCN pro-forma STRA by-law gave a lifeline to our members scrambling to deter unwanted STRA in their schemes in a rapidly moving legal landscape.
Yet, it is up for review. In recognition of the Panel decision we are updating it. We have tightened up clause 4.3.c. iv. to emphasise that the length of time deactivation of security devices continues will not overrun resolution of the matter. We have removed reference to treatment of recovery of costs incurred as being a “levy debt”.
As a service to our members who have purchased our original 2019 OCN pro-forma STRA by-law we are offering our updated version free of charge.
Keeping abreast of the NCAT or higher Court’s interpretations of by-laws and legislation means understanding that by-laws are a dynamic tool for strata scheme management. We will continue to sharpen this tool where we can and as required. This clarification from the Panel is the latest (but not the last) word on STRA. We will watch the evolving space with keen interest and in your best interests.