Unresolved Indefeasibility Problems in Strata and Community Title

Bond Law ReviewVolume 21Issue 2 Special Property Law Edition Article 9

8-12-2010

How Indefeasible is Your Strata Title? UnresolvedProblems in Strata and Community TitleCathy Sherry

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Recommended CitationSherry, Cathy (2009) "How Indefeasible is Your Strata Title? Unresolved Problems in Strata and Community Title," Bond Law Review:Vol. 21: Iss. 2, Article 9.Available at: http://epublications.bond.edu.au/blr/vol21/iss2/9

How Indefeasible is Your Strata Title? Unresolved Problems in Strata andCommunity Title

AbstractNothing sets my teeth on edge like a real estate sign screaming Oversized Torrens Title Townhouses. Whatelse could they possibly be? Brand new townhouses on Old System titles? Not likely. So why do real estateagents use the term Torrens in their marketing? Because what they in fact mean by Torrens Title is not stratatitle and not community title. Of course, strata and community title are Torrens title, but what agents aretrying to convey is that the townhouses do not have titles burdened by the restrictions, obligations, social andlegal complications that come with ownership of strata or community title.

Keywordsstrata title, community title, indefeasibility

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HOWINDEFEASIBLEISYOURSTRATATITLE?UNRESOLVEDPROBLEMSINSTRATAANDCOMMUNITYTITLE

CATHYSHERRY

I IntroductionNothingsetsmy teethonedge likearealestatesignscreaming OversizedTorrensTitleTownhouses.Whatelsecouldtheypossiblybe?BrandnewtownhousesonOldSystemtitles?Not likely.SowhydorealestateagentsusethetermTorrensintheirmarketing?Becausewhattheyinfactmeanby TorrensTitleisnotstratatitleandnot community title.1Of course, strata and community title are Torrens title,2butwhatagentsaretryingtoconveyisthatthetownhousesdonothavetitlesburdenedby the restrictions, obligations, social and legal complications that come withownershipofstrataorcommunitytitle.Aprimarycomplicationofstrataandcommunitytitleistheexistenceofbylaws,theprivaterulesthatgovernthescheme.Bylawsmustberegisteredattheinceptionofthe development, 3 but can be altered thereafter by an appropriate vote of the

SeniorLecturer,FacultyofLaw,UniversityofNewSouthWales.MythankstoProfessor

BrendanEdgeworthandFrancescoAndreone.1 InNewSouthWales,stratatitletypicallyreferstohighrisedevelopmentundertheStrataSchemes(FreeholdDevelopment)Act1973(NSW)(SSFDA)andtheStrataSchemesManagementAct1996(NSW)(SSMA).CommunitytitletypicallyreferstolowrisemasterplannedestatesundertheCommunityLandDevelopmentAct1989(NSW)(CLDA)andtheCommunityLandManagementAct1989(NSW)(CLMA).However,communitytitledevelopmentsmightalsoincludehighrisebuildings,bringingallfourpiecesoflegislationintoplay.ThereisalsoaStrataSchemes(LeaseholdDevelopment)Act1986.

2 SSFDA,s7,onlyland,definedaslandundertheRealPropertyAct1900heldinfeesimple(otherthanlandcomprisedinaqualifiedorlimitedfoliooftheRegister)canbesubdividedbytheregistrationofastrataplan.Onlyland,definedins3CLDAascontiguouslandheldundertheRealPropertyAct1900infeesimple,nopartofwhichislandinaqualifiedorlimitedfoliocanbesubdividedpursuanttos5CLDAbytheregistrationofacommunityplan.

3 SSDA,s8(4B)andCLDA,s5(4)(a)andSchedule3.

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schemes governing body. 4 Bylaws bind all owners, occupiers, lessees andmortgagees,aswellasthegoverningbodiesofthescheme.5Thereislittlelimitonthecontentofbylaws.Stratabylawsmustbeforthepurposeofthecontrol,management,administration,useorenjoymentofthelotsorthelotsandcommonproperty,6whilecommunitytitlemanagementstatementsmayincludebylaws thatrelate tobothcommunityproperty (commonproperty)and individuallots.7However,both theSSMAand theCLDAstate thatbylawsarenot limited tosubject areas listed in the legislation. 8 Further, there very few matters that areexpresslyprohibitedtobeincludedinbylaws,9althoughs43(4)SSMAstatesthatabylawhasnoforceoreffecttotheextentthatitisinconsistentwiththisoranyotherActorlaw.10Ineffect,theabilitytowritebylawsforstrataandcommunitytitleschemes isverywide.11Atoneendofthespectrum,abylawmaysimplystipulatewherepeopleare 4 SSMA,s47andCLMA,s14.InPivotalPointResidential[2008]QBCCMCmr55,inreplyto

theargumentthatapetbylawcouldnotbealteredastheownershadboughtonthefaithofanoriginalbylawpermittingpets,theAdjudicatorsaid,However,evenifbylawsresultinastatutorycontractarisingindividuallybetweentheapplicantandthebodycorporate,Idonotacceptthesubmissionstotheeffectthatthebodycorporateisunabletoalterthisindividualcontract.Thisisbecausethelegislationspecifiesproceduresbywhichthebylawscanbechanged(Act62(3),179).Therefore,despitethebylawstakingeffectasiftheyaremutualcovenantssignedunderseal(Act,59),theexistenceofspecificproceduresallowingforachangeofbylawsweighsheavilyagainstaviewthattheoriginalbylawsformaspecialorindividualcontractthatisunalterable(Act62(3),179).

5 SSMA,s44andCLMA,s13.6 SSMA,s47.7 CLDA,Schedule3,cl2and3.8 SSMA,s43(1)and(2)andCLDA,Schedule3,cl3(1)and(2).9 SSMA,s49statesthatabylawcannotprohibitorrestrictthedevolutionofalotora

transfer,lease,mortgage,orotherdealingrelatingtoalotanditcannotrestrictchildrenorguidedogsoccupyinglots.CLDA,Schedule3designateslimitedprohibitionsorrestrictionsthatmustnotbeincludedinamanagementstatement,thosethataffectdisabilityassistanceanimals,thosethatwouldexcludepublichousingorthosebasedonraceorcreed,oronethnicorsocioeconomicgrouping.

10 CfCLDA,Schedule3(1)(b),amanagementstatementmustnotbeinconsistentwithanActorlawthat,bytheoperationofsection116oftheCLMA,appliestoanypartofthecommunitypropertythatisanopenaccesswayands14(2)(b)CLMA,amanagementstatementmustnotbeamendedtobeinconsistentwiththeCLDAorCLMA.

11 SantowJinWhitevBetalli[2007]NSWCA243at[42]saidthatthestratatitleslegislationindicates,abroadcapacityunderthatlegislationtocreatebylaws,subjectonlytotherebeingnoincompatibilityorinconsistencywithanyActorlaw.SeealsoSherry,C.The

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tostoretheirgarbagebins,inthemiddleabylawmaylimitauseofalot,12andatthefarextreme,itmayamounttothetakingofavestedpropertyright.Itisthisfarendof the spectrum that is the subject of this article. It asks the question, if bylawspassedwithoutunanimous consent13can effectively beused todivest ownersof aproprietaryinterest,howindefeasibleistheirtitle?II ExclusiveusebylawsandthelossofcommonpropertyStrataandcommunitytitlelegislationbothprovidemechanismsforexclusiveuseofcommonpropertytobegiventoindividuallotowners.Onapracticallevelthismaymakesense.Forexample,whilearoofterracemightfalloutsidethepenthouselot,asdefined by the strata plan, 14 and thus be common property, 15 it may only bephysicallyaccessibleby theownerof thepenthouse. Inamixeduse strata schemewithcommerciallotsatitsbaseandresidentiallotsinthetower,thecommerciallotsmayneverneedtoaccessthelifts.Further,ifsomelotownersneverusepartsofthecommonpropertyandothersuseitexclusively,itseemsfairerthatthelatterpayforitsmaintenance, rather than thecostbeingsharedbetweenallownersaswouldbethenorm.16

legalfundamentalsofhighrisebuildingsandmasterplannedestates:Ownership,governanceandlivinginmultiownedhousingwithacasestudyonchildrensplay(2008)16(1)AustralianPropertyLawJournal123.

