Can parties to a Contract of Sale of Real Estate for a sale 'off the plan' agree to make the purchaser responsible for the costs of subdivision?

The unanimous decision of the Court of Appeal of the Supreme Court of Victoria in Bisognin v Hera Project P/L [2016] VSCA 322, confirms how important it is for lawyers in Victoria who draw Contracts of Sale of real Estate to take great care in drafting special conditions in the contract. 

Background 
The case concerned a dispute over the interpretation of certain special conditions in a Contract of Sale of Real Estate of part of a rural property by the owners to a developer. 

Gino Andrew Bisognin and Leah Joan Bisognin ('Mr and Mrs Bisognin') are the joint owners of a rural block at Cranbourne.  In 2012, they received an unsolicited approach on behalf of a developer who was seeking to buy the southern portion of their land.  The developer told Mr and Mrs Bisognin that he proposed to develop the southern portion of their land by the construction of a supermarket. He said he had already discussed the matter with the local municipality. In 2012, the parties entered an agreement for the sale and purchase of a lot on an unregistered plan of subdivision. Subsequently, Hera Project Pty Ltd (‘Hera’) was nominated as the ‘purchaser.’ The contract was in standard form save that it contained a number of special conditions relating to the preparation and eventual registration of a plan of subdivision.  After a delay in performance, Mr and Mrs Bisognin issued a notice of default. Hera commenced proceedings to restrain the termination of the contract.  The proceedings settled on terms that a new contract was to be executed that contained the same special conditions as well as two further special conditions: (1) a sunset clause such that, if the plan of subdivision had not been registered by 25 August 2015, the parties could terminate the contract; and (2) an obligation upon Mr and Mrs Bisognin to use their best endeavours to assist in the registration of the plan.

The appeal (and the original trial) required the Court to interpret the meaning of two of the special conditions in the Contract. 

The proceeding commenced as a summons pursuant to s 49 of the Property Law Act 1958; the vendors sought answers to three questions that related to the construction of those special conditions in the second contract.  

The developer brought a cross-application seeking injunctive relief against termination of the contract upon the basis that the conduct of Mr and Mrs Bisognin had prevented it registering the plan of subdivision by 25 August 2015.  

The trial judge held that, in order to make good title, Mr and Mrs Bisognin were obliged under the new contract to enter certain agreements and undertake the associated financial obligations to the 'referral authorities' with a view to their providing services such as telecommunications, water and sewerage to the blocks after subdivision.  

The Court of Appeal concluded in essence, whilst ordinarily a vendor would bear the burden of performing all steps required to register a plan of subdivision (including the burden of entering into agreements with referral authorities and making payments to them) the parties here chose to shift the burden from the vendors to the purchaser. That is reflected in the contract that they made.


Special condition 3(a) of the 2012 contract was to the effect that the purchaser:

... shall at its own cost and expense prepare a Plan of Subdivision in respect of the land comprised in the Parcel in or to the like effect of the Plan of Subdivision annexed hereto and submit the same to the City of Casey for sealing in accordance with the provisions of Part 1 of the Act and shall use its best endeavours and do all things reasonably required to expedite and procure the registration of the said Plan pursuant to the provisions of Part II of the Act.

Throughout the period when the relevant contracts were on foot, the parties have engaged in various pieces of litigation. 

The dispute that was resolved by the unanimous decision of the Court of Appeal confirming that Hera was responsible for certain financial obligations to the relevant referral authorities (the sum involved was over $700,000, and possibly as high as $920,000). 

In the application for leave to appeal, Mr and Mrs Bisognin, as applicants, contended that, in reaching her decision, the primary judge erred by failing to read special condition 10 by reference to special condition 2(a) of the second contract, which made it plain that the obligation was with Hera to do all things reasonably required to procure registration of the Plan of Subdivision, and special condition 2(c), which imposed an obligation on Mr and Mrs Bisognin to allow Hera access to the property for the purpose indicated.

Mr and Mrs Bisognin also contended that if the second contract was ambiguous, it is permissible to consider the circumstances surrounding its making. In the standard case, it is the responsibility of a vendor of land to make title.   However, the present case was not standard.  The very existence of the special conditions altered the normal course of things.  There had been no prior consideration to the sale of the property by Mr and Mrs Bisognin.  The primary purpose of this transaction was to facilitate an opportunity for the purchaser to engage in a commercial property development.  The purchaser was to be responsible for the size, scale and nature of the proposed development and, in particular, the construction of it. Litigation occurred because there was delay in the settlement of the first contract. That proceeding was settled on the basis that the 2012 contract was replaced by the second contract. In bringing about the second contract, a sunset clause, which required registration of the plan by 25 August 2015, was added. It was added to address the very matter (the delay in completion) which led to the first proceeding. 

