SGL Successfully Opposes Application to Adjust Unit Entitlements

The case of Titus v Eddington [2019] NSWCAT CCD is a salient reminder of how the Tribunal deals with applications to adjust unit entitlements and the importance of dealing with the real issues and getting the evidence right.

The applicant for an order to adjust unit entitlements must produce persuasive evidence from a registered valuer that proves that the original allocation of unit entitlements was unreasonable having regard to the respective values of the lots as at the date of registration of the strata plan. These valuations must be done on a lot-by-lot basis, not just by comparison: i.e. lot 2 is better than lot 1 because it is bigger. The valuer must properly explain the reasoning process behind each valuation, not simply state a conclusion.

The applicant must also show that the unit entitlement, as allocated in the strata plan, was unreasonable. Just because the valuations suggest a different allocation of unit entitlement does not mean that a change should be made. There may be evidence that, for example, a differential unit entitlement in a 2 lot scheme was done deliberately and for justifiable reasons.

It is also often desirable that a differential unit entitlement be preserved if equality would inevitably lead to a deadlock.

Further, if parties buy into a scheme with full knowledge of the differential unit entitlements, that is an important factor. The buyer of “dominant” lot may have bought the unit to have control or to avoid being pushed around. The buyer of a “subordinate” lot may have obtained a discount for this disadvantage. A copy of the strata plan is included in every contract for sale of a unit and the purchaser will be assumed to have read and understood what was being bought.  As the Court of Appeal stated in the Sahade case:

“unit entitlements constitute a right attaching to property [and] that fact might provide a significant reason not to interfere with such rights, at least when units have been sold and purchased on a known allocation”.

Any application to for a reallocation of unit entitlements must be carefully considered and supported by cogent evidence. There are a number of factors, including discretionary factors, that must be addressed. If they are not properly addressed, then the Tribunal is unlikely to interfere with the allocation. That may have a very significant effect if, at some future time, other evidence is obtained that might justify a reallocation. In other words, if the issue is brought before the Tribunal, it may be that there will be no future opportunity for a second bite at the cherry.