Owners Corporation PS 501391P v Balcombe [2016] VSC 384

What the court decided

The owners corporation for the Watergate Apartments in Docklands appealed under section 148 of the Victorian Civil and Administrative Tribunal Act 1998 (Vic) against VCAT orders dismissing its claims for injunctions restraining lot owners from letting their apartments for terms of less than 30 days [2], [4]. Validity was a question of law, which the appellate court decided for itself [87].

The owners corporation adopted rule 34 by special resolution at its inaugural general meeting in August 2004, under regulation 220(1) of the Subdivision (Body Corporate) Regulations 2001 (Vic) [13]. Its first limb barred residential proprietors and occupiers from using a lot or the common property for any trade, profession or business, other than letting to one party for more than a month, unless home office, planning and permit conditions were met [13]. A second limb, excepting commercial or retail lots, barred residential proprietors and occupiers from using their lot or the common property for any trade or business at all [13]. Riordan J dealt with its validity only as a ban on short-term letting, as the case had been argued [108] n 114.

His Honour asked whether the connection between the statutory purpose of the power and the likely operation of the rule was sufficiently direct and substantial, and held that, once it was shown, there was no separate test of reasonableness or proportionality [85]–[86], [108], [123].

Under the regime then in force, his Honour's primary view was that a body corporate's power to regulate conduct on lots was limited to enforcing the Standard Rules, so it had no power to make conduct rules [112], [114]. In case that construction was wrong, his Honour also decided the point on the assumption, accepted by both parties and by VCAT, that bodies corporate could make rules on the matters in the Standard Rules [115]–[116]. On that footing the rule still failed, because its breadth exceeded what the legislation intended, given the limited role of a body corporate in conduct within lots, the presumption against interference with vested property rights, the absence of any appeal against intrusive rules and planning control of business uses [123]. The connection was not sufficiently direct or substantial for the rule to be a real exercise of the power [124].

His Honour did not accept VCAT's further reason that the rule was invalid because it prohibited certain uses altogether, as a power to regulate an activity may include a power to prohibit aspects of it [125]–[126].

His Honour held that section 27(2C) of the Subdivision Act 1988 (Vic) did not deem rules beyond power to be valid [132]. Nor had the rules accompanied the plan, as they had been passed by an existing body corporate [133], [135]. Recording the rules with the Registrar of Titles did not give them indefeasibility under the Transfer of Land Act 1958 (Vic) [139]. The rule was therefore not in force when the Owners Corporations Act 2006 (Vic) (the *2006 Act*) commenced and was not validated by clause 5 of its transitional provisions [144].

Those findings were sufficient to resolve the appeal [145]. His Honour also considered the question under the 2006 Act, which VCAT had decided and the parties had fully argued, and stated the conclusion as a finding, though it was not needed for the result [1], [145]–[146].

Under section 138 of the 2006 Act, an owners corporation could make rules for or with respect to the matters in schedule 1, for the purpose of the control, management, administration, use or enjoyment of the common property or of a lot [71]. His Honour concluded that the rule lacked a sufficient connection with the schedule 1 heads relied on, namely health, safety and security, change of use of lots, behaviour on common property or noise and nuisance control [177], [188]. The principal reasons were similar to those given under the earlier regime [178].

His Honour accepted that a New South Wales decision might support the rule meeting the purpose requirement in section 138(3), but held that it did not assist on the schedule 1 question [157]–[158]. In his Honour's view, clause 5 of that schedule contained no power to regulate the use of lots, in contrast with the power over the use of common property in clause 4 [182].

Under section 140 of the 2006 Act, a rule was of no effect if it was inconsistent with or limited a right under any other Act [190]. The respondents' alternative argument under that section was not necessary to decide, but his Honour said that the rule would not have been of no effect, because the planning and building legislation conferred no right to use lots for short-term letting [189], [191]–[193]. In the result, his Honour dismissed the appeal with costs [194].

Why it matters

The decision rested on his Honour's primary view that a body corporate then had no power to make conduct rules for lots [112], [114] and, in the alternative, on the breadth of this rule and the absence of a sufficiently direct and substantial connection between the rule and the rule-making powers then available [123]–[124]. On his Honour's reasoning, adopting rules with the plan under section 27(2C), or recording them on the register, did not cure a rule made beyond power [132], [139]. It did not decide whether any other rule was valid. Readers should check the current legislation and model rules, and any later authority, before relying on the reasoning.

Numbers in square brackets are paragraph numbers of the judgment. This note summarises a decided case for education and is not legal advice. See how the notes are written.