The Owners Corporation
Has the High Court recently changed the law to require owners and OC’s to act reasonably?
Not really. Reasonableness has long been a test in ACT unit title law.
The High Court Case Note states:
“The Court further held that a lot owner may not be regarded as acting unreasonably in declining to assist another lot owner gratuitously to enhance that lot owner's interest, where the enhancement of that interest is reasonably viewed as adverse to the interests of the other lot owner.”
The High Court also said that:
“Opposition prompted by spite, or ill-will, or a desire for attention, may be seen to be unreasonable in the circumstances of a particular case.”
Can an owners corporation make any decision it thinks is appropriate?
No. Each member’s decision has to be reasonable and fully informed.
In Meaney and Units Plan 40, ACAT overturned the decision of an OC special general meeting because it found that it was unreasonable for other owners to vote against a structures proposal based on their opinions about how it might be executed, when those opinions were not backed up by knowledge, expert advice or information about potential costs and did not give proper consideration of the lack of visual impact of the proposal actually before them.
Does an OC have the power to make rules that prescribe how individual unit owners can or cannot use their units?
A definite no.
ACAT recently heard UP 928 and Cochaud in which the tenant had turned the basement car parking space into an active woodworking space. The OC had passed a rule that:
Use of downstairs garage parking areas are for the use of vehicles only (eg. Cars, motorbikes, scooters, pushbikes, trailers, campervans) and the storage of items is not permitted. If owners do have a necessity from time to time to store items in parking areas or on common property, then they should be kept as neat as possible and for a short time only, not exceeding a month, whilst the residents are seeking an alternative arrangement for those storage items.
The owner and tenant were issued with a breach but did not have the woodworking activity cease or remove the associated machinery. The OC took a breach action to ACAT based only on the rule and did not add noise or nuisance which were obvious further claims. Cochaud contended that the OC does not have power to make rules about the use of subsidiaries, which are parts of units.
ACAT concluded:
“In summary, I have found that it was not the intention of the drafters of the Territory’s unit titles legislation that owners corporations have an unlimited power to make rules about the use of individual units, or rules for the ‘enjoyment’ of the residents more broadly. To be effective, any such rules must be ancillary or incidental to the control, management or use of the common property or some other stated function of the corporation.”
But ACAT did note strongly that OCs have ample scope to deal with the result of the use, for example noise and nuisance, as breaches of rules without trying to rely upon a rule limiting the use of the unit.
Can an OC require owners to pay for improvements rather than continued maintenance of what is already there?
Yes.
In Brudenall v UP202 2018, ACAT concluded that as technology advances it is entirely open to an OC to choose a newer, more efficient product to replace a deteriorated building or infrastructure component as a maintenance measure.
In Riley v UP706, ACAT pointed out that if a component of the infrastructure was not functioning properly the OC can take upgrade or improvement measures to achieve its obligations under S24 of the UT(M)A.
Cheetham and Ors v UP 503 is a different issue. Two owners with just over 50% of the vote on a poll vote wanted to undertake a major remodelling of an older block of units “to meet the competition from newer and more attractive developments all around the area”. The applicants argued that the character, age and size of the units limited their rental and sale value, and that the works intended to change the appearance of the exterior of the building would be a waste of money and were not necessary to maintain the building in in good repair and working order.
The member then noted that the definition of maintain in the UT(M)A says
maintenance, of a building, a facility for a utility service or a utility conduit, means maintenance in good repair and working order, and includes—
(a) repair; and
(b) replacement; and
(c) renewal; and
(d) restoration.
The argument then dealt with each aspect of the remodelling and concluded that it was not necessary to maintain the building but was basically a remodelling.