12 Thefollowingbylawshaveallbeheldtobevalid:SalernovProprietorsofStrataPlanNo42724,(UnreportedJudgment,SupremeCourtofNewSouthWales,WindeyerJ,1April1997,8April1997)(bylawprohibitingsmokinginalotwhichwouldpreventtheownerleasingthepremisestoaclub);SydneyDiagnosticServicesvHamlenaPtyLtd(1991)5BPR11,432(bylawprohibitinguseoflotforanypurposeotherthanmedicalpractice,excludingpathology);BapsonvPuyetiPtyLtd(1990)NSWTitleCases800002(bylawlimitingAsianfoodoutlettoonelotinscheme).

13 Inmostcases,aspecial,notunanimousresolutionisneededtochangebylaws:SSMA,s47andCLMA,s14(3)(c).

14 Theboundariesofastratalotaresetatthedateofregistrationofthestrataplan.Typically,theyaretheinnersurfacesofthewalls,theundersurfaceoftheceilingandtheuppersurfaceofthefloor:SSDA,ss8and5(2)(a)andTheOwnersSP35042vSeiwaAustraliaPtyLtd[2007]NSWCA272.

15 Anylandthatdoesnotfallwithinalotiscommonproperty:SSDA,s5cfCLDA,s3,whichstatesthatcommunitypropertymeansthelotshowninacommunityplanascommunityproperty.Communitypropertyistheequivalentofcommonpropertyinastratascheme.

16 Theownerscorporationhasastatutorydutytoproperlymaintainandkeepinastateofgoodandserviceablerepairthecommonproperty:SSMA,s62andLin&AnorvTheOwnersStrataPlanNo.50276[2004]NSWSC88,asdoesanassociationinacommunityscheme:CLMA,Schedule1,cl4.Ateachannualgeneralmeeting,theownerscorporationmustestimatehowmuchmoneyitneedstodischargethisduty:SSMA,s75and

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Section52,SSMAprovidesthatanownerscorporationmaymake,repealoramendan exclusiveuse or special privileges bylaw with a special resolution and thewrittenconsentoftheownerorownersofthelotorlotsconcerned,[myemphasis].Section54SSMAstipulatesthatsuchabylawmustprovideforthemaintenanceoftheareabyspecifyingiftheownerscorporationwillcontinuetobeliableforitsmaintenanceandrepairorimposingthatobligationonthelotownersconcerned.Anexclusiveusebylawthatfailstodosoisinvalid.17Strata lawyers tend to treat exclusiveuse bylaws as a way of formalising rightswhich may be economically beneficial to individual lots and equitably allocatingmaintenance fees.However,Santow J inYoung&1OrsvTheOwnersS/P3529&2Ors18recognised the profound implications of exclusiveuse by laws, in particular,their expropriatory quality for lot owners who lose, rather than gain rights tocommonproperty.On registration of a strataplan, commonpropertyvests in theowners corporation as agent for the lot owners as tenants in common.19Unity ofpossession, a fundamental attribute of coownership, means that lot owners areentitledtooccupythewholeofthecoownedproperty.20Whenanexclusiveusebylaw is passed, owners who are not beneficiaries of the bylaw lose their right astenants in common to occupy the whole of the common property. The questionraisedinYoungwaswhethertheseownersconsentwasneeded.Thecaseinvolvedastrataschemeinwhichtheplaintiffsownedtwolots.Unusually,those lotsweregarages,notapartments.Thedefendantownerscorporationsoughttopassabylawgrantingexclusiveuseoftheswimmingpooltoresidentialowners.Theyhadobtainedthewrittenconsentoftheownersbeinggrantedtheexclusiveuse,butnottheplaintiffs.Theownerscorporationarguedthatwhileundertheearlier

subsequentlylevyownersinproportiontotheirunitentitlement:SSMA,ss76,78.Acommunityassociationmustdothesame:CLMA,s20andschedule1,cl12,13.

17 OwnersSP62515vGormickConstructionsP/L(Strata&CommunitySchemes)[2006]NSWCTTT36.

18 [2001]NSWSC1135.19 Sections18and20SSFDA;CLDA,s31;cfs35BCCMA.20 BullvBull[1955]1QB234;CommonwealthBankofAustraliavMacDonald[2000]NSWSC553

(Unreported,SupremeCourtofNewSouthWales,YoungJ,21June2000)[33][40]andDMendesDaCosta,CoownershipunderVictorianLandLaw(1961)3MelbourneUniversityLawReview137at1501,167.

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legislation unanimous consent had been required to an exclusiveuse bylaw, 21changes in1987meant thatonlya special resolution22wasneeded,alongwith thewrittenconsentoftheownerorownersofthelotorlotsconcerned.23Theyarguedthat the owners concerned were those who were to acquire new rights and onwhomextramaintenanceobligationswouldbeimposed.The defendants argument was a plausible interpretation of the legislativeprovisions.24It seemed to be supported by theMinisters second reading speech25whichexplainedtheamendmentsasanattempttoremove unnecessaryregulationand tokeep theAct in stepwith industrypractices.TheMinister referred to theneedtoremedyanincreasingproblemwherebyspecialservicesarebeingprovidedto only some proprietors for example, an airconditioning system servicing agroundfloorshoppingarcadearebeingpaidforbyallproprietors[sic].Shewenton to state that [t]heproposals also include a number ofmeasures toprotect theinterestsofbothindividualproprietorsandbodiescorporate.Thefirstisthatforsuchabylawtobevalid,thebodycorporatemustfirstobtainthewrittenconsentoftheproprietors who will be given the exclusive use of the common property. Thisprovides a proprietor with a safeguard against unknowingly being givenresponsibilityforthemaintenanceofcommonproperty.26Santow Jreasoned that theMinisterwasonlygivingoneexampleofwhenconsentwouldbenecessaryratherthansuggestingthattheseweretheexclusive

21 Section58(7)StrataTitlesAct1973providedthatabodycorporatemay,withtheconsentin

writingoftheproprietorofalotpursuanttoanunanimousresolutionmakeabylawinrespectofthatlotconferringonthatproprietortheexclusiveuseandenjoymentof,orspecialprivilegesinrespectof,thecommonpropertyoranypartthereof.

22 SSMAdictionaryandSchedule2,Part2,clause18(2)and(3).23 Cfs171(2)BodyCorporateandCommunityManagementAct1997(Qld)(BCCMA)which

requiresaresolutionwithoutdissentforthepassingofanexclusiveusebylaw,alongwiththeconsentoftheownersofthelotstowhichtheexclusiveusebylawwillattach.Unders105(3)aresolutionisonewithoutdissentonlyifnovoteiscountedagainstthemotion.

24 YoungCJinChauhanvJaynreesServicesPtyLtd[2008]NSWSC969saidthatlotsconcernedins52(1)meant,Thelotsinwhichspecialprivilegesrelatetounderthebylaw,andinthiscaseofcoursethatmeanslot3.Lot3wasthelotthathadthebenefitofthebylawinthatcase.Thiscommentwasonlyobiteranditispossiblethatifthematterwerefullyargued,YoungCJwoulddecidedifferently.McCollJAmadeasimilarobitercommentindicatingalackofneedforunanimityinOwnersofStrataPlanNo3397vTate[2007]NSWCA207at[46].

