Airbnb by-law bounced over fob-cancelling clause

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A Sydney apartment complex has had its entire “no-airbnb” by-law rescinded after an appeals tribunal confirmed two clauses in the four-page by-law were invalid.

The first clause would have allowed the owners corp to cancel the access key fobs of owners who breached the “no-airbnb” by-law, locking them and their guests out of common property and thereby access to the apartment.

The tribunal also found that a clause that would have added costs for pursuing alleged breaches to the lots’ levies were in breach of a principle that by-laws can’t be in conflict with strata law, which specifies how levies may be collected.

As a result, the Appeals Board found that the by-law was flawed and that the Tribunal was not in a position to merely cut out or rewrite the offending clauses, so it tossed the whole by-law.

The issue started in May 2020 when two separate strata schemes in the same Sydney’s Olympic Park complex passed identical by-laws under the terms of the newly minted section 137A of the NSW strata Act, which allows owners corporations to pass by-laws forbidding the short-term rental accommodation (STRA) letting of apartments by non-residents.

The by-laws ran to four pages and were based on a pro-forma by-law to which the scheme added its own variations.

An owner of two apartments in the complex challenged the by-laws on multiple grounds, including that they were “harsh, unconscionable and oppressive” and attempted to supersede superior laws.

The case was heard on in May last year and in August, NCAT ruled that two of the by-law’s clauses were invalid and that, as a result, the entire by-law should be rescinded.

The offending clauses were one that gave the owners corporation “the power to deactivate access devices to the lot of any owner or occupier who is found to be in breach of this by-law” (the ban on short-term letting by non-resident owners).

The other said that “the Owners Corporation, may recover the cost and expenses of carrying out the activities referred to in clause 9 from the respective Owner as a levy debt…”

The Owners Corporation appealed but last month the NCAT Appeals Board rejected the appeal and confirmed the cancellation of the by-law.

The first clause, regarding the cancellation of access fobs, was found to be “harsh, unconscionable and oppressive” not, say strata experts, because the owners corp lacked the power to do that, but because there was no reasonable process involved in doing so.

Had the owners corp, for instance, specified that the cancellation of fobs held by people who were not entitled to be on common property would occur after sufficient warnings had been issued, the Tribunal may have found differently.

And if there was a valid by-law in place that forbade non-resident owners from letting their properties as short-term lets, then it’s hard to argue that the guests were entitled to be on common property.

However, such a by-law could not apply to the lot owners who have a fundamental right to access their property.

The second issue, attaching the costs of pursuing the by-law breaches, had a more arcane and complex resolution.  Again, the Tribunal found that the OC was entitled to charge the miscreant owners for the costs of pursuing by-law breaches

However, by including in the by-law that the costs would be attached to levies, it strayed into an area of strata law where, although the convention is that debts are often attached as additions to the levies, the letter of the law doesn’t necessarily accommodate that.

One positive to come out of this, says the strata observer, is that the owner’s corporation has the right to demand that all STRA guests be registered with the building manager.

That may mean that any owners corporation can pass a by-law insisting that all owners must register their short-term letting guests with the owners corp, even where owners are letting their principal place of resident as short-term lets,.

You can read the Appeals Board finding HERE.

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    Jimmy-T
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    I think this is a very good example of how NCAT, which is supposed to help us navigate the murky waters of strata gets far too wrapped up in its sense of self-importance.

    There were two clauses that it found wanting.  One relating to the cancellation of key fobs, the other relating to how costs of pursuing breaches were to be charged.

    In both instances the ruling accepts that the principles were OK. Strata schemes can restrict access to common property by people who are not entitled to be there.

    It also accepts that the OC can legitimately demand refund of expenses incurred in pursuing by-law breaches.

    However, in the first instance, the Appeals Board agreed with the original tribunal’s finding that the clause giving the OC “the power to deactivate access devices to the lot of any owner or occupier who is found to be in breach of this by-law” was “harsh unconscionable and oppressive” because it lacked limits or preconditions.

    The ruling quotes the Court of Appeals judgement on the famous Jo Cooper pets case:

    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.

    On the question of charging miscreant owners for the cost of pursuing the by-law breaches as a levy, the tribunals agreed that the words “as a levy” were inappropriate because strata laws stipulate how levies should be imposed and what they can be charged for. To be clear, the OC was allowed to charge the costs, but not collect them in that way.

    The Appeals board then engages in a long discussion about how it could legally have cut the offending clauses from the by-law but why it chose not to do so. And this is where I take issue with this ruling and the whole NCAT system

    In my humble and non-legal opinion, a by-law that says that non-residents may not have short-term lets, as per Section 137B of the Act, should not be completely revoked on the grounds that the Owners Corporation did not have a chance to vote on the by-law with two significant but basically procedural clauses removed.

    The intent of the by-law is to dissuade investor owners from letting empty flats in their entirety as short-term lets. Removing those clauses would have made no difference to the by-laws’ fundamental intention.

    As a result of the original tribunal finding, the two blocks involved have had no airbnb by-law in place for about five months and will continue to be unprotected until such times as they can plug the holes in this one, get it approved at a general meeting and then, possibly, subject it to the “suck it and see” processes of NCAT, should the affected investor choose to challenge it.

    There has to be a better way.  There should be a system of pre-checks by a Tribunal panel of selected by-laws that address fundamental principles of strata law, although it has to be said there were at least three experienced and highly regarded strata lawyers involved in writing, supporting and challenging the by-law.

    Part of the problem here was that the owners corporation took a pro-forma by-law and added their own specific clauses to it. While that makes sense due to the different specific circumstances in every strata scheme, it also presents potential problems like those evident here.

    You can read the Appeals Board ruling HERE.

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