Each week national law firm, Simpson Grierson answers commercial property questions which can be emailed and headed "Prime Asset Question". This week's question is answered by associate Rob Wilson.
KEY POINTS:
Q. I own an apartment which I bought off the plans 10 years ago. I have tenanted the apartment as a serviced apartment since new. I was advised when I bought the apartment that using it as a serviced apartment was not inconsistent with the body corporate rules. However, at the body corporate's AGM late last year a resolution was passed banning tenancies of less than 90 days. This will effectively prevent me from renting my apartment as a serviced apartment. Is it possible for a body corporate committee to impose such a rule?
A. Based on what you have told us, we consider there is a strong chance that the resolution amending the body corporate rules to ban tenancies of less than 90 days is inconsistent with the requirements of the Unit Titles Act 1972 and therefore invalid or "ultra vires".
The law relating to body corporate rules is set out in section 37 of the Unit Titles Act.
Under that section, all body corporates are given "default" rules when the body corporate first comes into existence.
The default rules are set out in schedules 1 to 3 of the Unit Titles Act.
For those rules to be amended, the amendment must meet specific requirements set out in sections 37(5) and 37(6) of the act.
Section 37(5) provides that amendments to body corporate rules must:
* Relate to the control, management, administration, use or enjoyment of units or common property.
* Relate to the regulation or powers and duties of the body corporate.
* Be incidental to the powers of the body corporate imposed under the act.
Section 37(6) provides that no addition, amendment or repeal of any rule shallprohibit or restrict the devolution of units;
* or any transfer, lease, mortgage;
* or other dealing therewith;
* or destroy or modify any right implied or created by this act.
A body corporate can only make rules in accordance with powers given to them in the Unit Titles Act.
If an amendment does not meet the requirements of the act [including sections 37(5) and 37(6)] the rule can be set aside by the courts on the basis that the rule is "ultra vires", or outside of the scope of the body corporate's powers under statute.
Although the amendment to the body corporate rules to ban tenancies of less than 90 days relates to the "control, management, administration, use and enjoyment" of the units, under section 37(5) the resolution may be "ultra vires" on the basis that it is not "incidental to the powers of the body corporate imposed under the act" (a further requirement of that section).
There is nothing in the "default" rules in schedules 1 to 3 of the act which indicates a body corporate rule banning tenancies of less than 90 days would be "incidental" to the powers of the body corporate under those provisions.
Furthermore, as the rule relates to the use of your own private unit, rather than the common areas, it is likely that the court would take a strict approach in deciding whether or not the amendment to the rules was "incidental" to the powers of the body corporate under the act.
In other words, if the law was unclear the court could give you the benefit of the doubt and decide in your favour.
The amendment to the body corporate rules may also be ultra vires under section 37(6) of the Unit Titles Act.
The basis for this would be that banning tenancies of less than 90 days "destroys or modifies" a right created under the act to rent your apartment for a lesser period, which existed when you first purchased the apartment off the plans.
The general approach outlined above may be affected by the specific wording of the body corporate rules when you purchased the apartment and the wording of the amendment to the rules.
For that reason, we recommend that you seek detailed advice from a solicitor.
Any legal proceedings should be brought as soon as possible, as a delay initiating proceedings can be taken into account by the court in deciding whether to grant relief or not.
* The information contained in Prime Assets is intended to provide general information in summary form current at the time of printing. The contents do not constitute legal advice and should not be relied on as such. Specialist advice should be sought in particular matters.