25 CitedinYoung,aboven18at[28].26 CitedinYoung,aboven18at[28].

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circumstancesinwhichconsentwouldbeneeded.Heheldthataconstructionofthelegislationwhich did not require the consent of thosewhowould be stripped ofrights,aswellas thosewhowouldgainrights,was absurdandunreasonable.Heheldthatthereferencetothewrittenconsentof lotowners concerned ins52(1)(a)mustincludethosewhowouldloserightstocommonproperty.However,SantowJacknowledged that itwaspossible for the legislature to take awayproperty rightswithout compensation, despite a strong legislative presumption against such areadingofastatute.27Hefurthernotedthatthe1987changefromaunanimoustoaspecialresolutionwasintendedtoliberateownerscorporationsofthevetopowerofthevexatiouslotholder28andthatthattheremaybecircumstanceswhentheconsentofsomelotowners,whowouldnotbeaffectedbythebylaw,wouldnotberequired.Young is a good example of aproblemwith strata legislation.Much attentionhasrightlybeendirected towriting laws that facilitateharmonious living,butperhapsinsufficientattentiongiventohowtheselawsinteractwithfundamentalprinciplesofproperty.Ingeneralproperty law,tenants incommoncancreaterightstoexclusivepossession, but only by agreement of all. One or a group of tenants in commoncannottakeanothersrightsforthemselves.Ifitisnotpossiblefortenantsincommonto take each others property without consent, can the legislature authorise suchtaking?Iftheanswertothatquestionisyes,shouldthelegislaturedothis?Inother 27 SantowJat[19]citingClissoldvPerry[1904]HCA12;19041CLR363.SeealsoLinvTheOwnersStrataPlanNo.50276[2004]NSWSC88.Theplaintifflotownerssoughtaninjunctiontocompeltheownerscorporationtoallowthemtoconnectimprovementsintheirlotstothecommonexhaustventilationsystem.Theownerscorporationarguedthatthesystemwasalreadyoverloadedandthatitwasentitledtorefusepermissionasithadthestatutoryobligationofmanagingandcontrollingthecommonpropertyunders61SSMA.GzellJsstartingpoint,at[8][9],wasthatlotownershadanequitableinterestinthecommonpropertyastenantsincommonandthatassuch,theywereentitled,concurrentlywithoneanother,topossessionoftheproperty,withnonebeingentitledtoturntheothersout.GzellJwentontoacknowledgeat[23][25]thattherewasatensioninthelegislationbetweentherightsoflotownersastheequitableownersofthecommonpropertyandtherightsofcontrol,managementandadministrationofthatpropertybytheownerscorporationasthelegalowner,butthatitwasimplicitintheexclusiveusebylawprovisionsoftheActandthedecisioninYoung,thatthispowerofcontrolandmanagementdidnotextendtooverridingtheproprietaryrightthatalotowner[had]inthecommonproperty.Whiletheownerscorporationcouldexerciseitspowerofmanagementandcontrolbyrequiringalotownertobearthecostofconnectionofahoodtothesystemordictatewhentheworkcouldbecarriedout,itcouldnotrefuseaccessaltogetherasthiswouldbewrongfulinterferencewiththeirproprietaryright:GzellJat[56].

28 SantowJat[41].

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words,inliberaldemocraciesshouldthelegislatureempowerprivatecitizenstotakethepropertyofanother?Lestthisquestionseemfanciful,anexplanationoftherestrictedpropertyprovisionsof theCommunityLandManagementAct1989 (NSW) (CLMA) is inorder. Restrictedproperty is the community title equivalentof an exclusiveusebylaw and allowsexclusiveuseofpropertyandexclusiveobligationsforitsmaintenance,tobegiventoindividual owners or a subsidiary scheme.29These rightsmight be in place at theinceptionof thedevelopment,however,restrictedpropertyrightscansubsequentlybe created or amended by special, 30 not unanimous resolution. 31 Further, thelegislationprovidesthattherestrictedpropertybylawmaynotbemadewithoutthewrittenconsentofeachpersonentitledbythebylawtousetherestrictedproperty.32Unlikeitsstrataequivalent,itwouldbeimpossibletoreadthisprovisionasrequiringtheconsentofthosewhowill loserightstocommonpropertyasaresultofthebylaw.So,imagineawaterfrontmasterplannedcommunitywithhousesfrontingthewaterand others behind. There is a boardwalk between the waterfront houses and thewater which forms part of the association property (common property in acommunityscheme).Apurchaseracquiresanonwaterfrontlotimaginingmoonlightwalks on the boardwalk, only to subsequently have his security and privacyconsciousneighbourspassaspecialresolutioncreatingarestrictedpropertybylawintheirfavour,excludinghimfromtheboardwalk.Theownersacquiringrightshavemagnanimouslyconsented,asrequiredby the legislation,whileour lotownerwhohas lost a valuable interest in land has no power of veto. Is it possible for thelegislaturetoauthorisesuchatakingofprivatepropertybyfellowcitizens?The answer to thisquestion,disturbingly,mightbe yes.TheHighCourts recentconsideration of expropriation ofnative title rights inGriffithsvMinister forLands,PlanningandEnvironment33demonstratedjusthowthintheprotectionaffordedto

29 CLMA,s54andCLDA,Schedule3,cl6.Asubsidiaryschemeinacommunitytitle

developmentcanbeaprecinct,neighbourhoodorstratascheme.Itmaymakesenseforaneighbourhoodorstrataschemetohavetheirownpoolandonewaytoachievethisisbygrantingthatschemerestrictedpropertyrights.

30 CLMA,s3.31 CLMA,s54(5)ands14.32 CLMA,s54(5)(b).33 [2008]HCA20.

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private property from expropriation in the AngloAustralian legal tradition is. 34While theUnited Stateshas a constitutionalprotection forprivateproperty in theFifthAmendment,guaranteeingthatpropertywillonlybetakenforpublicpurposeandwithjustcompensation,35wehavenoequivalent.Whatwehaveisanumberofprincipled statements from authoritativewriters such asLocke andBlackstone,36aminorconstitutionallimitontheCommonwealththatitstakingsforanypurposeinrespectofwhich theParliamenthaspower tomake lawsbeaccompaniedby justterms, 37 no state equivalent of this provision, 38 and the principle of statutoryinterpretation,referredtobySantowJ,thatthelegislatureispresumednottointendtointerferewithvestedpropertyrights.Whatwelackisaconstitutionalguarantee,at

34 InGriffiths,themajorityoftheHighCourt,Gummow,HayneandHeydonJJat[28][30],

GleesonCJagreeingat[1],heldthattheLandsAcquisitionAct(NT)authorisedthecompulsoryacquisitionofnativetitlebytheMinisterforLands,PlanningandEnvironmentforanypurposewhatsoever,includingthegrantingofthelandinquestiontoothercitizens.

35 Thecontentofthisrightisbynomeansuncontested.SeeKelovCityofNewLondon545US469(2005);HawaiiHousingAuthorityvMidkiff467US229(1984);BermanvParker348US26(1954).

36 LockesviewinhisTwoTreatiseofGovernment(1690)wasthatpropertycouldnotbetakenwithoutamansconsent,butLockedefinedconsentastheownersorthatofhiselectedrepresentatives.Blackstone,inhisCommentariesontheLawsofEngland(1765),vol1,139statedthatSogreatmoreoveristheregardofthelawforprivateproperty,thatitwillnotauthorizetheleastviolationofit,howeverthatlegislaturecouldcompelindividualstoacquiesceinthelossoftheirpropertyifitprovidedareasonableprice:citedfromMichaelTaggart,Expropriation,PublicPurposeandtheConstitutioninCForsythandIHare(eds)TheGoldenMetwandandtheCrookedCord:EssaysonPublicLawinHonourofSirWilliamWadeQC,Clarendon,Oxford1998,91112.TheupshotofbothofthesecommentsappearstobeanunlimitedpowerinParliamenttoacquirepropertysolongasitpayscompensation.

37 CommonwealthofAustraliaConstitutionActs51(xxxi)andCluniesRossvCommonwealth[1984]HCA65;(1984)155CLR193.SeeSBrennanNativeTitleandtheAcquisitionofPropertyUndertheAustralianConstitution[2004]MelbourneUniversityLawReview2.

