VCAT Lessons: Owners Corporation Deadlock and Unreasonable Co-owners

By Benjamin Caddaye, Law Clerk and Alicia Hill, Principal, MST Lawyers

Introduction

The recent Victorian Civil and Administrative Tribunal (VCAT) decision of Borik v Owners Corporation RP001439 (Owners Corporation) [2019] VCAT 1459 is an excellent reminder of the challenges that co-owners can face when dealing with each other in relation to their common property. In his reasoning, Member Ussher provides useful insight into how the Tribunal will approach breaches of the model rules in the context of a ‘dysfunctional’ owners corporation.

Background

Strata title is an Australian property law concept developed in the 1960s allowing individual entities to own individual lots within a development, while the ownership of the remaining common property of the building is shared equally between lot owners. In contrast, the predominant structure for developments in the United Kingdom, where individual entities own long leasehold estates (up to 999 years) and a single entity retains ownership of the common property in the form of a freehold estate.

Since Strata title’s introduction, the vast majority of multi-occupancy developments in Australia have been structured this way. For Strata title to function, the management of the common property is undertaken by an owners corporation (known before 2007 in Victoria as a body corporate). Individual lot owners have voting power in an owners corporation in proportion to their individual lots and can vote and take part in owners corporation meetings. Given an owners corporation manages, maintains and insures the common property owned by potentially hundreds of individual lot owners, they are subject to heavy regulation contained in the Owners Corporation Act 2006 (Vic) and the Owners Corporation Regulations 2018 (Vic).

The Borik Dispute

The dispute before VCAT concerned the three lot owners of a four-unit subdivision.

1. Mr Borik owned lots 2 and 3 of the development, including two accessory car parks;
2. Mrs Power owned lot 4 and an accessory car park; and
3. Mr Cussell owned lot 1 and an accessory car park.

The voting power attached to each lot was such that Mr Borik controlled 50% of the voting power at owners corporation meetings, while Mrs Power and Mr Cussell together controlled the other 50%. This resulted in deadlock if either Mr Borik alone or Mrs Power and Mr Cussell collectively did not consent to a resolution of the owners corporation.

Furthermore, Mr Borik alleged that Mr Cussell had breached a number of the Owners Corporation Model Rules in acting in the following manner without written permission of the owners corporation:

1. removing several mature trees situated on the common property which acted as a privacy screen;
2. destroying a grassed area situated on common property by permitting his builder to place building rubble on the grass;
3. damaging the garden sprinkler system on the common property;
4. installing an air conditioning unit on common property;
5. altering the colour of the entrance door to his lot; and
6. storing personal items in the common property store room.

In response to these allegations, Mr Cussell in his Points of Defence contended that he had:

1.  removed two ‘weed like’ trees at the suggestion of his gardener, and he had at his own expense replanted trees more appropriate to the garden’s conditions;
2. paid for new grass to be laid on the common property;
3. paid for the repair of the garden sprinkler of the common property;
4. installed the air conditioning unit on the roof of his carport, but all other lot owners had such units situated on their car-port roofs;
5. painted his front door, but that it matched the overall colour scheme as it was the same colour as the walls and service doors; and
6. used the common property storage area, and had offered to pay the owners corporation a rental or licence fee. However, Mr Borik had refused his request and he had since removed all personal items from the storage room.

Tribunal’s Findings

Member Ussher first dealt with the issue of the owners corporation deadlock. VCAT is empowered under s 173 of the Owners Corporation Act, on the application of a lot owner, to appoint an administrator to the owners corporation. Once appointed, the administrator can do anything the owners corporation is empowered to do. However, the Tribunal will only appoint an administrator when the owners corporation is affected by what was described in McKinnon v Adams [2003] VSC 116 as “some incapacity, or must be acting so dysfunctionally as to render the provision of the appropriate service to unit holders and/or care of the common property either as non-existent or so beset by difficulties as to render the body corporate unable to function at what the court considers to be a satisfactory level.” Here, Member Ussher held that the form of deadlock present in the voting power was sufficient to meet the requisite level of dysfunction to require the appointment of an administrator.

Member Ussher then dealt with the alleged breach of the model rules. Taking a pragmatic approach, he found that as Mr Borik had not consented at the owners corporations meeting to resolutions authorising his conduct, Mr Cussell had:

1. removed four trees from the common property. However, he had planted three replacement trees, offering to plant a further fourth Manchurian Pear tree. These were more suited to the locality than the trees removed. There was no issue of privacy, as the replacement trees were now fence height and the neighbours had frosted windows;
2. permitted his builder to place building rubble on the garden area while renovations took place. However, the Member did not accept that any material damage was caused to the grassed area, as there was little grass coverage and Mr Cussell had reseeded the area;
3. not damaged the garden sprinkler system. There was no evidence before VCAT that the sprinkler system was not operational;
4. installed an air-conditioner condenser on the roof of his car-port. However, the uncontested evidence of Mr Cussell was that the unit makes little if any noise and therefore would not constitute a noise nuisance;
5. altered the colour of the front door, but that colour matched the overall colour scheme; and
6. stored some of his belongings in the common property, and that he had offered to pay rent or a license fee to do so but Mr Borik refused.

Mr Borik had sought an order that Mr Cussell rectify the damage caused by the breach of the model rules by: (a) replanting the original trees; (b) replanting the grass; (c) repainting the exterior door of lot 1, and (d) reposition the air conditioner condenser from the common property at his expense.

However, Member Ussher refused to make such orders. He accepted that Mr Cussell’s actions constituted “brazen contraventions of the Model Rules”, but also noted that these events occurred at a time when the owners corporation had a dysfunctional committee and could not adequately respond to the concerns of Mr Cussell or Mr Borik.

Member Ussher found that by planting new trees and seeding the grass, he had adequately remedied the damage he had caused. As there was no longer any property stored in the common storage room, there was no order to be made apart from the provision of the key to the lock to Mr Borik. Member Ussher left the decision as to whether the door should be repainted to the newly appointed administrator. Finally, Member Ussher considered it would be oppressive and unfairly prejudicial to Mr Cussell for him to be required to move the air-conditioning unit, as to do so would mean it would not function, and in any event, the evidence before him was that it emitted little if any noise.

Commercial Considerations

This decision provides insight into the way a court or tribunal will deal with an application by a lot owner to require another to remedy breaches of the model rules. While breaching the model rule is never advisable, this case highlights that in a situation where the owners corporation is dysfunctional, the orders made against the lot owner in breach will take account of this fact. The decision also reinforces that a lot owner should attempt to remedy the damage caused by any breach (such as by replanting trees), as such conduct will obviate the need for the court or tribunal to make an order. Finally, the decision serves as a word of warning to lot owners to be reasonable in the exercise of their voting power. Just because the owners corporation does not authorise an action of a lot owner, it does not automatically follow that the court will intervene to prevent the conduct where the conduct was, on the whole, reasonable.

If you have any questions about this article or owners corporations disputes, please feel free to get in contact with Alicia Hill by email or by call on +61 3 8540 0200.