Importantly, special condition 10 was also added. It similarly did not exist in the 2012 contract. Special condition 10 was inserted to impose a specific requirement upon the vendors to cooperate and use their best endeavours and do all those various other matters that are set out elsewhere in the other special conditions. Again Mr and Mrs Bisognin submitted that it requires them to facilitate Hera’s endeavours to procure registration within the time limited by the sunset clause.  They re-emphasised that special condition 10 does not override the primary obligation of Hera under special condition 2. Rather, it provides a level of assistance to Hera so as to help it comply with special condition 2 within the period confined by the sunset clause.

The principal question in the appeal was whether the primary judge erred in holding that, by reason of the terms of the second contract, Mr and Mrs Bisognin were required to enter into the relevant agreements with the referral authorities and to make payments to them under those agreements.  No provision in the agreement expressly dealt with the entry into those agreements, nor with who was responsible for meeting the financial commitments under them.  Accordingly, the question became whether the special conditions imposed the obligation upon Mr and Mrs Bisognin or Hera.

The Court of Appeal noted that the special conditions are expressed in general terms and are poorly drafted.  The Court concluded that consequently, in construing the contract and, in particular, special conditions 2(a) and 10, regard must be had to the text, context and purpose aided by reference to the surrounding circumstances known to the parties at the time that the contract was entered into.

The Court concluded (at paragraph 79) that 

... the effect of the special conditions in the [second] contract is to shift the risk of registration of the plan of subdivision and the financial expenses associated with it from the vendors to the purchaser.  In part, our opinion depends upon the text and context of the special conditions; in part, it depends upon a consideration of the circumstances surrounding the making of the [second] contract.

The Court analysed the use of the word 'procure' in special condition 2(a) and concluded 

It is the word customarily used by lawyers to place the risk of performance of some necessary step onto a party that might not necessarily be able to perform that step without the involvement of another person.  If the step cannot be performed by the party which is charged with procuring it, that party will nonetheless be in breach of covenant if the obligation is not performed.

The court also took comfort from the wording of Special condition 10, which it concluded imposed obligations upon Mr and Mrs Bisognin to assist in securing the registration of the plan of subdivision.  One of those obligations is to make ‘the duplicate title available for the purposes of registration’ (of the plan of subdivision).  If the obligation to register the plan of subdivision rested upon Mr and Mrs Bisognin, the Court noted that the obligation cast on them to make the duplicate certificate of title available would be redundant.  The natural meaning of the obligation is that the title is to be made available at the request of someone else: the person charged with the task of registration.

In assisting with the interpretation of the Contract, the Court looked at the circumstance in which this contract was made.  The Court noted that special condition 2(a) formed part of the 2012 contract (as special condition 3). Mr and Mrs Bisognin had taken no steps to develop, let alone sell all or any part of their land.  They were approached by a developer who had already developed plans for the commercial exploitation of the southern portion of their land.  As a matter of common sense, one would not expect Mr and Mrs Bisognin to have taken on the commercial risk involved in the registration of the necessary plan of subdivision.  The cost of registration (including the payment of bonds and fees to referral authorities) was unknown; had it been at the risk of Mr and Mrs Bisognin, the impact on the purchase price might have been very significant and made the sale unattractive.

The Court also concluded that the addition of Special condition 10 as part of the terms of settlement of the 2013 proceeding confirmed that it is best understood as auxiliary to special condition 2(a) and special condition 8.  Unless the plan of subdivision was registered by 25 August 2015, the parties could terminate the second contract. As the risk of registration was to lie with the purchaser, there was every reason to ensure that the process was facilitated by Mr and Mrs Bisognin.

The Court concluded that on its proper construction the second contract required Hera to pay the amounts provided for in the referral agreements, albeit that it was for Mr and Mrs Bisognin to enter into those agreements.  

It is a most unfortunate situation that the parties find themselves in. This is even more especially so due to the fact that the Contract of Sale currently remains on foot, and there is still ongoing litigation about whether the Contract can be specifically performed. 