38 TheNewSouthWalesParliamenthasageneralpowerunders5ConstitutionAct1902tomakelawsforthepeace,welfare,andgoodgovernmentofNewSouthWalesinallcaseswhatsoever.Thesehavebeeninterpretedaswordsofgrant,notlimitation:perKirbyJDurhamHoldingsPtyLtdvTheStateofNewSouthWales[2001]HCA7.AlthoughthereisaLandAcquisition(JustTermsCompensation)Act1991(NSW),whichisroutinelyutilisedtoacquiredland,theNewSouthWalesParliamenthasthepowertoacquirepropertywithoutcompensationatall:PyevRenshaw(1951)84CLR58,MinisterforLands(NSW)vPye(1953)87CLR469at486;DurhamHoldingsPtyLtdvTheStateofNewSouthWales[2001]HCA7perGaudron,McHugh,GummowandHayneJJat[7]andperKirbyJat[56].

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both levelsofgovernment,that landwillonlybetakenfora publicpurpose.39Theresultisthatitisprimafaciepossible,withveryclearwordsandintent,fortheNewSouthWalesParliamenttolegislatetoauthoriseownerscorporationsorcommunityassociations to expropriate the common property rights of others, withoutcompensationandwithoutconsent.However, it isarguable that theNewSouthWalesParliament,never intendedanysuchthing.Theexpropriationofpropertyforthesolepurposeoftransferringitfromone private citizen to another is fundamentally at oddswith the values of liberaldemocracies. Gray goes so far as to state that it is one of the more ancient andmajesticthemesofglobaljurisprudencethatprivatenecessitycanneverdemandthatthe landsofone individualbe takenperemptorilyandgiven toanother individualexclusively forhisorherpersonalbenefitorprofit.40The fact thatcases likeYoungandHoughtonvImmer(No.155)PtyLtd,41discussedbelow,arerare,perhapsstandsastestimonytothefactthattakingyourneighbourspropertywouldbeananathematomostpeopleandthusmoststrataandcommunitytitleresidentsneverrealisethatthelegislation potentially enables them to do so. Finally, if the New South Walesgovernment had expressly intended to grant this power, public outcry would nodoubthaveensued.Perhaps the singlemost significantprotection fromprivatetoprivate transfers, or any takings without sufficient public justification, is populardissent,orwhatKirby J inGriffiths termed politicalaccountabilityanddemocraticanswerability.42 As noted by Brennan, when the New South Wales governmentmooted changes to planning laws that would allow privatetoprivate transfers,mediaattentionandpubliccriticismwassuchthattheproposaldidnotproceed.43III FraudontheminorityThealternativeargumentthattheplaintiffspresentedinYoungwasthattheexclusiveusebylawamountedtoafraudontheminorityormisuseofpower.SantowJheldat 39 TheessentialdifferencebetweenthedecisionsinCluniesRossandGriffithswasthattheLandsAcquisitionAct1955(Cth),consideredintheformercase,grantedapowertoacquirelandforapublicpurpose,whiletheLandsAcquisitionAct(NT),consideredinthelattercase,hadhadthewordspublicpurposeremovedin1982.TheresultwasthatinGriffiths,forthemajority,theActauthorisedtakingsforthepurposeofgrantingthelandtoothers.

40 GrayKTheresnoplacelikehome,(2007)11(1)JournalofSouthPacificLaw7388,74.ThisstatementwascitedbyKirbyJat[129]inhisdissentinGriffiths.

41 [1997]NSWSC608.42 Griffiths,perKirbyJat[113].43 BrennanS,CompulsoryAcquisitionofNativeTitleLandforPrivateUsebyThirdParties

(2008)19PLR179,183.

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[45] that had the resolution purporting tomake the bylaw been valid under theSSMA,itwouldnonethelesshavebeenstruckdownasfraudontheminority,astheplaintiffswould loseavaluable right.Santow Jheld that therewasno substantivedifferencebetweenacompulsoryextinctionofrightsandthecompulsorytransferofthemfromonetoanother.44The leading strata case in this area isHoughtonv Immer(No.155)PtyLtd.45The caseinvolvedafivelotschemeininnerSydney.Therespondentownedlot1,whichwasanautorepairshop,whiletheappellantshadbeentheownersof lots25.Withtheappellantscontrollingvotes,thebodycorporate46resolvedtosubdividelots24intonewstratalots617andsubdividedlot5andthecommonpropertyontheflatroofarea, intopenthouse lots18and19.Thebodycorporates interest in these lots,asaresultof itsownershipoftheformercommonproperty,wasthentransferredtotheappellantsfor$1.ThelegislativeschemeintheStrataTitlesAct1973(NSW)manifestlyfailedtoprotecttheplaintiffinthiscase.Section25stipulatedthatabodycorporatemaypursuanttoa unanimous resolution, execute a transfer or lease of common property, [myemphasis]however,s9provided that lotsand/orcommonproperty,couldbesubdividedby the registrationofaplanofsubdivision thatcompliedwithsubsection(3). Section 11 provided that such a plan should not be registered unless it wasaccompaniedbyacertificateunder the sealof thebodycorporatecertifying that ithadagreed,byspecialresolutiontothenewunitentitlement.TheCourt(HandleyJA,Mason P and Beazley JA agreeing), held that on registration of the plan ofsubdivision, theroofandairspaceceased tobecommonproperty. Itbecamea lot,which vested partly in the body corporate, but theAct did not require the bodycorporatetodealwithlotsderivedinwholeorinpartfromcommonpropertyas ifthey were still common property. The Court held that, The provisions whichauthoriseabodycorporatetoapprovesuchasubdivisionbyspecialresolutionareclear and leave no room for the presumption against interference with privateproperty.However, theCourtwenton tohold thatcompliancewith theformalrequirementsforthevalidexerciseofapowerdidnotexcludetherighttoequitablerelief.While 44 HeydonvNRMA[2000]NSWCAperOrmistonAJAat577;GambottovWCPLtd[1995]HCA12;(1995)182CLR432.

45 [1997]NSWSC608.46 TheStrataTitlesAct1973(NSW)usedthetermbodycorporate,whichremainedinthe

newSSFDA,whichcameintoforcein1997.Confusingly,theSSMAusesthetermownerscorporationinsteadofbodycorporate.

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the lotownersdidnothavetoexercisetheirvotingpowerasfiduciaries,butrathercouldvoteintheirowninterests,thedoctrineoffraudonapowerappliedtobodiescorporate. The Court cited Lord Lindley in British Equitable Assurance CompanyLimitedvBaily,47who said that the powers of altering bylaws, like other powers,mustbeexercisedbona fide,andhavingregard to thepurposes forwhich theyarecreated, and to the rights of persons affected by them.48 The special resolutionauthorisingtheappropriationofwhathadbeencommonpropertyfortheexclusivebenefitofthedefendantsamountedtoafraudontheminority.TheCourtawardedtheplaintiffequitablecompensation inaccordancewith theprinciples thatapply toimprovementsmadebyonecoowner.49Whiletheprincipleoffraudontheminorityisanimportantprotectiveprinciple,isitsufficient to protect interests in land? Further, is it acceptable that registeredproprietors of nonstrata titles are guaranteed significant protection through theprincipleof indefeasibility,whileownersofstrata title,althoughalsoTorrens,maylose valuable interests on the vote of their neighbours, with only a discretionaryequitableprincipletosavethem?IV BylawscreatingproprietaryinterestsinlotsExclusiveusebylawsrelatetotheuseandenjoymentofcommonpropertyandtherightsoflotownersastenantsincommonasaresult.Butwhatofbylawsthatapplytoindividuallots?WhitevBetalli50raised the question ofwhether it is possible to create bylaws thatgrantlotownersrightstouseotherownerslots.ThelandwasanexistingbuildingonPortHacking,inSydneyssouth,whichhadbeenstratasubdividedintoatwolotscheme.Lot1wasonthestreetsideofthelandandlot2onthewaterside.Therewasaregisteredeasement infavourof lot1allowing itaccesstothewater,aswellasaboatstorageareawithinlot2.Standardresidentialbylawshadbeenregisteredwiththescheme,51supplementedbyspecialbylaw20,whichstatedthat,

47 [1906]AC35at42.48 BritishEquitableAssuranceCompanyLimitedvBaily[1906]AC35perLordLindleyat42.49 BrickwoodvYoung&Ors[1905]HCA12;(1905)2CLR387;ForgeardvShanahan(1994)35

NSWLR206.50 [2007]NSWCA243.51 StrataSchemesManagementRegulation2005,Schedule1.

