As anyone who has been a long term reader of my blogs will know, I am fascinated by the case law around the restriction that NSW scheme’s by-laws must not be harsh, unconscionable or oppressive. The decision handed down on 8 December 2025 in Nicholson v Woodrow & The Owners – Strata Plan No. 104042 [2025] NSWCATCD has shed further light on this restriction in relation to a by-law regulating short term rental accommodation arrangements (a.k.a. short term letting).
The case which was a first instance decision of Senior Member Mortensen, involved amongst other issues, a challenge to the validity of short term letting by-law. The by-law under challenge was extensive providing for:
- a requirement for lot owners to notify the owners corporation of their intention to use their lot for short term letting purposes and of details of guests;
- a requirement to pay a security bond
- a requirement to pay administrative fees;
The key arguments in the matter were that the terms of the by-law were harsh, unconscionable or oppressive (especially in respect of the bond and administration fees) in breach of s139(1) of the Strata Schemes Management Act 2015 (“SSMA”), inconsistent with the SSMA (especially section 137A) and therefore in breach of s139(2) of the SSMA and that the by-law had been enforced inconsistently by the owners corporation.
The Tribunal broke the case into three main elements which are discussed below.
Inconsistency with the SSMA
It was argued that the additional requirements of fees and notifications imposed on lot owners by the by-law were inconsistent with s137A of the SSMA. Section 137A of the SSMA permits an owners corporation to pass a by-law prohibiting short term letting where the lot is not the principal place of residence of the relevant lot owner or occupier. The Tribunal determined that by-laws imposing reasonable conditions such as requiring information or indemnities were not inherently inconsistent with the SSMA and that the by-law was not invalid on this basis.
(Note that while s130 of the Community Land Management Act 2021 is the equivalent of s139(1)&(2) of the SSMA, it does not have an equivalent to s137A of the SSMA regarding short term letting.)
Administration Fee
Under the by-law an “administration fee” could be charged by the owners corporation. That fee could be any reasonable administrative costs and any other costs and expenses incurred by the Owners Corporation incurred as a direct result of a lot owner using their lot for short term letting. This fee could be recovered as a debt. The Tribunal found, that the imposition of an open ended debt, even though the owners corporation was required to act reasonably, would be creating a mechanism for the owners corporation to unilaterally determine and recover costs, including legal costs for enforcement, from a lot owner. This placed an unreasonable burden on the lot owner and was determined to be harsh, unconscionable and oppressive.
Bond
The by-law contained a pre-condition which was for the lot owner to pay a bond of “$1,000.00, or another amount reasonably determined by the strata committee”. The Tribunal accepted that his condition was arbitrary and oppressive due to the SSMA already providing a mechanism to recover costs for damage to common property and for the enforcement of by-laws. Therefore, it was not necessary to impose a bond to cover potential damage caused by short term letting. The imposition of an upfront security deposit to permit an owner to exercise their right to use their lot was an encroachment on their property rights that exceeded what was necessary to protect the interests of the scheme. Further, the potential for the strata committee to determine another amount created uncertainty and the potential for discriminatory application of the provisions.
In summary, it is clear that it is permitted to impose conditions using by-laws however by-laws imposing terms to recover costs unilaterally and that encroach on property rights more than necessary to protect the owners corporation’s interests will be considered harsh, unconscionable and oppressive and invalid.
My three previous blogs on short term letting are here:
Prohibiting Short Term Letting in NSW Schemes – the Devil is in the Details published 4 February 2021): https://allisonbensonau.com/2021/02/04/prohibiting-short-term-letting-in-nsw-schemes-the-devil-is-in-the-details/
Short Term Letting in NSW: Can you or Can’t you? (published 27 September 2017)
Short Term Lettings: The Good, The Bad, The Ugly (published 27 September 2016): https://allisonbensonau.com/2016/04/29/short-term-lettings-in-strata-schemes-the-good-the-bad-the-ugly/
I have also written about the harsh, unconscionable and oppressive restriction. If you are interested in my blogs on the requirement that by-laws not be harsh, unconscionable or oppressive please use “unconscionable” in the search function on the home page of this blog.
Please seek legal advice that is tailored to your situation because as always, the devil is in the details and this is general information only.
Thoughts from a strata lawyer ... 