The lesson here is for lawyers who draft special conditions in contracts of sale of real estate to take extra care in ensuring that the Special Conditions clearly identify the obligations that each party is agreeing to undertake in the relevant Contract. 

WG Stark
Hayden Starke Chambers

Are there any recent cases in 2016 about rent review clauses on the exercise of an option for a further term in Retail Leases in Victoria?

In the recent VCAT decision of MD & S Griggs P/L v DWH P/L [2016] VCAT 1718, Senior Member Riegler was called upon the determine the preliminary issue of whether the lease between the parties provided for a market review at the expiration of each term?

The retail premises were a country hotel in Victoria. The original lease, dated 2009, had expired, and the tenant had exercised the first option for a further 5 year term. 

In response to the exercise of the option, the landlord proposed a new rent for the second 5 year term. The tenant baulked, claiming that the express terms of the lease stipulate that there was to be no market review of the rent at the expiration of each term. Consequently, rent was to remain constant upon renewal, notwithstanding that if all options for renewal were exercised, rent would remain fixed at $18,200 per annum from the commencement date of 1 October 2009 until 30 September 2029.

The lease was in the form of a Law Institute of Victoria standard form lease (2006 Revision). Clauses 11 and 12 concern rent reviews. They state, in part:
11. RENT REVIEWS TO MARKET

11.1 In this clause “review period” means the period following each market review date until the next review date or the end of this lease.

The review procedure on each market review date is

11.1.1 each review of rent may be initiated by either party unless item 17 states otherwise but, if the Act applies, review is compulsory.

11.1.2 a party may initiate a review by giving the other party a written notice stating the current market rent which it proposes as the rent for the review period. Unless the Act applies, if the party receiving the notice does not object in writing to the proposed rent within 14 days, it becomes the rent for the review period.

...

FURTHER TERM(S)
...

12.2 The renewed lease –

12.2.1 starts on the date after this lease ends,

12.2.2 has a starting rent determined in accordance with clause 11, and

12.2.3 must contain the same terms as this lease but with no options for renewal after the last option for a further term stated in item 18 has been exercised.

The Retail Leases Act 2003 applied to the lease. 

The discourse over the question of rent review stems from what the parties have inserted in Items 16 and 17 of the lease schedule. In particular:
Item 16 Review date(s):

[2.1.1, 11, 18]

Market review: Not applicable

CPI review: Not applicable

Fixed review: Not applicable

Item 17 Who may initiate reviews:

[2.1.1, 11, 18]

Market review: Not applicable

CPI review: Not applicable

Fixed review: Not applicable

The Tenant submitted that the lease did not provide for any review of rental, either during each term or upon renewal. 

This situation arose because Clause 11 of the lease is predicated on a market review date being specified in the lease. Therefore, if the parties have not specified a market review date, Clause 11 has no work to do. The market review date is defined in the lease to be the date specified in Item 16 of the lease schedule. Item 16 of the lease schedule did not specify a market review date. It stated that the market review date is Not applicable.

The tenant submitted that Clause 12.2.2 is expressly tied to Clause 11 of the lease. Therefore, if no market review is required under Clause 11, then no market review is required under Clause 12.2.2. Consequently, it argued that the parties have, by engrossing Item 16 of the lease schedule with the words Not applicable, intended Clause 12.2.2 not to do any work.

Similarly, the tenant submitted that s 35 of the Act, which regulates how rent reviews are to be performed, has no application to the lease because the lease does not provide for a review of rent.

On behalf of the Landlord, I conceded that the express terms of the lease did not provide for any rent review during each term of the lease. 

However, I argued that the lease required a review to market upon renewal of each new term. 

The express words of Clause 11.1 state that the “review period” means the period following each market review date until the next review date or the end of this lease. The words "or the end of this lease" mean the end of each term because the renewal of the lease constitutes a fresh lease of itself. 

Therefore, it was clear from the words of the lease what the parties had agreed; namely, that there was to be no mid-term rent reviews but that after the expiration of the first term and upon renewal, rent would be set according to market.