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TheRegisteredProprietors for the timebeingofLot1shallhave theright tostore smallwatercraftwithin theareadenoted (A)on the sketchannexed tothisinstrument.

Theinstrumentwastheregisteredstrataplan.Thebylawwasexpressedtobemadepursuant tos52SSMA,although itwasconcededbybothparties thatas itdidnotrelate to commonproperty, this couldnotbe correct.Significantly, thebylawhadbeenregisteredbythedeveloperandthuswasinplaceatthetimeboththeappellantandtherespondentpurchasedtheirrespectivelots.Theappellant,theowneroflot2,arguedthatthebylawwasinvalidonanumberofgrounds.First,shesaidthattherightscreatedbythebylawwereinthenatureofaneasement and that as the legislature had provided a specific means by whicheasementscouldbecreatedins88BConveyancingAct1919,52theprincipleinAnthonyHordern & Sons Ltd v Amalgamated Clothing and Allied Trades Union of Australia, 53precludedtheoperationofgeneralprovisionssuchass43SSMAtoachievethesameeffect.ThisargumentwasrejectedbySantowJAat[32],CampbellJAagreeingat[207],onthe grounds that there was no question of powers within the same instrument.SantowJAsaidthattheSSMAcreatedanalternativemode[totheConveyancingAct]forcreatingwhatisinthenatureofaneasement.McCollJA,indissent,saidthattheAnthonyHordernprincipledid not apply because the bylaw, by effectively givingexclusivepossessionofarea(A)totheowneroflot1,couldnotbeaneasement.54Theapplicantthenarguedthatthebylawwasultravires,asSSMAdidnotauthorisethemakingofabylawthatgaverightstoonelotownertouseanotherslot.SantowJA,agreeingwiththetrialjudge,heldthatthepowertomakebylawswasextremelywideandsubjectonlytotheexpresslimitationsins49SSMA.55However,thetrial

52 ConveyancingAct1919(NSW),s88Ballowsforthecreationofeasementsbyindicatingthem

onaplanofsubdivision,includingastrataplanofsubdivisionlodgedpursuanttos7(3)SSFDA.

53 [1932]HCA9;(1932)47CLR1;TheprincipleinAnthonyHordern,asstatedbyGavanDuffyCJandDixonJat7isthat,WhentheLegislatureexplicitlygivesapowerbyaparticularprovisionwhichprescribesthemodeinwhichitshallbeexercisedandtheconditionsandrestrictionswhichmustbeobserved,itexcludestheoperationofgeneralexpressionsinthesameinstrumentwhichmightotherwisehavebeenrelieduponforthesamepower.

54 ReEllenboroughPark[1956]Ch131;CopelandvGreenhalf[1952]Ch488;HaradavRegistrarofTitles[1981]VR743;ClosFarmingEstatesPtyLtd(RecsandMgrsApptd)(ACN003435256)vEastonandAnother[2002]NSWCA389;(2002)11BPR20,605citedbyMcCollJAat[171][193].

55 Abovenote9.

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judgehadacknowledgedthatasbylawscouldsubstantiallyinterferewiththerightof anownersof a lot touse the lot, a remedyagainstpotential injustice couldbesoughtintheownerscorporationabilitytoonlymakebylawsforaproperpurposeandinthepowerofanadjudicatortomakeanorderamendingorrevokingabylawordeclaringabylaw invalid.While the formerconceptwillbeexplored further inthe discussion of Owners of Strata PlanNo 3397 v Tate56below, the latter can bedismissedalmost immediately.Section157SSMA simply refers toanadjudicatorspower toamendorrepealbylaws if havingregard to the interestofallownersoflotsinastrataschemeintheuseandenjoymentoftheirlotsorthecommonpropertythe bylaw should not have been made. Section 159 allows an adjudicator toinvalidateabylawanownerscorporationdidnothavethepowertomake.Neitherprovisionprovidesanyguidanceonwhat isor isntaproperbylaworwhat isorisntintheinterestsofallowners.Inaconsideredjudgement,McCollJA,indissent,touchedontheheartofthematter:thatis,itcannotbethecasethatthelegislationauthorisespeopletopassbylawsthatwouldallowthemproprietaryrightsovertheirneighbourshomeswithoutconsent.Whiletheappellantinquestionboughtherlotsubjecttotheexistingbylaw,ifsuchadevelopermadebylawwasvalidattheinceptionofthedevelopment,asubsequentbylaw of the same substance would also be valid, the legislation making nomeaningful distinction between the two.McColl JA referred to the history of thestratalegislation,inparticulartheinclusionofthes49SSMArestraintonthepowerto make bylaws preventing dealings with lots.57She said at [151] that this wasintendedtosecure,ratherthandetractfrom,astrataproprietorsrighttounfetteredtitle toa lot equivalent to thatof ahomeowner.Abylawwhich impingesononeproprietors title to a lot by giving another proprietor the equivalent of propertyrights over part of it is inconsistent with that core construct of the strata titleslegislation.Whileconcedingthatthewordingofs47SSMAauthorisingthemakingofbylawsforthecontrol,management,administration,useorenjoymentofthelotsor the lots and common property was extremely general, she held that generalwordscouldnotbegivensuchawidemeaningthatwouldleadtoresultscontrarytothemanifest policy of theAct. The purpose of the SSMAwas to permit ownerscorporations to manage strata schemes as a whole, not to confer rights on oneproprietorattheexpenseofanother.58Shepointedout that itwouldbestrange forthelegislaturetolaydowndetailedprovisionsins52stipulatingthewayinwhich

56 [2007]NSWCA207.57 Abovenote9.58 McCollJAat[145].

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lotowners couldbegiven exclusiveuseof commonpropertybutnotprovideanysimilarsafeguardswhenrightsweretobegivenoverindividuallots.59LikeSantowJ,(ashe thenwas) inYoung,McColl JAmade reference to theprinciple inClissoldvPerry;60at373thatastatutorypowerwillnotbeinterpretedaspermittinginterferencewithvestedproperty rightsunless that intention ismadeclear,61but likeSantow J,shedidnotrefertothetroublingfactthatthisisnotexpropriationbythestateforapublicpurpose,butexpropriationbyprivatecitizens,authorisedby the legislature,forpurelyprivategain.The final argument that the appellantmadewas that the bylawwas inconsistentwiths42RealPropertyAct1900(NSW)andtheprincipleofindefeasibility.SantowJAagreedwiththetrialjudgethatthisargumentcouldnotbedismissedonthegroundsthat the bylaw merely had contractual effect, because the bylaw clearlyrepresent[ed]aproprietaryinterest.62Thetrialjudgesreasoningonthispointwasinteresting.Henotedthatpursuanttos42, the appellants title was subject to such other estates and interests as wererecorded inher folio.TheSecondScheduleofher foliomade reference to Interestrecorded on registered folio CP/SP67662, which was the folio for the commonproperty.The Second Schedule of this folio included the notification Attention isdirected to the strata scheme bylaws file with the strata plan. The trial judgereasonedthatinthiswaytheinterestoftheregisteredproprietorsoflot1overlot2createdbythebylawwasrecordedonthefoliooflot2.63Thetrialjudgewentontonotethatevenifthiswerenotthecase,itwasarguablethatthebylawsconstitutedaninpersonamexceptiontoindefeasibility.Unders44SSMA,bylaws bind the owners corporation and owners as if they contained mutualcovenants,signed,sealedanddelivered,toobserveandperformalltheprovisionsofthebylaws,(oftenreferredtoasthestatutorycovenant).Thetrialjudgearguedthatthis statutory contract couldbe an exception to indefeasibility in the sameway aspersonal rightsarising fromacontractbetweena registeredproprietoranda thirdparty.Inotherwords,onbecomingalotowner,theappellantimmediatelysubjectedhertitletocontractualrightsinfavourofthecollective.

