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How to approach rules made prior to the Owners Corporations Act 2006 commenced

rules

Owners Corporation Managers are often asked to advise on OC rules and to facilitate the dispute process.  Naturally, the first step is to review the rules.
 
All OCs have rules for the control, management, administration, use and enjoyment of common property and lots.
 
The purpose of rules is two-fold:

  • Prospective regulation of matters; and
  • Retrospective enforcement of breaches.

 
Model Rules are set out in Schedule 2 of the Owners Corporations Regulations 2018 (OC Regulations).  By default the Model Rules apply unless the OC makes its own Special Rules and records them with Land Victoria.
 
An OC may make Special Rules by passing a special resolution of 75% of the total votes for all lots affected by the OC.  To be valid and enforceable Special Rules must:
 
1. be for or with respect to a matter set out in Schedule 1 of the Owners Corporations Act 2006 (OC Act ) (section 138(1)); and
 
2. be for the purpose of the control, management, administration, use or enjoyment of the common property or a lot (section 138(3)).
 
There is power under Schedule 1 to make special rules relating to:

  • Health, safety and security
  • Committees and sub-committees
  • Management and administration
  • Use of common property
  • Lots
  • Design
  • Behaviour of persons
  • Dispute resolution
  • Notices and documents
  • Common seal


If a proposed Special Rule does not fall under one of these powers then the rule will be invalid and unenforceable by the OC.
 
But what if the rules were registered prior to the commencement of the OCA?
 
The Subdivision (Body Corporate) Regulations 2001 were gazetted under the Subdivision Act 1988.  Form 1 of the Schedule set out Model Rules which applied to all bodies corporate (as OCs were then known).
 
Additional to the Model Rules, Regulation 220(1) of those regulations stated:

(1)       By special resolution, the body corporate may make rules in addition to the rules applied under regulation 219.

There was no prescribed subject matter in respect to which additional rules could be made.  However, it was long been the law of Victoria that a rule can only be made in respect to subject matter’s within the rule-maker’s power.  In the arly 1930’s in Williams v City of Melbourne [1933] HCA 56 the High Court stated [Per Dixon J]:
 
Notwithstanding that ex facie there seemed a sufficient connection between the subject of the power and that of the by-law, the true character of the by-law may then appear to be such that it could not reasonably have been adopted as a means of attaining the ends of the power. In such a case the by-law will be invalid, not because it is inexpedient or misguided, but because it is not a real exercise of the power.
 
The OCA, including its transitional provisions, came into operation on 31st December 2006. The transitional provisions were contained in Schedule 2 of the OCA and relevantly provided:
 
5. Rules of body corporate
 
Any rules of a subdivision body corporate in force immediately before the commencement day, continue in force on and after that commencement and are deemed to be the rules of the owners corporation under the new Act to the extent that they are not inconsistent with the new Act or the regulations under the new Act.

In Sulomar v Owners Corporation No 1 PS511700W (Owners Corporations) [2016] VCAT 1502 (6 September 2016) the tribunal commented:

[19]  The power to make rules was conferred upon bodies corporate under regulation 220. However, the power was not an unfettered power to make any rule. The power to make rules was limited to the statutory purpose of the body corporate.
 
In other words, for a rule to be “saved” pursuant to the transitional provisions it must have been made validly in the first instance.  VCAT commented further in Sulomar:
 
[17]  Because the transitional provisions do not validate an otherwise invalid rule, it is not necessary to consider whether the rules could have been made under the OC Act. It is only necessary to consider the validity of the impugned rules under the Subdivision Act 1988.
 
And so, for a rule to be validly made under r.220(1) of the Subdivision (Body Corporate) Regulations 2001 it had to be within the statutory purpose of the body corporate (now owners corporation).
 
The Supreme Court described the “statutory purpose” test in Owners Corporation PS 501391P v Balcombe [2016] VSC 384 as follows:
 
First, it is necessary to determine the statutory object to be served by, and the ‘true nature and purpose’ (‘the Statutory Purpose’) of, the power to make regulations. The relevant inquiry as to the Statutory Purpose of the power is considered by reference to the scope, object and subject matter of the empowering Act.
 
Secondly, it is necessary to characterise the impugned regulation by reference to the circumstances in which it applies, in particular its operation and effect. The evidence of the circumstances in which the regulation will operate will enable the court to form a view about the nature and apparent purpose of the regulation; and the existence and dimensions of the actual or threatened mischief sought to be addressed by the impugned regulation.
 
Thirdly, ‘once armed with knowledge of these facts’, the court then makes its own assessment of:
 
(i) whether the connection between the likely operation of the regulation and the Statutory Purpose of the power is sufficiently direct and substantial; or
 
(ii) whether the regulation could not reasonably have been adopted as a means of attaining the Statutory Purpose, in which case it will be so lacking in reasonable proportionality as not to be a real exercise of the power
 
Consequently, for an Additional Rule to be validly made under the Subdivision (Body Corporate) Regulations 2001, and to be transitioned under the OCA, it needed to be made consistently with the body corporate’s functions or powers.  For ease of reference I set those out below:

201. Functions of bodies corporate

A body corporate has the following functions-

   (a)  to repair and maintain-

   (i)  the common property;

   (ii) the chattels, fixtures, fittings and services related to the common property or its enjoyment;

   (iii) the equipment and services for which an easement exists for the benefit of the land affected by the body corporate;

   (b)  to manage and administer the common property;

   (c)  to take out, maintain and pay premiums on insurance required or permitted by any Act or Division 4 of this Part and any other insurance the body corporate considers appropriate;

   (d)  to provide a certificate in accordance with Division 7 when requested;

   (e)  to take any action necessary or desirable to ensure that these Regulations and the rules of the body corporate are complied with;

   (f)  to carry out any other functions conferred on the body corporate by the Act, these Regulations or any other law.

202. Powers of bodies corporate

(1) A body corporate has all the powers that are necessary to enable it to perform its functions, including, but not limited to, the following powers-

   (a)  to set fees intended to cover general administration and maintenance, insurance and other recurrent obligations of the body corporate, based on lot liability and to determine the times for payment of these fees;

   (b)  to levy special fees or charges designed to cover extraordinary items of expenditure, based on lot liability;

   (c)  to acquire, hold and dispose of personal property for the use of members of the body corporate and the occupants of lots and the general public;

   (d)  to borrow, repay and invest money;

   (e)  to establish and operate any bank account consistent with current business practice;

   (f)  to appoint or employ persons to assist the body corporate in the performance of its functions;

   (g)  to provide services or to enter into agreements for the provision of services to members of the body corporate and the occupiers of lots;

   (h)  any other powers conferred on it by these Regulations or the rules of the body corporate.

Tim Graham
Bugden Allen Graham Lawyers

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