I relied on a decision of Deputy President Macnamara (as he then was) in Dagles Trading Pty Ltd v Scamper Pty Ltd, [2006] VCAT 1220 where the Tribunal stated:

All this leads me back to the text of the 1999 lease which I have quoted or summarised above. As Mr Wikrama contends and Mr Golvan and Mr Borsky concede, the special condition at Item 22 of the schedule must prevail to the extent that it is inconsistent with the printed terms of the standard form. I accept the submission by Mr Golvan and Mr Borsky however that there is no inconsistency. Clauses 11 and 12 of the printed form deal with one subject matter, namely the renewal of the lease pursuant to the options to renew and the fixation of rent upon that renewal and special condition 1 deals with rental reviews ‘during’ that renewed term. In accordance with the distinction drawn by Phillips JA in the Ensabella case, reviews ‘during’ the term of the lease are mid-term reviews not the process of fixation of the initial rental. The words of special condition 1 have their own work to do. That is, to stipulate what rental reviews are to take place during the renewed term and those reviews are annual CPI indexation. The clause has the effect inter alia as Mr Golvan and Mr Borsky conceded of excluding any provision for a market review at the end of year four for year five of the review term.

Clause 11 read in conjunction with Item 16 and 17 of the lease schedule operated to prevent any rent review during the currency of each term of the lease. However, Items 16 and 17 of the lease schedule had no operation upon renewal, in which case the opening words of Clause 11.1 clearly stipulated that there was to be a review of rent at the end of this lease, being the end of each term.

The Tribunal accepted that the words "market review date" in Clause 11 refer to a point in time during the currency of the lease. Similarly, Items 16 and 17 of the lease schedule refer to mid-term reviews, not the process of fixing the initial rent at the commencement of each renewal.

The Tribunal concluded that Clause 12.2.2, which states that the renewed lease has a starting rent determined in accordance with clause 11, means that the mechanical provisions of Clause 11 are to be utilised to determine what the starting rent is to be for the renewed lease. This is because the opening words of Clause 11.1 contemplate that the review period will cease either at the next review date (if there is one) or alternatively, at the end of this lease. 

Therefore, the market review date refers to a point of time during the currency of the lease. The failure to specify a market review date in the lease schedule simply means that there will be no market review during the currency of any specific term. However, it does not therefore follow that there will be no market review to determine the starting rent of any renewal. Such an interpretation would be inconsistent with Clause 12.2.2 which requires that there be a determination of the starting rent of any new term. 

Counsel for the tenant submitted that there is no inconsistency when clauses 11, 12.2.2 and Items 16 and 17 of the lease schedule are read together. The Tribunal did not accept that submission. It concluded that such an interpretation leaves Clause 12.2.2 in a lacuna. In particular, Clause 12.2.2 contemplates that the starting rent of any new term is to be determined, rather than simply rolled over from the previous term. 

However, adopting the interpretation advanced by the tenant would prevent the procedure described under Clause 11 to operate, which would then frustrate the way in which starting rent was to be determined. This created a conflict between the two clauses, because on one hand, Clause 12.2.2 required the starting rent to be determined while on the other hand, the very procedure which would have allowed that to occur was removed from the lease.

The tenant submitted that because Clause 11 is inoperative (by reason of no market review date being specified), Clause 12.2.2 is also to be read as being inoperative. 

The Senior Member rejected that proposition. Clause 12.2.2 imposed a positive obligation on the parties to determine the starting rent of any renewed term. If the parties had intended for there not to be a review on renewal, Clause 12.2.2 could have been deleted. This had not occurred. 

The interpretation placed on Clause 12.2.2 by the tenant required the Tribunal to construe the clause as meaning that there will only be a determination of the starting rent if, and only if, the parties have specified that there is a market review date. However, such an interpretation ultimately led to disharmony between the two clauses. In particular, on one hand, Clause 12.2.2 requires that the starting rent be re-set; while on the other hand, the tenant’s interpretation of Clause 11 prevents that from occurring.


In the Tribunal's view, Clause 12.2.2 discloses an intention that the starting rent upon renewal was to be re-set. Therefore the reference to market review date in Clause 11.1 and Item 16 of the lease schedule is to be qualified by confining it to mid-term reviews. It cannot mean starting rent reviews. This is reinforced by the words of Clause 11.1 which contemplate that the market review date defines the review period from the market review date to either the next review date or the end of the lease. This assumes that the review period is re-set at the end of the lease.

The Tribunal concluded that the landlord and tenant had intended to review the rent to market for the leased premises at the commencement of each new term, if the tenant exercised its option. 

This decision by VCAT confirms that parties who use the standard form of lease in use in Victoria, and who wish to agree that there is to be no rent review for the entire period of the lease (including options), must be very specific in their agreement. If necessary, the standard form of lease should have clauses 11 and 12 specifically varied or excluded, to ensure that their intentions in this regard are made very clear. 

