Can an Owners Corporation pass a rule that prevents a particular use of a lot in Victoria?

It is relatively common for Owners Corporations to seek to restrict the use to which a lot in a building subject to a subdivision can be put. 
 
Both the Supreme Court of Victoria and the Victorian Civil and Administrative Tribunal have found that an owners corporation rule seeking to prohibit a particular type of use of a lot is an invalid rule which is beyond the owners corporation’s rule making power provided for by the Owners Corporation Act 2006 (Vic) (Act).

For example, in Lawandi v Owners Corporation 21842D (Owners Corporations) [2015] VCAT 1810 (20 October 2015), the owners corporation sought to prevent the Applicant from using the relevant premises for residential purposes in a building which was primarily used for commercial purposes. 

The owners corporation introduced a new rule by Special Resolution which provided:

A lot owner or occupier must not use the lot, or permit it to be used, for residential or other accommodation, whether short term, long term or otherwise.

In considering the rule, the Tribunal closely considered the wording of section 138 of the Act and Schedule 1 of the Act. 

VCAT Vice President, County Court Judge Davis, found that the matters which an owners corporation may make rules about are confined to the subject matter in Schedule 1 of the Act. 

Clause 5 of Schedule 1 of the Act (relating to lots) was found to enable an owners corporation to make rules regulating the external appearance of lots or activities being carried out on a lot so far as they impact on common convenience or common areas, but did not extend to prohibiting a particular use of a lot.

Vice President Judge Davis found:

[T]he power under the Act in an OC to make rules “for and with respect to” a “change of use of a lot” cannot be construed to allow an OC to make a rule prohibiting the change of use of a lot.  Rather, the power is to be construed as a power to make rules for and in respect of any change of use of a lot that are necessary for the carrying out of its functions under the Act.

Rules limiting types of uses within buildings affected by owners corporations are common in inner city developments. 

However, it seems that attempts to restrict the use of a lot in are likely to be ineffective (for example the Republic Tower at 299 Queen Street, Melbourne (the subject of Morrish v Republic Tower Body Corporate [2004] VSC 56) and the Watergate Building in the Docklands (the subject of Owners Corporation PS501391P v Balcombe (Owners Corporations)[2015] VCAT 956)). 

The cases have important ramifications for owners corporations and members of owners corporations. 

Careful consideration needs to be given about the potential invalidity of any owners corporation rule which seeks to prohibit a lot from being used for a particular purpose, such as a residential use or a commercial use, and a member’s obligation to comply with a rule of this nature.

WG Stark

Hayden Starke Chambers