Short-Term Letting in Strata Schemes

Our good friends, Robert Angyal SC and Professor Brendan Edgeworth, are the new editors of the Conveyancing and Property Section of the Australian Law Journal. In the current issue of the journal, they have published an interesting note on “Short-Term Lettings in Strata Developments”.

The note deals with the vexed question whether an Owners Corporation can make a by-law prohibiting lot owners from granting short-term leases. The points that the learned authors make are:

1. The decision of the Victorian Supreme Court in Balcombe may not be of general application because the Victorian legislation is much more restrictive than other States, including NSW;
2. The Western Australian Court of Appeal recently addressed the same question, but reached a different conclusion, in Ceresa River. The nub of the decision is that an Owners Corporation can make a valid by-law that prevents lot owners from letting their lots for holiday purposes, irrespective whether the occupants breach other by-laws such as those concerning nuisance or annoyance to other residents. The Court of Appeal found that such a by-law did not restrict the leasing of lots but, rather, restricted the use to which they could be put. Owners were free to lease their lots to anyone, and for any duration, as long as the letting was for the specified purpose (as a residence). While the restriction on use would reduce the potential pool of interested occupiers, the Court found this was not a restriction of the kind that the act prohibited. The Court approved the decision of the New South Wales Supreme Court in Salerno where Justice Windeyer held that the restriction by a by-law on smoking did not offend the New South Wales legislation (now section 139(2) of the Strata Schemes Management Act 2015) on the ground that it simply regulated the use of that lot. Justice Windeyer added that, if the by-law was expressed so as to prevent the leasing of lots to smokers, this might be an impermissible restriction.
3. The fact that letting was for a relatively short period would not necessarily mean it was not for residential purposes. The Court found that a person could use a lot as a settled or usual abode, even if that was for a very short time.
4. The Court added that, even if local planning laws allowed the use of lots as serviced apartments, that had no bearing on the construction of a by-law that limited the use of lots for residential purposes or as an occupier as settled or usual abode.
5. Finally, the Court of Appeal held that the principles to be applied in the construction of by-laws were similar to those applying to contractual construction, but subject to 5 qualifications. First, by-laws should not be construed so as to be inconsistent with strata legislation. Second, it would only be in an exceptional case that the Court would have regard to surrounding circumstances to interpret a by-law. Third, the statutory context of the by-laws should be taken into account in construing their meaning. Fourth, there is no basis for interpreting by-laws as a business document with the intention that they be given business efficacy. Finally, because by-laws are registered, material extraneous to the register is generally not admissible to construe registered instruments.

As the learned authors conclude, it appears that the Balcombe decision is confined to Victoria, but it remains to be seen if Ceresa River is adopted in New South Wales. I note that the New South Wales Civil and Administrative Tribunal has recently delivered a decision in which it struck down a by-law that prevented short-term letting but, in doing so, was not referred to the decision of the Western Australian Court of Appeal, which is a binding authority.