Strata Titles Update - October 2022

STRATA TITLES NEWSLETTER

OCTOBER 2022

Cases

Changing the unit entitlements of owners in a strata scheme

Blackeney and The Owners of Westcourt West Perth Strata Plan [2022] WASAT 84

The strata plan in the Scheme was registered in 1999. Initially, the Scheme consisted of 6 units and a development site. Eventually, the Scheme was developed into two buildings, one consisting of 6 Townhouse style residential and commercial units and another of 42 apartments over 8 levels. The owner of a penthouse apartment applied for the amendment of the schedule of unit entitlements (“Schedule”) under s.38(5) of the Strata Titles Act (WA) (“Act”).

The court granted the application setting out the reasons for its judgment:

1. Section 38(1) of the Act allows SAT to make an order to amend a Schedule.
2. The strata company, an owner or a mortgagee may bring the application.
3. The application will be granted if the Schedule requires amendment under s.37(2) of the Act.
4. Section 37(2) of the Act requires a Schedule amendment if the unit entitlement of the lot is 5% more or less than its proportionate value to the total lot value.
5. The lot’s value is its capital value determined according to the Strata Titles (General) Regulations 2019 (WA) (“Regulations”) by a licenced valuer (“Valuer”).
6. The Valuer must determine the capital value of a lot as if it had the standard level of internal fit-out and finishes for that lot. The standard level of fit-out and finishes are determined according to Regulation 54(3) and (4).

SAT had regard to a Valuer’s testimony and decided the existing capital values of the lots in the Schedule were not proportionate, within a 5% tolerance, relative to the capital value of all the lots in the Scheme.

SAT ordered that the current Schedule be replaced with a Schedule prepared by the Valuer.

The case sets out the neccesary steps for an application to SAT to amend a Schedule.

An amendment can also be authorised by a resolution without dissent or in conjunction with an amendment of the scheme plan giving effect to a subdivision.

When is a unanimous resolution considered to be validly passed even if there was no quorum and the resolution wasn’t unanimous?

Owners of Dolphin Apartments Mandurah Strata Plan and Poland Superannuation Pty Ltd [2022] WASAT 37

The applicant applied to declare a unanimous resolution to re-subdivide the strata plan invalid. SAT found the resolution invalid because no quorum was present at the EGM, and absent owners didn’t vote within 28 days after the EGM.

SAT contemplated whether the resolution should be considered passed even though there was no quorum and half of the owners did not vote. The issues SAT considered indicated when a resolution that didn’t comply with all formalities may be regarded as unanimously passed:

1. SAT said it might declare the resolution as validly passed if it was a resolution to rectify an error in a Strata Plan.
2. SAT didn’t rule out that where there was a contractual obligation to vote in favour of the resolution, it might have upheld the resolution. The applicant’s argument was based on an agreement between the owners that operated at the time the resolution was taken, preventing owners from objecting to a re-subdivision that amounted to a correction of the strata plan.
3. SAT indicated that circumstances could estop an applicant from applying to declare the resolution invalid. This will be the case where one party relied on the others acceptance of the resolution to its detriment.

SAT found that there was no contractual obligation and estoppel, but the case illustrates when erroneous unanimous resolutions may operate as if they were validly passed.

Owners of non-residential Strata Schemes can recover costs expended on common property defects from developers

Rialto Sports Pty Ltd v Cancer Care [2022] NSWCA 146

In this case, the plaintiffs were commercial lot owners (“owners”) that purchased their lots of the plan from the defendant developer. The purchase contract provided that the developer would construct the common property in a proper and workmanlike manner. The owners claimed the costs of rectifying defects in the common property from the defendant.

The NSW Court of Appeal decided that:

1. An owner has an equitable interest as a tenant in common with the other lot owners in the common property.
2. Damage to the common property diminishes the owner’s equitable interest in the common property.
3. Consequently, an owner has the standing to claim its proportionate share of the costs of rectifying defects in the common property

The takeaways from this case are:

1. Owners buying directly from the developer can claim for defects in common property. If a commercial owner buys from another lot owner and there is no contractual link with the developer, it may not have a claim.
2. This is an improvement on the position after the Brookfield Multiplex v Owners Corporation SP 61288 [2014] HCA 36 that decided commercial owners cannot sue a developer for common property defects under the common law duty of negligence. Commercial owners now at least have a recognised right to sue in contract.

Short facts

The 12 decisions requiring a resolution without dissent:

1. To accept or surrender a lease of a freehold or leasehold lot to create temporary common property (s. 35 and 92).
2. To amend a scheme plan to give effect to a type 1 or 2 subdivision (s. 35).
3. To amend a scheme plan that imposes, varies or revokes a restricted use condition (s.35).
4. To authorise and amendment of a schedule of unit entitlements (s.38).
5. To make, repeal or amend governance by-laws (s.44).
6. To permit or cause the structural alteration of a lot (s.87).
7. To approve the structural alteration of a lot that will not conform to the plot ratio or open space requirements other than in a 2-lot survey strata scheme (s.88).
8. To authorise a transaction affecting the common property or parcel (s.93).
9. To authorise the use of insurance money other than to rebuild, replace, restore or repair damaged assets of the strata company.
10. To fix the boundaries of lots or part lots in a single-tier strata scheme by reference to clause 3B of Schedule 2A to the Act.
11. To amend a strata plan for a single-tier strata scheme to reflect the extension or alteration of a building, to merge common property into a lot and to include a building not shown on a plan (Schedule 2A, clause 21Q).
12. To decide that the strata company in a single-tier strata scheme does not need to take out insurance (Schedule 2A, clause 53C).

What a Strata Company cannot do

1. Acquire or dispose of land without obtaining authority under s.92 and s.93 of the Act.
2. Mortgage common property.
3. Act as a guarantor.
4. Incorporate a corporation or a subsidiary of a corporation.

Legislation

No new legislation affecting Strata Titles came into effect in September 2022.

Interesting strata facts

• Strata Title originated in NSW, Australia, in 1961. The Australian Strata Title system was adopted in Canada, India, Singapore, New Zeeland, South Africa and the UAE.
• Strata occupants are mostly Millennials and Gen Zs, with 50% of all strata dwellers aged between 20 to 39 years old.
• Celebrities are choosing strata title apartments above houses and duplexes because of its privacy and security. Nicole Kidman moved to a $4,000,000 strata title penthouse in Sydney Harbour because the apartment’s security makes it almost impossible for paparazzi to get close enough for a photo. Russel Crowe moved his family into a Woolloomooloo penthouse for the same reasons.