Jessica Bates, Senior Associate with Sachs Gerace Broome.

When a client seeks advice from me on a legal problem, their expectation is that I will provide them with a simple and definitive answer without any caveats and that I can guarantee that my answer is “correct” and, where the problem involves legal proceedings, that they will be successful in those proceedings.

The difficulty with this expectation is that the law is not the same as mathematics. In my experience, there is not always a simple and definitive answer (eg 1 + 1 = 2). Even if I am of the view that my client has a strong argument and that such argument will be successful in legal proceedings, the judicial officer hearing the case may still find against my client.

I can never guarantee to a client that their argument will be accepted by the judicial officer hearing it, as a judicial officer can hear the argument, consider the evidence and apply the law and reach a different conclusion (sometimes as a result of having misapplied the law).

As a result, the ability to appeal a decision made by a judicial officer (subject to having standing to appeal) is an important safeguard and right of all litigants in Australia. Sometimes, a decision is appealed a number of times before a final decision is provided and the proceedings are finalised.

The downside of appeals (and legal proceedings generally) is of course the costs involved. Litigation is expensive. Appealing a decision is expensive. There remains, throughout the legal proceedings including any appeals, the risk of a client being unsuccessful and having to pay money to the successful party, in addition to their own costs. For this reason, if I can assist a client to avoid or extricate themselves from legal proceedings, I will.

However, the reality is that sometimes there is no avoiding legal proceedings, especially when a client is involuntarily dragged into proceedings as a defendant.

The hypothetical

Bearing in mind all of the above, I turn now to deal specifically with the hypothetical by-law and advice sought by the hypothetical Owners Corporation client.

It is clear that the issue of short-term letting is a vexed one. There are arguments on both sides that have merit and no doubt there are many lawyers, owners and owners corporations in New South Wales who are eagerly awaiting a final determination, either through a judicial decision or legislative intervention, on whether or not short term letting by-laws can be enforced by owners corporations.

In the recent Western Australian Court of Appeal decision of Byrne v The Owners Of Ceresa River Apartments Strata Plan 55597 [2017] WASCA 104 (Byrne case), the Court of Appeal determined that the by-law the subject of the appeal restricts the use to which an owner may put their lot so that a lot may only be occupied by persons who use the lot as their settled or usual abode.

The lot cannot be used by people as tourist accommodation or to live in whilst on holidays or breaks from their settled or usual abode. The Court of Appeal determined that this restriction on use does not infringe the Western Australian equivalent of section 139(2) of the Strata Schemes Management Act 2015 (SSMA) (no by-law is capable of operating to prohibit or restrict the devolution of a lot or a transfer, lease, mortgage or other dealing relating to a lot).

After considering both sides of the argument and the Byrne case, I prefer the argument that by-laws prohibiting short term letting are by-laws restricting the use of a lot, rather than restricting the right of the owner to lease the lot and are permissible and enforceable.

The hypothetical by-law restricts the use of lots in the hypothetical strata scheme to residential occupation. Residential occupation is apparently defined in the by-law, by reference to the relevant planning controls, to be a lease of the lot of not less than 90 days.

The effect of this by-law is to prohibit the lot being used for short term letting. Section 136(1) of the SSMA confirms that by-laws can be made for the use of lots in a strata scheme (this by-law regulates the use to which lots may be put) and section 136(2) confirms that a by-law has no force or effect to the extent that it is inconsistent with the SSMA, or any other Act or law (this by-law is not inconsistent with the SSMA or any other Act or law and specifically adopts a definition in the relevant planning controls).

Subject to consideration of all of the relevant by-laws for the strata scheme, in my view it is arguable that the by-law is permissible and enforceable.

My advice …

Having regard to all of the above, my advice to the Owners Corporation client would be that:

1. The Owners Corporation can pursue enforcement of the by-law in NCAT as there is an arguable case that the by-law is permissible and enforceable including by relying on the Byrne case;
2. Notwithstanding my view that there is an arguable case, there of course remains a risk that the by-law will be held to be unenforceable;
3. The Owners Corporation should anticipate that one or more appeals may be lodged (including by the Owners Corporation itself) and therefore appeal costs should be factored into the anticipated legal costs of the proceedings, in addition to the costs of pursuing the initial enforcement of the by-law in NCAT;
4. The Owners Corporation should determine whether or not short term letting is so much of a problem in its strata scheme that it is prepared to incur substantial legal costs to obtain a final and binding determination as to the enforceability of its by-law and whether or not it is prepared to accept the consequences (including a possible costs order being made against the Owners Corporation) should the by-law be held to be unenforceable;
5. The Owners Corporation should consider the possibility of seeking out and joining forces with other owners corporations (who also want guidance on the enforceability of their by-laws prohibiting short term letting) and entering into an arrangement in relation to legal costs so that there can be a sharing of legal costs amongst all of the owners corporations, but only one owners corporation pursues the argument in NCAT.

If, ultimately, by-laws prohibiting short term letting are unenforceable, then that is not the end of the matter. The next step would be for owners corporations to consider how best to deal with the impact of short term letting on their individual strata schemes.

Consideration would need to be given to making a new by-law to regulate the use by short term letting occupiers of common property, including in an attempt to minimise, as much as possible, any financial burden that short term letting can have on a particular strata scheme.

I am of the view that it is fair and reasonable for owners using their lot for short term letting to be required to pay a fee to the owners corporation to help offset any increased costs or risks that the owners corporation has or may have in the future as a result of the use to which those owners are putting their lots.

Owners who do not use their lots in a similar manner should not be liable to pay increased costs to, for example, repair and maintain the common property, particularly where those increased costs would never have arisen if there were no short term letting in the strata scheme.