WG Stark 
Hayden Starke Chambers 

Are there any recent cases in 2016 about short stay apartments in Victoria? - Part three

1.     In the final post in this series, I will examine a case about a landlord who leased an apartment in Fitzroy St, St Kilda to a tenant, who then sub-leased that apartment to short stay tenants. The landlord applied to VCAT for an order for possession of the apartment, to evict the tenant, alleging the sub-lease was a breach of the lease.

Tenant allowing property to be used for Air B’N’B is a breach of the lease

2.  In Swan v Uecker [2016] VSC 313, the Supreme Court of Victoria (Croft J) (on appeal from VCAT pursuant to s 148(1) of the Victorian Civil and Administrative Tribunal Act 1998) was called upon to decide whether the use of a property by a tenant for letting to Air B’N’B clients was a breach of the tenant’s lease. 

3.  Ms Swan owned a two bedroom apartment in Fitzroy Street, St Kilda (“the Apartment”). In August 2015, she leased the Apartment to the Respondents pursuant to a residential tenancy agreement for a term from 20 August 2015 to 19 August 2016 (“the Lease”).

4.  The Applicant sought an order for possession in VCAT on the basis that the Respondents had sublet the Apartment in breach of the provisions of the Lease. The Applicant’s case was that the Respondents granted leases to third parties (“AirBnB guests”) who stayed in the Apartment. The Respondents conceded before the Tribunal that AirBnB guests stayed at the apartment for short-term stays, booked through the AirBnB website.

5.  The AirBnB listings for the Apartment offered two distinct occupancy options. The first involved making the entire Apartment available for AirBnB guests at the rate of $200 per night, and the second involved making only one bedroom available for AirBnB guests at the rate of $102 per night. It is, however, only the AirBnB agreement for occupation of the entire Apartment that is relevant for the purposes of the appeal. The minimum stay under this agreement was three nights and the maximum five nights.

6.  S 253(1) of the Residential Tenancies Act, 1997 provides that:

A landlord may give a tenant a Notice to Vacate rented premises if the tenant has assigned or sublet or purported to assign or sublet the whole or any part of the premises without the landlord’s consent.

7.  The tenants argued that the agreement between them and the AirBnB guests did not mean that the latter were granted “exclusive possession” of the Apartment.

8.  VCAT agreed, and dismissed the application on the basis that the Respondents had only granted licences to occupy to the AirBnB guests, but not leases. Consequently, the Tribunal found that they had not sublet the Apartment and were therefore not in breach of the Lease/Act.

9.  On appeal, Croft J analysed the test to determine whether the AirBnB guests occupied the premises pursuant to a lease or a licence.

10.  He noted (at paragraph 31, quoting from several relevant cases): 

It is well accepted that, as a matter of law, the test to be applied to distinguish between a lease and a licence is whether or not what is granted is exclusive possession.…In deciding, in such cases, whether what has been granted is the right to exclusive possession, the court, in the process of construction, has in practice looked, inter alia, to two things: the nature of the rights which, in terms, have been granted; and the intention of the parties. Party intention in this context is to be determined objectively on the basis of the terms of the particular agreement under consideration and having regard to surrounding circumstances to the extent that is permissible according to the ordinary rules of construction. Whether the transaction creates a lease or a licence depends upon intention, only in the sense that it depends upon the nature of the right which the parties intend the person entering upon the land shall have in relation to the land … And how is it to be ascertained whether such an interest in land has been given? By seeing whether the grantee was given a legal right of exclusive possession of the land for a term or from year to year or for a life or lives. If he was, he is a tenant. And he cannot be other than a tenant, because a legal right of exclusive possession is a tenancy and the creation of such a right is a demise.

11.  In the circumstances of the case, Croft J held that, yes, the exclusive use of the property by Air B’N’B clients was properly characterised as a lease; this made the arrangement a sub-lease, and therefore in breach of the lease between the tenant and the landlord, allowing the landlord to terminate the lease.

