POWER TO MAKE BY-LAWS INTERPRETED LIBERALLY
The New South Wales Court of Appeal delivered a judgment in the case of Casuarina Rec Club Pty Limited v The Owners – Strata Plan No. 77971 [2011] NSWCA 159-BC201104561 which clarifies and enhances the power to make by laws, particularly developer by laws registered with the strata plan.
In Casuarina the strata scheme had a by law registered with the strata plan authorising the owners corporation to enter into agreements to provide access to facilities for residents, including such things as gymnasium facilities. The owners corporation entered into an agreement with Casuarina Rec Club Pty Limited which ran a gymnasium, pool and tennis court complex approximately fifteen (15) minutes from the strata resort development, allowing owners, invitees and guests in the strata scheme to utilise the facilities of the club. The owners corporation paid a fee to Casuarina Rec Club Pty Limited for this use.
In the Supreme Court Justice McDougall held that the by law was beyond the powers of the owners corporation.
The Court of Appeal overturned that decision and made a number of important statements about by-laws:
• A valid by law must have a clear nexus between its subject matter and the use or occupation of the subject property. There is no precise rule to determine if the nexus exists for by laws relating to amenities but the amenities must be capable of enhancing the occupier’s use or enjoyment of the premises. In this case they did.
• A by law in the form of a model by law cannot be beyond power, nor can a by law dealing with the same subject matter as a model by law.
• The power to make by laws should be generously construed.
• A by law must relate to the particular community to which it applies, beyond that, any limit must arise from the enabling statute.
• The power to make by laws encompasses not only the owners corporation’s principal activity but also incidental and ancillary activities provided they do not expand the owners corporation’s activities.
• The power to make by laws is to be liberally interpreted subject to the doctrine of fraud on the minority and with the proviso that an unreasonable by law will be held to be invalid.
• Because buyers of a lot in a strata scheme have notice of an original by- law it is very rare that an original by law will be held to be invalid.
The decision clearly states that the power to make by-laws should be interpreted generously. It also suggests that there is a wider scope for making developer by-laws than those passed at a general meeting with the clear implication that there are by laws which will be valid when registered with the strata plan that would not be valid if passed by the owners corporation in general meeting. This means that developers and those advising developers should turn their minds to the by laws which will be required to permit the smooth functioning of the scheme, prior to registration of the strata plan.
This case may also remove some of the shackles which were thought to exist as a result of the decision in Stolfa v Owners Strata Plan No. 4366 [2009] NSWSC 589. That case suggested that non-specific, generic by laws controlling the doing of work which affected common property, such the installation of air conditioners, were invalid without work specific resolutions under section 65A of the Strata Schemes Management Act 1996. Works within lots which impact on common property in minor ways, such as by the insertion of fasteners or the penetration of pipes and conduits may now be capable of authorization by by-laws modeled on Schedule One By law 5 of the Strata Schemes Management Act 1996.