This has been a question in a number of strata scheme cases following the introduction of section 136(1) of the Strata Schemes Management Act 2015 (which is mirrored in the Community Lands Management Act 2020). SSMA as to whether a by-law is harsh, unconscionable and therefore invalid.

I’ve reported on those decisions the NSW Law Society Journal in “Harsh, unconscionable, oppressive: Angus has the last bark on strata by-law” in relation to Cooper v The Owners – Strata Plan No. 58068 [2020] NSWCA 250 and “The sword and the shield Cooper: dealing with harsh, unconscionable and oppressive by-laws” where a number of cases were discussed and also on this blog in Harsh, unconscionable and oppressive bylaws | Thoughts from a strata lawyer … (allisonbensonau.com) Essentially in those cases by-laws that were found to:

1. Be made power purpose, that is power power
2. Have an adverse effect on the property rights of other lot owners and occupants (i.e. a restriction on keeping of animals or a restriction on cooking within a lot) without a benefit;
3. Require legal or other costs to be paid to the owners corporation without an ability to challenge or control those costs (note exclusive use by-laws were distinguished);
4. Were inconsistent with other legislation, specifically with the Strata Schemes Management Act 2015’s limitations on occupant rights

to be invalid.

Interestingly the power to make strata management statements has also recently been the subject of a NSW Court of Appeal decision. On 5 June 2023 the Court of Appeal upheld the original decision invalidating a clause of a strata management statement requiring constituent owners corporations to appoint a particular strata managing agent: Walker Corporation Pty Ltd v The Owners – Strata Plan No. 61618 [2023] NSWCA 125.

The decision relates to the Finger Wharf at Woolloomooloo which is a complex strata title scheme with eight stratum lots, being three dimensional lots that compromise either part of a building structure (which includes the wharf itself), part of the land, water and sea floor that comprises the fee simple. It is a leasehold scheme. Of the eight stratum lots, three have been subdivided into residential strata plans, one into strata titled car space plan, one into strata titled marina berths, one is a commercial strata plan and another is a retail strata plan. Only one stratum lot was not subdivided by a strata plan.

To manage the issues caused by part ownership of the buildings, land and water comprising the site, previous legislation which is in similar terms to s99 of the Strata Schemes Development Act 2015 (“SSDA”) required the registration of a strata management statement “for the building and its site”. The management statement binds each of the owner of the underlying fee simple, the seven constituent strata schemes, the lot owners and occupants of the strata schemes, the owner and occupants of the stratum lot and mortgagees in possession of lots in the scheme to the terms of the management statement as if it were an agreement under seal and they each had entered into the covenants contained in it. SSDA. The only relevant limitation in this instance was that the management statement has no effect if inconsistent with another Act or law: s105(5) SSDA. Schedule 4 of the SSDA sets out the form of the management statement and includes what must be in a management statement including the establishment and the composition and the functions of a Building Management Committee (“Committee”) in managing the building and its site.

Clause 8.11 stated:

“8.11 Members which are Owners Corporations must, after the expiry of the initial period for their Strata Schemes, appoint and retain under section 28 of the [Strata Schemes Management Act 1996 (NSW)] the same Strata Manager the Committee appoints under this clause.”

By-laws in at least two of the strata schemes also required the owners corporation to appoint and retain the same strata manager that the Committee appointed under the management statement. Three of the owners corporations resolved at general meeting to appoint a different strata managing agent to the one appointed by the Committee.  

The core issue in the appeal was whether the management statement was binding on each owners corporation and whether, the owners corporation in terminating the existing managing agent and appointing a different agent, had breached clause 8.11 of the management statement. Central to this was whether clause 8.11 was inconsistent with the SSMA and contrary to section 105(5) of the SSDA and whether clause 8.11 was ultra vires.

Inconsistency

Clause 8.11 was held to be inconsistent with the requirements of the SSMA and therefore breached the inconsistency provision in s105(5) of the SSDA and was therefore invalid upholding the original decision. This was because the SSMA placed the primary responsibility for the management of the strata scheme on the owners corporation with that power to be exercised for the benefit of owners of lots in the scheme: s 9 SSMA. The SSMA required lot owners, acting through their owners corporation at general meeting, to appoint a strata manager and to determine what, if any powers to delegate to the managing agent. It also required a decision at general meeting to terminate a strata manager: ss 49 & 52. Clause 8.11 extinguished both the right of an owners corporation to appoint a strata manager of its choosing and to terminate that agent if it considered necessary. Further, it was inconsistent with the power of the Tribunal under s 72 of the SSMA to review the strata manager’s performance noting the Tribunal’s power was not to be constrained by the management statement. Other provisions in the SSMA supported this finding.

Ultra Vires

Clause 8.11 was held to have been made beyond the power of a management statement as it was not authorised by the SSDA. The statutory function of the management statement was to provide for “management … of the building and its site” and the natural meaning of this phrase did not extend to “a complete takeover” of the all the functions that may be delegated to a strata manager by an owners corporation under the SSMA. While clauses 2 & 4 of schedule 4 of the SSDA respectively set out what a management statement must and may provide for, their content did not support the argument that an management statement could prescribe the management arrangements for any constituent strata schemes.

Wider Implications

Some common themes that can be drawn from the s136(1) cases and Walker are that by-laws and by implication management statements:

1. are statutory contracts rather than ordinary contracts which affects their interpretation,
2. may be delegated legislation and subject to administrative law principles of uncertainty, inconsistency and ultra vires,
3. must not be inconsistent with legislation and must be made within power,
4. must be made for the benefit of all owners to be within power,
5. the Tribunal and Courts are reluctant to sever an invalid part  of a by-law, instead the entire by-law is deemed invalid.

Interestingly, the Supreme Court in Walker and the Court of Appeal in Cooper focussed on the proprietary rights provided by by-laws,

It is relatively common for the same manager requirement in Walker to be contained in management statements for stratum developments. Such schemes will now have to review their by-laws and consider any other by-laws that attempt to wrest the management of an owners corporation from it.

This article is general information and should not be considered as legal advice. I recommend if you or your scheme has a concern about a by-law or a clause in a management statement that legal advice tailored to the situation be obtained.