SP6534 v Elkhouri; Own­ers Cor­po­ra­tion SP6534 v Per­pet­u­al Cor­po­rate Trust Ltd [2024] NSW­CA 279 (In Eq. Div) (27 Novem­ber 2024)

Back­ground and Parties

Mr. Elkhouri (Elkhouri) owned Lot 11, a pent­house apart­ment in an 11 lot res­i­den­tial stra­ta scheme at Point Piper, Syd­ney. The lot occu­pied the top two lev­els of the build­ing and includ­ed bal­conies and rooftop areas that were com­mon prop­er­ty. When Elkhouri pur­chased Lot 11 in 2007, he had no exclu­sive rights to use these com­mon prop­er­ty areas, which were acces­si­ble only through his lot. Pre­vi­ous exclu­sive use rights had been repealed before his purchase.

Fol­low­ing Elkhouri’s death, his sons, as execu­tors of his estate, and Per­pet­u­al Cor­po­rate Trust Ltd (Per­pet­u­al), the mort­gagee in pos­ses­sion of Lot 11, pur­sued the mat­ter in the NSW Supreme Court.

Exclu­sive Use By-Law and Disputes

In 2015, Elkhouri suc­cess­ful­ly obtained an exclu­sive use by-law for the bal­cony and roof areas through Tri­bunal action. Lat­er, dis­putes arose over water dam­age to oth­er apart­ments caused by water ingress through these com­mon prop­er­ty areas. These dis­putes were resolved by a deed of set­tle­ment, which led to the Own­ers Cor­po­ra­tion pass­ing a new by-law, By-law 30, in 2017.

By-law 30 grant­ed the own­er of Lot 11 exclu­sive use and enjoy­ment rights over the bal­conies on lev­els 5 and 6 and rooftop spaces, sub­ject to con­di­tions includ­ing a sun­set date. The sun­set date was one year after the by-law was lodged for reg­is­tra­tion, and time was “of the essence”. The own­er had to com­ply with cer­tain “crit­i­cal oblig­a­tions” such as car­ry­ing out ini­tial repairs, includ­ing water­proof­ing, to spec­i­fi­ca­tions devel­oped by, and to be cer­ti­fied by, the Own­ers Cor­po­ra­tion’s build­ing consultant.

Clause 30.3 and Crit­i­cal Obligations

Clause 30.3 of By-law 30 stat­ed that exclu­sive use rights would cease the day after the sun­set date if the own­er failed to meet the crit­i­cal oblig­a­tions. These oblig­a­tions, detailed in clause 30.7, includ­ed com­plet­ing repairs, pay­ing cer­tain monies, and obtain­ing insurance.

Mr. Elkhouri com­plet­ed much of the required work before the sun­set date but did not ful­ly com­ply with all oblig­a­tions, includ­ing some repairs, pay­ments, and insur­ance require­ments. Clause 30.7 allowed the Own­ers Cor­po­ra­tion to com­plete the work if the own­er failed to do so and to seek reim­burse­ment, dam­ages, and indem­ni­ty from the owner.

Legal Issue: Whether Clause 30.3 Was “Unjust” Under Sec­tion 149(1)(c) of the SSMA

The Own­ers Cor­po­ra­tion chal­lenged the pri­ma­ry judge’s find­ing that clause 30.3 was “unjust” under sec­tion 149(1)(c) of the Stra­ta Schemes Man­age­ment Act 2015 (NSW) (SSMA). This sec­tion empow­ers the Tri­bunal to change a com­mon prop­er­ty rights by-law if con­di­tions relat­ing to main­te­nance or upkeep are unjust.

This case was the first judi­cial con­sid­er­a­tion of sec­tion 149(1)(c). The Court of Appeal also con­sid­ered whether the NSW Supreme Court had juris­dic­tion to declare con­di­tions of a by-law unjust or whether only the Tri­bunal could exer­cise that pow­er. The Court reject­ed the Own­ers Cor­po­ra­tion’s sub­mis­sion, hold­ing that noth­ing in the leg­is­la­tion exclud­ed the Supreme Court from mak­ing such determinations.