12.  It is notable that Justice Croft made some remarks about the effect of this decision on AirBnB more generally; he stated that the case was determinative only of the particular arrangement between these parties. At paragraph 80, he noted:

First, this is not a case on the merits of AirBnB arrangements. Neither is it a case on whether or not AirBnB arrangements might be said to be “illegal” — either in some particular or some general, non-legal, sense. Rather it is a case, on appeal, which raises for determination — directly or indirectly — the legal character of this particular AirBnB arrangement and any consequences this characterisation may have in the context of the terms of the lease of the apartment concerned. Secondly, the context provided by the terms of the particular apartment lease are important. Although this apartment lease is a residential lease, many commercial leases restrict the tenant from sub-leasing, assigning the lease, granting any licence to occupy all or part of the leased premises or otherwise parting with possession without the landlord’s prior consent. Broad terms such as this would prevent, for example, sub-letting or licensing without the landlord’s consent and would avoid the need — as in the present case — to characterise the nature of the same arrangement like the AirBnB arrangement for occupation of the whole of the leased premises as a sub-lease or a licence.

13.  This case is possibly of relevance to the Watergate operator, as they utilise 14 apartments, although they apparently only own one (apparently 9 are leased, with 4 available on a commission basis). Therefore, the owners of the 9 leased apartments may now try to terminate their leases.

14. Of the three methods tried to control short stay apartment usage in Victoria, this seems to be the most likely to succeed. However, it will not apply to owners of apartments who let their properties out for short term stays. 

15. I understand that the Victorian government is currently considering whether to amend the relevant property legislation to allow Bodies Corporate to have some control over this type of apartment usage within the buildings under their control. Stay tuned for further developments! 

WG Stark 

Hayden Starke Chambers

Are there any recent cases in 2016 about short stay apartments in Victoria? - Part two

Short stay accommodation

1. In the second post in this series, I will look at the attempt by the Body Corporate at the Watergate Apartments to outlaw so called ‘short stay’ use of apartments within the building complex under their control.

Body Corporate Rules – can they outlaw short stay accommodation?

2. Apparently in respect of the same operators as I wrote about in part one of this series, in Owners Corporation PS 501391P v Balcombe [2016] VSC 384, the Supreme Court of Victoria (Riordan J) (on appeal from VCAT) was called upon to decide the validity of Body Corporates rules that outlawed ‘short stay’ use of apartments within the building complex under their control.

3. Justice Riordan sets out his conclusion in summary in paragraph 1 of his reasons, as follows (emphasis added):

The main question in this appeal is whether owners corporations (previously called bodies corporate) have the power to make a rule prohibiting short-term letting of apartments. I have found that, under both the Subdivision Act 1988 (Vic) (see paragraphs [99] to [124] below), the Owners Corporations Act 2006 (Vic) (see paragraphs [145] to [188] below) and the regulations made under those Acts, Parliament did not demonstrate an intention to confer such extensive powers on owners corporations principally for the following reasons:

(a)   A review of the development of strata title legislation indicates the principal role of the body corporate or owners corporation was to manage and administer the common property of a strata subdivision.

(b)  The relevant legislation does not disclose any intention for owners corporations to have power to substantially interfere with lot owners’ proprietary rights; or for owners corporations to effectively have an unappellable right to overrule uses permitted under planning legislation.

(c)   A parliamentary intention to provide to owners corporations powers that could substantially inhibit the conduct of lot owners on their own lot would need to be expressed in clear and unambiguous language.

I have further found that the relevant rule, in this case, was not deemed to be valid by s 27(2C) of the Subdivision Act 1988 (Vic) (see paragraphs [128] to [132] below), or the transitional provisions of the Owners Corporations Act 2006 (Vic) (see paragraphs [136] to [144] below).

4. Justice Riordan then embarked on an extensive historical review of bodies corporate under the relevant Victorian property legislative enactments.

5. At paragraph 114, Riordan J concluded:

If this construction is correct, then the appellant had no power to make conduct rules and its power, with respect to conduct matters, was limited to enforcing the Standard Rules. In those circumstances … the appeal must fail.

6. Riordan J went on to examine the particular rule in question, and then determined (at paragraph 123):

In my opinion, the breadth of Rule 34 has caused it to exceed the scope of what was intended by the subdivision legislation and, in particular, the Subdivision (Body Corporate) Regulations 2001 (Vic) …

7.  And at paragraph 124:

In summary, I do not consider that the Parliament conferred powers on bodies corporate for the Statutory Purpose of substantially interfering with rights and privileges usually attendant upon freehold owners. … Accordingly, I consider that Rule 34 was not sufficiently directly or substantially connected with the Statutory Purpose to be a real exercise of the rule making power.