This case is being argued as supporting the proposition that money in the Sinking Fund may not be used to upgrade, enhance or improve common property. That is not consistent with the definition of maintenance in the UT(M)A and not consistent with Glenquarry the NSW decision cited:
Upon reviewing relevant NSW case law Parker J observed that the obligation of an owners corporation to repair and maintain common property only arises once the relevant item of common property has deteriorated, is damaged, or is operating inadequately. However, once the obligation to maintain is triggered an owners corporation may take action, including renewing or replacing the item, which is reasonably necessary or incidental to the discharge of its obligation.
The Cheetham decision does not support requiring OCs to only replace “like for like’ when better products or techniques are available. But it does say a remodelling project would lawfully be funded from a Special Purpose Fund set up by a special resolution.
Can a previous owner continue to access OC records under S119?
No.
In Brudenall v UP202 2018, ACAT concluded that S119 does not contemplate a previous owner, even though they assert a material interest in the OC because their levies are still in the Sinking Fund, having access to OC records.
Is an OC justified in failing to repair a common service because the fault is occurring in only one unit?
A definite No.
In Bennett and Units Plan 932, ACAT was clear that the statutory obligation imposed upon the OC in relation to maintenance of the common property by Section 24(b) of the UT(M) Act is a mandatory one. It specifically requires the OC to maintain common utility services provided for the potential benefit of all units. This includes utility conduits for water, sewerage, gas and electricity and air conditioning and heating.
In this case the heating and cooling system operated from a central control unit on common property with the power and water costs paid by the OC. ACAT considered it “manifestly the provision of a utility service for the potential benefit of all units.”
However in Castro v UP246, ACAT held that the damaged electrical circuit only served Mr Castro’s unit and that he was required to maintain and repair it, while the OC was required to maintain the roof space above his Class A unit through which the electrical circuit was laid.
Does an OC have to seek the reallocation of unit entitlements if units are renovated and/or extended?
If the extension is substantial, possibly yes.
The EC must at the least consider whether it would be appropriate on equity grounds to get unit entitlements reassessed following extension of units. Refurbishment has a minimal impact on the need to reallocate unit entitlement.
In Green v Units Plan 199 (2015) ACAT concluded the OC should seek ACTPLA’s agreement to a new schedule of unit entitlements (Green and UP199 2015) because
The original unit entitlements were decided on the basis of the floor size of the units and attached parking spaces.
The size of at least 2 units has been changed by the construction of extensions.
If the unit entitlements are not amended to reflect the relative values of the units, then some unit owners will be subsidising other unit owners.
The unit entitlements should be proportional to the value of each unit as determined by a Certified Practising Valuer.
The amendments to the unit entitlements will involve a cost that is to be borne by all unit owners but the additional cost is not a factor that outweighs the long term subsidy by some owners of others.
Does an OC owe a duty of care to owners and occupiers so that they can sue the OC for negligence?
Yes.
ACAT decided in Smith v UP3115 [2021] ACAT 28, that an OC is liable under the Unit Titles (Management) Act and Civil Law (Wrongs) Act and common law to owners, occupiers and invitees for their loss due to the OC’s negligence in its management of the common property.
The applicant bears the burden of proof and must establish on the balance of probabilities that he is owed a duty of care by the respondent, that the respondent breached it, and that damages resulted and that the damage cannot be too remote from the negligent act.
Can an owner deny liability to pay levies? Or say they did not know they had to pay levies?
No.
In Units Plan No 259 and Hugh Russell Ford, ACAT affirmed that all unit owners are liable to pay levies.
Can an OC use S31 of the UT(M)A to charge all the costs of collecting unpaid levies to an owner?
Yes. After In The Matter Of Ruling Tribunal Section 31 of the Unit Titles (Management) Act 2011 where a panel of 3 senior members took the view that generally the OC is entitled to claim the cost of engaging a solicitor from the recalcitrant levy payer, the ACT Civil and Administrative Tribunal Act 2008 was amended.
S48 of the ACAT Act now includes a Note that a legal expense relating to a proceeding in the tribunal may be recoverable as a debt under S31 of the UT(M)A.