Pri­ma­ry Judge’s Inter­pre­ta­tion and Appeal Court’s Rejection

The pri­ma­ry judge found clause 30.3 unjust because it required the Lot 11 own­er to main­tain the bal­conies and rooftop even after exclu­sive use rights ceased. The Court of Appeal reject­ed this inter­pre­ta­tion, find­ing it erroneous.

The Court of Appeal held that, con­sid­er­ing the by-law’s terms, the stra­ta scheme, and extrin­sic mat­ters such as the set­tle­ment deed, clause 30.3 was not “unjust” with­in the mean­ing of sec­tion 149(1)(c) of the SSMA.

Inter­pre­ta­tion of “Unjust” and Relat­ed Terms

McHugh JA clar­i­fied that “unjust” in sec­tion 149 refers to the main­te­nance and upkeep con­di­tions of the by-law, not the entire exclu­sive use by-law. The term “main­te­nance and upkeep” in the sec­tion can include ini­tial repairs, as con­tem­plat­ed by clause 30.7.

The Court exam­ined the mean­ing of “unjust” by com­par­ing it to sec­tion 139(1) of the SSMA, which pro­hibits by-laws that are “harsh, uncon­scionable or oppres­sive.” These terms are unde­fined and have been inter­pret­ed in this and the pre­vi­ous deci­sion in Coop­er as requir­ing the appli­ca­tion of con­tem­po­rary com­mu­ni­ty stan­dards. How­ev­er, the Court found lim­it­ed assis­tance in using sec­tion 139(1) to inter­pret sec­tion 149(1)(c), not­ing that while the con­cepts may be sim­i­lar and over­lap at times, the two sec­tions serve dif­fer­ent pur­pos­es and each sec­tion should rely on its own terms. Sec­tion 139 applies broad­ly to all by-laws, while sec­tion 149 relates specif­i­cal­ly to com­mon prop­er­ty rights by-laws, which inher­ent­ly treat cer­tain lot own­ers dif­fer­ent­ly to oth­er own­ers, by grant­i­ng spe­cial rights and responsibilities.

Eval­u­a­tive Assess­ment of “Unjust”

The Court held that deter­min­ing whether a con­di­tion is “unjust” requires an eval­u­a­tive assess­ment of rel­e­vant cir­cum­stances, poten­tial­ly includ­ing fac­tors beyond the by-law’s terms.

McHugh JA inter­pret­ed the exclu­sive use rights as grant­ed for a fixed peri­od with con­di­tion­al exten­sion sub­ject to meet­ing oblig­a­tions. The Own­ers Cor­po­ra­tion argued that extrin­sic cir­cum­stances, such as the set­tle­ment deed and ongo­ing lit­i­ga­tion, should be con­sid­ered. The Court accept­ed this, rec­og­niz­ing the by-law as part of a bar­gain that pro­vid­ed real ben­e­fits to Elkhouri, includ­ing releas­ing claims and grant­i­ng exclu­sive use rights, with cor­re­spond­ing obligations.

Impli­ca­tions for Com­mon Prop­er­ty Rights By-Laws

The case high­lights that com­mon prop­er­ty rights by-laws require the con­sent of the lot own­er who gains exclu­sive use rights, typ­i­cal­ly in exchange for main­te­nance and repair obligations.

The pri­ma­ry judg­ment not­ed the sub­stan­tial val­ue dif­fer­ence of the lot with and with­out the by-law. This under­scores the impor­tance of care­ful draft­ing and clear agree­ments regard­ing the oblig­a­tions and rights in such by-laws.

The judg­ment also sug­gests that over time or with changes in own­er­ship, cer­tain by-law con­di­tions might be chal­lenged if they become unac­cept­able under com­mu­ni­ty stan­dards. This is of par­tic­u­lar inter­est as Sec­tion 149(1)(c) allows an “inter­est­ed per­son” to apply to the Tri­bunal or Supreme Court to chal­lenge unjust con­di­tions. This could include not only the orig­i­nal own­er but also pur­chasers with equi­table inter­ests, rais­ing ques­tions as to how these chal­lenges will inter­sect with reg­is­tered inter­ests under Tor­rens title.

For further information please contact:

Michael Byrnes, Partner
Phone: + 61 2 9233 5544
Email: mjb@swaab.com.au

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