8.  In those circumstances, Riordan J concluded that the VCAT decision was correct, and that the Body Corporate rule that purported to outlaw short-stay letting of apartments within the building complex was invalid.

9.  As a result of this decision, it is unlikely that this will be an effective method of stopping AirBnB usage within apartment complexes in Melbourne and Docklands.

WG Stark

Hayden Starke Chambers 

Are there any recent cases in 2016 about short stay apartments in Victoria? - Part one

Short stay accommodation

1.     This area of property law has generated a large amount of media attention. Solutions to what is seen as a problem have been attempted on at least three fronts.

2.     In today's post, I write about the Melbourne City Council taking a relatively large-scale operator in Docklands (at the Watergate Apartments, 18 Waterview Walk, Docklands) to the Building Appeals Board to have an order made that these types of arrangements breached the Building Code.

Building Appeals Board

5.     In 2011, the City of Melbourne served building orders on the owners of 42 units who were using or permitting their units to be used for Short-Term Letting (including the operator in question). The orders required the owners to cease to use the apartments as ‘short term commercial accommodation (hotel) or the like’, which it was alleged rendered such apartments a Class 3 building under the Building Code of Australia. Thirty-one of the 42 affected unit owners challenged the orders in the Building Appeals Board.

6.     On 22 March 2013, the Building Appeals Board upheld the orders of the City of Melbourne’s Municipal Building Surveyor on the basis that ‘the use of the apartments for commercial short time stays is not a use which is permitted under the existing occupancy permit for Class 2 (which involved the operation of a business)’.

7.     The respondent owners appealed to the Supreme Court and, on 30 May 2013 (See: Salter v Building Appeals Board & Ors [2013] VSC 279), Beach J set aside the Building Appeal Board’s decision and remitted the matter back to the Building Appeals Board for determination.

8.     On 12 December 2013, the Court of Appeal dismissed the appeal by the City of Melbourne from the decision of Beach J (See: Genco & Anor v Salter & Anor [2013] VSCA 365) and held that that the Building Appeals Board had misdirected itself in concluding that ‘ordinarily a dwelling is not a building used for short term accommodation’. Accordingly, the matter was remitted for reconsideration to the Building Appeals Board where ultimately the matter was settled and orders were made by consent on 30 October 2014 in the following terms:

With the consent of the parties, and without the Board determining the merits, it is ordered pursuant to section 149(1)(c) of the Building Act 1993 (Vic) (“the Act”) that:

1. The building orders dated 19 October 2013, to which these proceedings relate, are varied by way of replacing paragraphs 6 and 7, with a new paragraph 6 as follows:

You must carry out the following within 30 days of the date of this order (being the date of the varied order):

a. install a smoke alarm that complies with AS3786 inside each bedroom of the apartment and interconnected in accordance with AS3786 with each smoke alarm within the apartment;

b. affix an emergency evacuation plan to the rear of the entry door of the apartment to the nearest fire isolated exit stair in accordance with AS3745; and

c. provide the municipal building surveyor, Melbourne City Council, with a certificate under section 238 of the Act confirming compliance with this order and the building regulations.

2. Pursuant to section 149(4) of the Act, the Board orders that:

The municipal building surveyor, Melbourne City Council, review the compliance of the “Exit” signs in the common corridors that provide access and egress to the apartments that are the subject of these proceedings, having regard to the report of Mr Adrian Lee titled “City of Melbourne Watergate Apartments Further Report, Issue 1 dated 17 September 2014”, with a view to issuing a building notice on the relevant Owners Corporation without delay, should the exit signs be found to be non compliant with the BCA Part E4.8(b).

3.  The municipal building surveyor, Melbourne City Council, review whether a written record of the tenants acknowledging the receipt of safety/evacuation induction should be kept on the premises and whether it should be noted as an essential safety measures item referenced in the maintenance determination appurtenant to the occupancy permit. Should the municipal building surveyor determine that such a requirement is appropriate he should take appropriate measures to seek to have it implemented.

4. No order as to costs.

9.     As a result, the owners were effectively allowed to continue to operate as AirBnB’s within the Watergate building, provided they complied with these minor requirements.

10.  The Melbourne City Council has stated that it will review other short-stay cases "on their merits" as they arise. 

11. Therefore, the first 'solution' to the 'problem' of short stay apartments was mostly unsuccessful. 

WG Stark 
Hayden Starke Chambers