59 McCollJAat[149].60 (1904)1CLR363at373.61 McCollJAat[152].62 SantowJAat[53].63 CitedbySantowJAat[65][67].

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TherespondentdevelopedthefirstargumentonappealandSantowJAheldthatastheRegisterwasmadeupoffoliosandregistereddealings,64dealingsweredefinedas registrable instruments, 65 the instrument by which bylaw 20 was made wasregistered,66thentheinterestcreatedbythebylawwasrecordedonthefolioforlot2.67 This made it unnecessary to consider the question of whether the statutorycontractwasaninpersonamexceptiontoindefeasibility.Theseargumentsholdwaterforthefacts inquestionwhich involvedapreexistingbylawwhichwas revealed to theappellantvia theRegisterbeforeshepurchased.However,theywouldnotapplytoacircumstancewhereabylawlikethiswasmadeafterapersonsuchastheappellantacquiredtheirlot.Thenthequestionwouldbe,isa bylaw creating a proprietary interest in a lot, without the owners consent,68inconsistentwith the owners indefeasible title conferred by s 42RealPropertyAct1900(NSW)andthusinvalidunders43(4)SSMA?69Theanswermustsurelybeyes.Disturbingly, there isno equivalentof s 43(4)SSMA in theCLDAorCLMA70andthus the same argument couldnotbemade for community titlebylaws.Like therestrictedpropertyprovisionsdiscussedabove,thisisacauseforconcern.

64 RealPropertyAct1900(NSW),ss31B(2)(a)and(b).65 RealPropertyAct1900(NSW),s3.66 Cfs115K(4)LandTitleAct1994(Qld).67 SantowJAat[71]madereferencetoBursillEnterprisesPtyLtdvBergerBrosTradingPtyLtd

[1971]HCA9;(1971)124CLR73at778innotingthataninterestissufficientlyrecordedinthefolioifthefoliostatestheregistrationnumberofthedealingcreatingitandidentifiestheinterestingenericterms.

68 Thiswouldprobablyonlyhavebeenpossibleiftheschemewaslargerandtheappellantwasintheminority.

69 SSMA,s43(4)statesthatastratabylawhasnoforceoreffecttotheextentthatitisinconsistentwiththeSSMAoranyotherActorlaw.Whileanargumentbasedonoverridingstatutesmightspringtomindhere,itisnotapplicable.Evenwithouts43(4)SSMA,bylawsarenottheSSMAitselfbutratherdelegatedlegislationunderit.TheRealPropertyAct1900(NSW)couldnotbeoverriddenbydelegatedlegislationwrittenbyprivatecitizens.

70 CLDA,Schedule3(1)(b),amanagementstatementmustnotbeinconsistentwithanActorlawthat,bytheoperationofsection116oftheCLMA,appliestoanypartofthecommunitypropertythatisanopenaccesswayands14(2)(b)CLMA,amanagementstatementmustnotbeamendedtobeinconsistentwiththeCLDAorCLMA.CLDA,s3(2)andCLMA,s3(2)statethatifthereisaninconsistencybetweenthoseActsandtheRealPropertyAct1900(NSW),theformerprevail.

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Before moving to the next section, it is worth noting the significance of thedisagreementbetweenSantowJAandCampellJAononehandandMcCollJAontheother,astowhetherthe interestcreatedwasaneasement.Theformerheldthattherightwas in thenature of an easementwhile the latterheld that it offended thefourth element inReEllenboroughPark71bygranting rights of exclusivepossession.The disagreement on the facts is not necessarily significant, but Santow JAscommentsat[39]are.Hesaidthatevenwerethetraditionalconstraintsapplicabletoeasements to be imported to the strata titles legislation, Iwould not consider thisrequirement [not tograntexclusivepossession] tobecontravened.Santow JAwasalluding to the inevitable conclusion that the strata titles legislation allows for thecreationofan infinitevarietyofrightsthroughbylawsandthattotheextenttheserightscreateproprietaryinterests,theydonotneedtofallwithinexistingcategoriesof property rights.72 In one fell swoop, the strata titles legislation eradicates thenumerusclaususprinciple,themetaprincipleoflandlawthatstrictlylimitsthekindsof interests that can be recognised as proprietary and binding on subsequentpurchasers.73Does this matter? Possibly. In an analysis of the numerus clausus principle incontemporaryAustralianlaw,Edgewortharguesthatwhiletheprincipleisoutdatedinsomerespects,itisnotobsolete.Edgeworthidentifiestwoprimaryrationales74fortheprinciple:thefirstisthatitfreeslandofmultipleobligationsandrestrictionsthatlimit theuses towhich the land can beput.He says that, Ifpartieswere free torestrict the usages of land by agreements capable of binding successors in titleindefinitely,landcouldbeshackledinwaysthatmightrevivealltheimpedimentstoeconomicreformthatwereendemicinfeudalrealpropertylaw.75Thesecondreasonis that a proliferation of the number and range of rights will tend to make theconveyancingprocessmorecomplex,timeconsumingandhazardous.76Edgeworth argues that the persuasiveness of this second rationale is radicallyreduced by modern registration systems, specifically Torrens systems which canreadily accommodate amuchwider range of interests in land, imposingminimal

71 [1956]Ch131.72 CfClosFarmingEstatesPtyLtdvEaston[2002]NSWCA389.73 MetaprincipleisthetermusedbyEdgeworthinTheNumerusClaususprinciplein

ContemporaryAustralianPropertyLaw(2006)32MonashUniversityLawReview387at390.74 Edgeworth,abovenote73,identifiesathird,at395,thattheprincipleprotectstheintegrity

ofwhatLordBroughamLCinKeppellvBailey(1834)2My&K517,39ER1042referredtoasthescienceofthelaw,butthisislessimportantthattheothertworationales.

75 Edgeworth,abovenote73at394.76 Edgeworth,abovenote73at394.

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additional transactioncostson successors in title.77Thiscomment is true for stratatitle but perhaps slightly less so than other forms of title. As White v Betallidemonstrates,bylawsareregistereddealingsand thusavailable forallprospectivepurchasers to see. Bylaws have no force or effect until they are registered. 78However, registrationdoesnotgive effect tobylaws thathave notbeen lawfullymade79and thus,registrationofabylawdoesnotproduce thesamecertainty thatregistrationofotherinterestsdoes.Onapracticallevel,evenifbylawsareontheregister,itdoesnotmeanpurchasers(or their lawyers) have read them. Bylaws for strata and community titledevelopmentscanbevoluminous.Communitytitlecontracts,whichincludethebylaws,frequentlytakeupanentire leverarchedfolder.Inofftheplansales,bylawscanbeamoveablefeast.Purchaserscommitbycontractwellbeforeregistrationofthestrataorcommunityplanso thatall theymayhaveseen isacopyofdraftbylawswhich then changeon registrationof the scheme.80Ithasbeen commonpractice insome largedevelopments to requirepurchasers topaya refundabledepositbeforethey are even given a contractwith a copy of the draft bylaws in it.At least inrelationtoinitialsales,itishardtotakecomfortfromthefactthatthegreatvarietyofrestrictionsandintereststhatmaybecreatedbybylawswillbereadilyascertainablebypurchasers.81

77 Edgeworth,abovenote73at406.78 Section48(1)SSMA.79 Section8(4D)SSFDAstatesthatTheproposedbylawsforastrataschemehavenoeffect

untilthestrataplan(andanyproposedbylawsthatarerequiredtoaccompanyit)areregistered.However,registrationdoesnotoperatetogiveeffecttobylawsthathavenotbeenlawfullymade.ThisseemstoonlyapplytotheregistrationofinitialbylawsandtheredoesnotseemtobeacorrespondingprovisionintheSSMAthatappliestotheregistrationofimproperlyamendedbylaws.

