What Is An Unreasonable Reason To Refuse To Make A By-Law?

Reason To Refuse To Make A By-Law

The Appeal Panel in Kaye v The Owners – SP 4350 [2022] NSWCATAP 173 (Kaye) have provided a number of reasons why an owners corporation was reasonable in refusing to make a common property rights by-law.

In that case, a lot owner requested that the Owners Corporation make a by-law that granted the lot owner exclusive use of a common property roof area to enlarge their existing lot terrace. The lot owner submitted two versions of the by-law for consideration at general meetings, the first version on 20 March, 20 July and 20 September 2020, and a second version on 20 September 2020. The first version of the by-law permitted the lot owner to carry out works to the roof area including re-waterproofing the roof and installing the large terrace, no compensation was offered. The second version of the by-law required the Owners Corporation to waterproof the roof, the lot owner to install the larger terrace and compensation of $7,500 was offered to the Owners Corporation.

The Owners Corporation refused to make both versions of the by-law at each of the general meetings.

The Tribunal below held that the Owners Corporation had not been unreasonable since the second version of the by-law did not offer adequate compensation. The lot owner appealed on the grounds that the Tribunal failed to consider the reasons for refusing to make the first version of the by-law.

The Appeal Panel agreed with the lot owner and found the Tribunal had been in error not to consider the reasons for refusing to make the first version of the by-law at the 20 September meeting.

However, the Appeal Panel considered the evidence and summarised the Owners Corporation’s reasons for refusing to make the first version of by-law as follows:

  1. the roof was common property and therefore not available for exclusive use and never should be;
  2. the information presented with the motion was scant and not detailed enough;
  3. the works would disrupt others with noise;
  4. the use of the area after the completion of works would disrupt others with noise;
  5. if the proposal is approved, it might open a “pandora’s box” of other application and approvals;
  6. changing the balcony terrace requires development consent which could trigger a fire order;
  7. no compensation was provided;
  8. the potential loss of privacy, including any person standing on the proposed exclusive use area will be able to see directly into the lot 8 rooftop area, into the stairwell of lot 8 and possibly into the living area of the lot;
  9. Mr Adam Kaye was looking to make “a quick buck” from his investment and he would likely sell lot 4 once he had exclusive use over the roof terrace;
  10. there was no reassurance that additional common property benefits would not be sought.

The Appeal Panel found failure of offer compensation in the first version of the by-law at any meeting meant it was not unreasonable for the Owners Corporation to refuse to make it. They also found that the offer to do waterproofing works was not compensation for use of the exclusive use of the common property.

Furthermore, the Appeal Panel found that when considered “collectively” the matters at items 1, 3, 4 and 8 above, an in particular with item 7, that the Owners Corporation was not unreasonable in refusing to make the first version of the by-law at any of the meetings.

The Appeal Panel also dismissed the lot owners submission that section 149(3) of the Strata Schemes Management Act 2015 empowered the Tribunal to prescribe the making of the second version of the by-law but with an amended compensation amount. The Appeal Panel found that the power to prescribe the making of a by-law is only engaged once the Owners Corporation had refused to make a by-law.

The outcome of Kaye is that it confirms the decision in Capcelea v The Owners – Strata Plan No 48887 [2019] NSWCATCD 27 (that it is not unreasonable to refuse to make a by-law where no compensation is offered) and also provides an argument that there may be a collection of reasons that give rise to a reasonable refusal to make a common property rights by-law.

Kerin Benson Lawyers acted for the Owners Corporation in Kaye.

This is general information and should not be considered to be legal advice. You should obtain legal advice specific to your individual situation.

Authors: Gemma Lumley & Allison Benson

Author: Gemma Lumley & Allison Benson