S31 of the UT(M)A requires that the expenditure of the OC is required because of the wilful or negligent act or omission of, or a breach of its rules by, a member of the corporation, or an occupier of the member’s unit.
However, the Panel noted that a double reasonable test applied to expenses
…it was reasonable for the owners corporation to incur expenses of the type described and the amount of each component of the expenses sought is reasonable.
In UP3182 v Black ACAT considered the meaning of ‘reasonably incurred’ expenses and concluded that if the OC commenced action as a first resort or continued it unnecessarily there was a question of whether the costs were reasonably incurred that would be resolved by reference to the facts of the case.
In UP666 v Quaid and UP2881 v Stojanovic the OC was not able to sustain all or some of their claims because they were not considered reasonably incurred.
UP 1447 v Carroll was basically commenced to enable a debt collection firm to recoup fees amounting to some three times the already paid levy arrears. ACAT noted that once an owner falls behind with levy payments, despite making regular payments they have considerable difficulty extinguishing the debt.
ACAT concluded
38. I note ACAT is, generally speaking, a no cost jurisdiction. I also note that had the respondent been represented by a lawyer and had she been successful in defending the claim, then she would not have been able to have claimed those legal costs against the OC.
39. The current state of the law allows an OC to litigate against one of the owners safe in the knowledge that their costs of litigation will likely be borne by their opponent on a party/party basis; a contingency that is unlikely to occur in most proceedings in either the Magistrates Court or the Supreme Court, where costs in some form are routinely awarded to a successful litigant.
This indicates that ACAT members are becoming sceptical of the process whereby owners corporations seek to get owners to pay overdue levies.
What should a Class B OC do if it discovers buildings have not been built in the exact positions shown on the lodged Units Plan and/or encroaching on another unit’s land?
Most Class B OCs probably have examples of buildings not being located exactly as the lodged Units Plan indicates. The deviations from the lodged Plan may be very minor or could be extensive and potentially significant.
Although it was not the basis for the decision, Forman v Units Plan 312 indicates that ACAT is unlikely to order that walls be moved to end encroachments. But if there are some known errors or encroachments there may well be others. So the OC should consider getting advice about whether it is practicable or advisable to amend the units plan to reflect the actual location of buildings and boundaries and consider getting a comprehensive survey done and the Plan amended.
Is it true that if an OC fails to elect an EC all members of the OC are members of the EC?
No.
There is a common view that S39(3) of the UT(M)A brings this about.
In an unreported matter Brasch and Walker v UP252 Presidential Member Daniel made a strong case that if the AGM fails to elect an EC, S39 (3) of the UT(M)A does not operate to make all members of the OC members of the EC because it simply does not apply to the situation.
Presidential Member Daniel pointed out if an EC is not elected the OC renders itself unable to carry out its functions effectively to the extent that the only way for a general meeting to be lawfully convened to rectify the situation was for ACAT to order the meeting.
Can an OC delegate its powers to the EC?
Probably not.
In 1976 the OC of Units Plan 116 had purported to empower the EC to grant special privileges over areas of the common land to unit owners. However, the Unit Titles Ordinance 1970, s. 46 and subsequent Acts all required that any grant of a significant special privilege be agreed by the OC by initially a unanimous resolution and later an unopposed resolution.
In Units Plan No 116 & Nicholson and Ors, ACAT made clear that that OC did not have the power to make this delegation of its powers because the relevant Ordinance and later Acts all specifically required the OC itself to make the decision to grant a special privilege and that the OC could not override the specific requirements of the Act.
ACAT decided that all grants of special privilege by the EC were ultra vires, that is outside the powers of the EC, and consequently void. ACAT then made orders to bring about the lawful remaking of all these decisions.
In a mixed commercial and residential OC, are owners of the commercial units members of the OC?
Yes.
In Kajula Pty Limited & Units Plan No 682, ACAT affirmed at para 18 that the commercial unit holders are members of the OC and are entitled to attend meetings and vote at those meetings.