80 ParkinvPagliuca[2008]NSWSC168isagoodexampleofanofftheplansalewherethepurchasercommittedtoacontracthavingonlyseenanartistsimpressionofthebuildingandsomesampletilefinishes.Therewasnoindicationshehadseenanybylawsorevenastrataplandefiningtheboundariesofherlot.BrysonAJcommentedat[3]thatadeveloperwhosoldofftheplaninthiswaywassleepwalkinghiswayintotheEquityCourt.Thesamecouldbesaidofthepurchaser,ifshewerelucky.

81 Edgeworth,abovenote73at402,footnote54,makesreference,totheliberalcritiqueofEpsteinNoticeandFreedomofContractintheLawofServitudes(1982)55SouthernCaliforniaLawReview1353andPastandFuture:TheTemporalDimensionintheLawofProperty,(1986)64WashingtonUniversityLawQuarterly1353.Epsteinarguesthatpeopleshouldbefreetocontractuallycreatewhateverpropertyrightstheywishandthatthemarketwilleradicatethosethatarenotultimatelybeneficial.Epsteinsarticlesarepartofalargerdebateonhomeownerassociations,theUnitedStatesequivalentofourcommunity

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The first rationale for the numerus clausus principle, identified by Edgeworth, is amuchmoreseriousconcernforstrataandcommunitytitle.Thepotentialfortitlestobeclutteredbyamyriadofrestrictionsthatmighthavebeenbeneficialtothepartieswhocreatedthem,butnowservenousefulpurposeisenormous.82Edgeworths conclusion on the numerus clausus principle is instructive here. Hearguesthatthestringencyoftheprincipleshouldberelaxedbutthatchangesshouldbe incremental.Hesaysthat itwouldmakesenseto imposearequirementofsomekindofpublicbenefittestbeforenewinterestsarerecognisedandthattheinterestsoffutureownersneed tobe considered, so that their freedom todowhat theywantwith their property is not heavily circumscribed by the shackling of land withfanciful obligations. 83 Edgeworth concludes that these changes should not be

title.IntheUS,positivecovenantshavebeenabletorunwiththelandsincetheearlytwentiethcentury(EvanMcKenzie,Privatopia:HomeownerAssociationsandtheRiseofResidentialPrivateGovernment,1994,YaleUniversityPressat2955)leadingtotheproliferationofhomeownerassociationorcommoninterestcommunitiesthatareaffectedbyasetofCCandRs,covenants,conditionsandrestrictions.Thesearetheorthodoxpropertylawequivalentofstrataandcommunitytitlebylaws.Intheearly1980salargedebateoccurredbetweenlegalscholarsaboutthesocialandeconomicdesirabilityofthesedevelopments,partlyfocusingonthequestionofwhetherpurchaserseverreallyconsenttotherestrictionsattachedtotheirland.REllickson,CitiesandHomeownerAssociations(1982)130UniversityofPennsylvaniaLawReview1519;GFrugCitiesandHomeownerAssociations:AReply(1982)130UniversityofPennsylvaniaLawReview1589;REllickson,AReplytoMichelmanandFrug(1982)130UniversityofPennsylvaniaLawReview1602;GAlexanderDilemmansofGroupAutonomy:ResidentialAssociationsandGroupAutonomy(19891990)75CornellLawReview1;RGNatelsonConsent,Coercion,andReasonablenessinPrivateLaw:TheSpecialCaseofthePropertyOwnersAssociation,(1990)51OhioStLJ41

82 Forexample,themanagementstatementforthePermacultureHamletNimbin,DP285174,includesinarticle37arequirementthatatleastoneoftheproprietorsofeachneighbourhoodlotshallpriortothecommencementoflandscapingorerectionofanydwellinghouseuponsuchLotattendaPermacultureInstructionCoursedesignatedorapprovedbytheExecutiveCommittee.Therequirementthatwindowcoveringsonlybewhiteisfoundinhundredsofstrataandcommunitytitlebylaws.Bylawslikethesearehighlyprescriptiveandmaybecomeobsolete.Onedaywhiteblindswillbeasaestheticallydesirableandpriceaugmentingasmissionbrownpaint.Ofcourse,bylawscanbechangedwiththeappropriatevote,butthismaynotbeeasy.Forexample,aunanimousresolutionisneededtochangebylawsthatfixthethemeofacommunitytitledevelopment:CLMA,s17.

83 Edgeworth,abovenote73at406.

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madebythejudiciary,butbythelegislature,citingtheexampleoftheforestryrightsandcarbonsequestrationcreditsintheNewSouthWalesConveyancingAct1919.84Unfortunately,noneofthesesafeguardscanbeseeninthestrataandcommunitytitlelegislation.Therearealmostnolimitsonthecontentorquantityofbylaws.Thereisnorequirementthattheirvaliditybetestedagainstabenchmarkofpublicbenefitandwhile they are in theory creatures of statute, in reality, they are the legislaturepresenting private citizens, whether developers or owners, with a carte blanche tocreateandburdenpropertywithwhateverrightsandrestrictionsthatcurrentlytaketheirfancy.V Interpretationofby laws delegated legislation, statutory contract,commercialcontractorpropertyrights?Moving away frombylaws thatpotentially expropriatepropertywithout consent,thisfinalsectionwillconsiderhowweinterpretbylaws.Thisisafundamentalpartofdetermining the ambit of obligations that burden titles.Although bylawshaveproliferatedacrossthecountryinthepastfortyyears,courtsarestillunclearonwhatkind of interests they create contractual, proprietary or novel.85 They are alsoundecidedonhowbylawsshouldbeconstrued.Asatermofacommercialcontract,as a statutory contract, as delegated legislation or sometimes as registeredproprietaryinterests?TheleadingNewSouthWalescaseisOwnersofStrataPlanNo3397vTate.86Thebylawinquestionwasanexclusiveusebylawunders52SSMA,givingtheownerofalot1exclusiveuseofLift4inamixedusebuilding.Lot1comprisedparkingspacesin the basement and levels 615 of the tower, all ofwhichmade up amotel.Theownerof lot1hadhadde factoexclusiveuseof the lift formanyyears,but itwasformalisedin1989.Thebylawprovidedthattheowneroflot1wastopayallsumsrelatedtomaintenanceandrepairofLift4andonequarterofthecostsofrunningthe

84 Subsections87A,88AA,88AB.85 InChauhanvJaynreesServicesPtyLtd[2008]NSWSC969YoungCJconsideredthenatureof

rightsthatanexclusiveusebylawcreated.YoungCJheldat[42]thattherightsunderthepresentActappeartobestatutory,andIbelieveIwouldnotliketoheldtothisinsubsequentproceedingsthattherightsareprobablyproprietarysuigeneris.SantowJAinWhitesaidat[53]thatIagreewiththetrialjudgesconclusionthattheappellantscontentionthatthebylawisinconsistentwiths42oftheRealPropertyActcannotbedismissedonthegroundthatthebylawmerelyhascontractualeffect;itclearlyrepresentsaproprietaryinterest.

86 [2007]NSWCA207.

