Apartment complex

Developers and Owners Corporations: When can you break the rules?

Mark McKinley and Eleanor Athanasiou

The Victorian Civil and Administrative Tribunal affirms the decision in Balcombe. An owners corporation's rule-making powers are very narrow and the rules must not seek to punish lot owners.

What happened?

The recent case of Cheung v Owners Corporation No 1 501391P (Owners Corporations) [2019] VCAT 598 serves as a timely lesson for developers, lot owners and owners corporation managers when it comes to handling complaints and as to the scope and enforceability of owners corporation rules.

Ms Cheung, the owner of an apartment at the Watergate tower in Docklands, brought proceedings at the Victorian Civil and Administrative Tribunal (Tribunal) against two of the owners corporations in the building (OC) for numerous complaints concerning incidents occurring between 2012 and 2018.

The most serious allegations were of numerous instances of strangers breaking into her apartment and that Ms Cheung was denied access from the fifth-floor pool and gymnasium after an altercation with two of the OC managers. Other complaints were made by Ms Cheung, but were unsubstantiated and dismissed by the Tribunal.

The Tribunal believed Ms Cheung’s account in relation to her apartment having been broken into, as well as an unfortunate encounter with a process server who waited for her at her car space to serve a sequestration order (which ultimately led to her being declared bankrupt). However, it did not accept that the break-ins or trespass constituted a breach by the OC of its duties to a lot member.

What did the Owners Corporation do?

The OC had sought to rely on rule 12.1(e) of its rules to justify denying Ms Cheung access to the fifth floor by deactivating her security pass.

Rule 12.1 of the Watergate OC rules sought to give the OC broad powers to exclude owners from common property to preserve the security of the common property where there is a fire or such other hazard. Rule 12.1(e), however, stated that the OC could suspend a person’s security pass where that person had not paid their fees in excess of two quarters in order to preserve the security of the common property.

What was the result?

The Tribunal applied the principles from Owners Corporation PS 501391P v Balcombe [2016] VSC 384 (Balcombe). In a previous alert, it was observed that the Balcombe case related to short-term letting and held that a valid rule must have a sufficiently direct and substantial connection to one of the rule-making powers in Schedule 1 of the Owners Corporations Act.

In Ms Cheung’s case, the Tribunal found that the purpose of rule 12.1(e) was not to preserve the safety of the common property or lots, but to punish lot owners who didn’t pay their fees. The rule was held to be invalid. By relying on rule 12.1(e) to exclude Ms Cheung from the common property, the OC acted inappropriately.

The Tribunal also made a point in discouraging the conduct of three managers during a heated incident with Ms Cheung and her daughter on the fifth floor (that resulted in her being banned from the pool and gymnasium area), by awarding her nominal damages of $1,000 for the humiliation she was subjected to.

The lesson.

The decision in Cheung is a salutary reminder to developers, lot owners and OC managers in relation to the limited scope of owners corporation rules, as well as the handling of complaints from lot owners. The passing of owners corporation rules at an owners corporation meeting and the registration of them at Land Use Victoria does not mean that those rules are valid and enforceable.

Owners corporation rules must be carefully drafted to fit within the rule-making power of owners corporations. The conduct of owners corporation managers must always be consistent with the Owners Corporation Act 2006 (Vic) and the relevant rules of the owners corporation.

If you require assistance understanding how this decision may affect you, please contact Mark McKinley, Eleanor Athanasiou or the Russell Kennedy Property Development team.

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