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

Who is responsible when external cladding fails in an apartment tower during a fire - Court of appeal?

Further to my post about the fall out from the Lacrosse Tower fire in VCAT (see:  https://melbournepropertylaw.blogspot.com/2020/01/who-is-responsible-when-external.html), the Court of Appeal recently handed down its decision on the appeal from VCAT. 

In Tanah Merah Vic Pty Ltd v Owners' Corporation No 1 of PS631436T [2021] VSCA 72, Beach, Osborn JJA and Stynes AJA upheld most of the decision of Judge Woodward, sitting as a Vice President of VCAT. 

The Court of Appeal has undertaken a very detailed analysis about the factual matrix and the obligations undertaken by each of the parties to the litigation. In a joint judgment, Beach and Osborn JA and Stynes AJA also set out a detailed summary of the findings made by Judge Woodward in VCAT. 

The Court of Appeal's decision upholds the Tribunal's finding that the builder, LU Simon, breached warranties implied into the Design & Construct Contract by sections 8(b), (c) and (f) of the Domestic Building Contracts Act, 1995. The Court of Appeal also upheld the Tribunal's finding that each of the builder's consultants (the fire engineer, the architect and the building surveyor) and the tenant who started the fire failed to exercise reasonable care and that these failures were a cause of loss to LU Simon. 

However, the Court allowed one ground of appeal by the building surveyor, Gardner Group P/L. 

The proportions of liability found by VCAT to apply were 33% to the building surveyor; 39% to the fire engineer; 25% to the architect; and 3% to the tenant. 

In a costs judgment on 7 June 2021, the Court of Appeal noted that in its view the apportionment of responsibility in the case should be:

Gardner Group (building surveyor): 30 per cent; 

Ellenberg Fraser (architect): 25 per cent; 

Thomas Nicholas (fire engineer): 42 per cent; and 

Mr Gubitta (tenant): 3 per cent.

In other words, the fire engineer's responsibility was increased by 3% and the building surveyor's responsibility was decreased by that amount. 

Combustible Aluminium Composite Panelling (ACP) is installed in many buildings across Australia, and promises to be a difficult area for building owners, owners corporations, builders and their consultants (building surveyors, architects and fire engineers) for many years to come. 

The City of Melbourne Building Surveyors have been very active in issuing Building Notices and Building Orders in respect of various high rise residential buildings with ACP's following on from 2 apartment fires in the Melbourne CBD and Docklands. 

Further, the Victorian State Government has also been actively involved in trying to clean up the issue. 

The upshot of the Court of Appeal's decision is that builders and their advisors who have used or recommended ACP's that are non compliant with the requirements of the Building Act 1993 and the Building Code of Australia will most likely be found to be responsible for the cost of removing and replacing those panels. That liability will arise when claims are made against a builder pursuant to statutory warranties concerning the suitability of materials, compliance with the law and fitness for purpose arising under Domestic Building Contracts Act 1995 subsections 8(b), (c) and (f).

WG Stark 

Hayden Starke Chambers