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liftsystem.Therespondent formed theview thathewasoverpayingbecausewhenallownerswere levied for theadministrativeandsinking fundshepaid19.382percent,inaccordancewithhisunitentitlement.Hethenpaidanadditional25percentof the costsof running the lift system inaccordancewith theexclusiveusebylawlevies,amountingtoatotalof44.382percentoftheliftcosts.Thetrialjudgehadheldthatasamatterofcommonsensethepartieswhomadetheexclusiveuse bylaw must have intended that 75 per cent of the costs of the liftsystemwouldbepaidby theremaining lotownersand thatsuchan interpretationgavethebylawacommercialbusinesslikeinterpretation.87On appeal Harrison J, (Mason P agreeing), found that on the contrary, thecircumstances of the case persuasively suggested that at the time the bylawwasformulated, theproprietorof lot1was intentonconverting the informalexclusiveuse of lift 4 into a legally enforceable right todo the same thing.88This rightwasvaluable andpaymentover and above theproportionate costofmaintaining lift 4appearedamatterofcommonsenseandtoconformtoacommercial,businesslikeapproach.89Inanotherconsideredjudgement,McCollJAaddressedthemoregeneralquestionofhowbylawsshouldbeinterpreted.Sheheldat[33]thatthetrial judgewasinerrorinapplyingprinciplesof contractual interpretation,unconstrainedby the statutoryframework.McColl JA identified two possible characterisations of bylaws. The firstwas thatthey are delegated legislation, being instruments made under an Act90and thusshould be interpreted according to principles of statutory interpretation. 91 ThisapproachhadbeenconfirmedbytheHighCourtinDainfordLtdvSmith92Delegatedlegislationmustnotcontradict,be repugnant toor inconsistentwith theActunderwhich it ismade.93Thisprinciple is instructive indetermining themeaningof bylaws, as well as their ultimate validity. Importantly, bylaws are different tocontractualobligationsinthattheyarebindingonallpersonstowhomtheyapply, 87 Tate,aboven24at[95].88 HarrisonJat[116].89 HarrisonJat[116].90 Section3InterpretationAct1987(NSW)citedbyMcCollJAat[35].91 CollectorofCustomsvAgfaGevaertLtd[1996]HCA36;(1986)CLR389at398.92 [1985]HCA23;(1985)155CLR342;citedbyMcCollJAat[40].93 ReTaylor[1995]2QdR564.Thisprincipleisactuallyincludedins43(4)SSMAonthe

makingofbylaws.ItstatesthatAbylawhasnoforceoreffecttotheextentthatitisinconsistentwiththisoranyotherActorlaw.

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regardlessofwhethertheyagreeornot.McCollJAat[46]madereferencetothefactthatanexclusiveusebylaw,suchastheoneinquestion,wouldbindallownersofthecommonpropertywhetherornot theyhadvoted in favourof it,so longas thebylawhadbeenagreedtoby75percentofthoseentitledtovote.94Thesecondcharacterisationofbylawswasas astatutorycontract,deemedtoexistbystatuteandconstitutedbythebundleofrightsandliabilitiescreatedbythe1973Act,themodelbylawsandanyspecialbylaws.95McCollJApointedoutat[48]thatthedeemedcovenantprovisions96weremodelledonthedeemedcovenantprovisionsofcorporationslaw,whichensuredthatacompanyanditsmemberswereboundbythe memorandum and articles of association. The significant characteristic of acompanys constitution is that ithas apublic,not justprivatepurpose. It informsthirdpartieswhodealwiththecompanyofits permittedrangeofenterprise97andas thirdpartiescannotbeprivy to thecircumstances inwhich theconstitutionwasnegotiated,atightreinmustbekeptonthesurroundingcircumstancespermissibletoconsiderwhenconstruingacompanyconstitution.98McCollultimatelydecided that thebylawonlydealtwith theproprietorof lot1sliability to contribute to the cost of lift 4 and did not have any effect on thatproprietors statutory obligation to contribute to the maintenance of commonpropertygenerally, including lifts13.Further,while thebylawhadacommercialeffectfortheproprietoroflot1,itwasnotacommercialtransaction,butrather,

anadjustmentofstatutoryobligationswhichconferredaproprietorialestateupon theproprietorofLot 1 in respectofLot 4 [sicLift4] and, conversely,deprivedtheremainingproprietorsinthestrataschemeoftheproprietary

94 Thisobitercommentagainraisesthequestionoftheproperinterpretationofs52SSMAand

theidentityoftheownersconcernedwhomustconsenttoexclusiveusebylaws.Abovenote24.

95 McCollJAat[47].96 Section58(5)StrataTitlesAct1973(NSW)wasthesectioninquestion.Itisnowins44(1)

SSMAwhichstatesthatThebylawsforastrataschemebindtheownerscorporationandtheownersandanymortgageeorcovenantchargeeinpossession(whetherinpersonornot),orlesseeoroccupier,ofalottothesameextentasifthebylaws...hadbeensignedandsealedbytheownerscorporationandeachownerandeachsuchmortgagee,covenantchargee,lesseeandoccupier,and...containedmutualcovenantstoobserveandperformalltheprovisionsofthebylaws.

97 EgyptianSaltandSodaCoLtdvPortSaidSaltAssociationLtd[1931]AC677perLordMacmillanat682,citedbyMcCollJAat[61].

98 LionNathanAustraliaPtyLtdvCoopersBreweryLtd[2005]FCA1812;(2005)56ACSR263perFinnJat[79],citedbyMcCollJAat[65].

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interest they had hitherto had in that part of the common property. Theproprietorialnatureofthebylawwasindicatedbyitsregistration.Thepublicnature of the bylaw called for the interpretive exercise to focus on itslanguageandstatutorycontextratherthaninferredintentionsdrawnfromthedefactopositionconcerningLift4priortothemakingofSpecialByLaw21.99

Thisstatementbringsusbacktoacentraldilemmainrelationtobylaws:ifabylawcreatesorexpropriatesproprietaryinterests,doesitnotneedtobeconsideredwithintheframeworkofgeneralpropertyprinciples?Inthiscontext,itisarguablethatbylawsofaproprietarynature,(althoughnototherbylaws),shouldbeinterpretedinthesamewayasinterestsontheTorrensregister.Mighttheanswertotheinterpretationquestion in Tate have been found, not in principles of delegated legislation orstatutory contracts,but inWestfieldManagementLimitedvPerpetualTrusteeCompanyLimited 100 ? Here the question was whether extrinsic material could be used tointerpretaregisteredeasement.TheCourtat[37][39]saidthat

rules of evidence assisting the construction of contracts inter partes, of thenatureexplainedbyauthoritiessuchasCodelfaConstructionPtyLtdvStateRailAuthority ofNSW,did not apply to the construction of theEasement....ThethirdpartywhoinspectstheRegistercannotbeexpected,consistentlywiththescheme of the Torrens system, to look further for extrinsic material whichmightestablishfactsorcircumstancesexistingatthetimeofthecreationoftheregistereddealingandplacing the thirdparty (oranycourt laterseizedofadispute)inthesituationofthegrantee.101

Thisstatementringsequallytrueforstratabylaws.Aprospectivepurchasercannotpossiblybeexpectedtoknowthecircumstancesthatleadtoabylawscreationandexpectinghimorhertodoso,wouldflyinthefaceofTorrensprinciples.VI ConclusionThis article has highlighted a number of unresolved problems with strata andcommunity title legislation, in particular theways inwhich the legislation can beusedtounderminetitletoland.Thecoreissueistheinsufficientrecognitionwithinthestatutesthattherearequalitativedifferencesbetweenbylaws,withsomeactuallycreating proprietary interests in either lots or common property, which thencorrespondinglydivestothersofaninterestinland.Totheextentthatthisendcanbe

99 McCollat[76].100 (2007)239ALR75.101 InthefootnotetothisstatementtheCourtwrotecfProprietorsStrataPlanNo9,968vProprietorsStrataPlanNo11,173[1979]2NSWLR605at610612.Althoughthiscasewasbetweentwostrataplans,noquestioninrelationtothestratalegislationwasinissue.

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achievedwithouttheconsentofthosewhoaredivested,thelegislation,inparticularthecommunitytitleActs,areacauseforconcern.

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Bond Law Review8-12-2010

How Indefeasible is Your Strata Title? Unresolved Problems in Strata and Community TitleCathy SherryRecommended Citation

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Unresolved Indefeasibility Problems in Strata and Community Title