ABSTRACT

A legislative re-cap In Chapter 1 we saw that orthodox Anglo-Australian property law stymied the development of both high-rise freehold apartments and low-rise freehold estates with private amenities. Positive obligations for the necessary repairs of a commonly owned building or amenities could not be imposed on freehold owners, and so apartment buildings were company title or tenanted, and suburban subdivisions were only subject to restrictive covenants and serviced with publicly owned facilities. However, company title was not an acceptable security for banks and the Landlord and Tenant (Amendment) Act (1948) (NSW) made ownership of apartments for lease less profitable. During the post-War housing shortage, pressure mounted on the government to provide a legislative solution to the problem of freehold apartment ownership. The solution was found in the Conveyancing (Strata Titles) Act 1961 (NSW) (‘CSTA’), which was replicated in all Australian states, and gradually extended to horizontal subdivisions. As noted in Chapter 1, the multiple state Acts now regulate close to 2 million strata and community title lots in Australia.1 The Acts create individual freehold titles, along with tenancies in common in shared property, and overcome the common law prohibition on positive obligations on freehold land by authorising the body corporate to extract annual levies from owners in proportion to their unit entitlements. The legislation also facilitates the creation of rules in by-laws and management statements that regulate land use and behaviour. By-laws and management statements are simply statutorily authorised restrictive and positive covenants on freehold land, or in the terminology of the United States literature we have been considering, C, C & Rs or servitudes. As noted in Chapter 1, the content of these restrictions and obligations has very little legislative limit in all states, except possibly Victoria. While most states have by-laws provided by the legislation, sometimes called ‘model’ bylaws, developers do not have to use these, and in any event, all by-laws can subsequently be altered by appropriate vote. All states’ legislation prohibits specific by-laws, for example, those that restrict transfer, leasing and mortgaging, or which ban assistance animals, and some states have more general prohibitions on by-laws that are oppressive or discriminatory. Only Queensland and

Tasmania prohibit by-laws that are ‘unreasonable’.2 These legislative restrictions will be considered in the next chapter. For now, it is sufficient to note that the Acts give private citizens extremely broad powers to regulate freehold land. The phrase used in a number of state Acts is that by-laws must relate to ‘the control, management, administration, use or enjoyment’ of lots or common property. It is hard to think of any activity that can occur in a strata or community development that does not fit this description. For example, eating meat in an apartment is an act that relates to the use of a lot, as does painting the walls white, keeping a goldfish or inviting friends for dinner. It is important not to dismiss these by-laws as fanciful, assuming ‘of course a by-law could not ban someone eating meat in their own home!’ The question is, what part of the law would make such a by-law invalid? A very broad initial power to write by-laws is analogous to the law in the United States, where HOAs at least, depend on general property law, not legislation, for their existence. Associations are created by developers’ lawyers and given broad functions and powers in founding documents. Servitudes regulate land use and behaviour, and as a general rule, there is no legislative limit on their content, in the same way that there is no legislative limit on the content of easements or restrictive covenants in Australia. The content of these interests in land is limited by the common law and equity;3 that is, judicial limits have been placed on the ability of private citizens to regulate freehold land. The primary limit on servitudes in the United States was the ‘touch and concern’ doctrine, which while sometimes abstruse, was used by judges to strike down socially and economically inefficient or unconscionable rights. That function has now been clarified by the Restatement (Third) of Property: Servitudes (2000). In response to the rise of HOAs and condominiums, courts created an additional rule, that the subsequent actions of associations, including the writing of rules, must be ‘reasonable’. This raises the question, if the by-laws in Australian strata and community title legislation are the statutory equivalent of servitudes/freehold covenants – property rights that have always been judicially limited (or in the case of positive covenants in Australia, completely prohibited) – what judicial limit has been placed on the by-law-making power by Australian courts? In the context of the debate between Ellickson and Alexander, both of whom accept that at some point judicial review can be used to strike down privately created rules, where do Australian courts stand? It is difficult to answer this question because in the 50 years of the by-lawmaking power’s existence it has attracted remarkably little superior court consideration. There are a number of possible explanations for this. First, many older strata schemes are relatively small, with minimal common property, the use of which could be a source of dispute. Large schemes with extensive common property are a relatively recent phenomenon. Second, occupation of apartments in Australia is typically transitory, either because residents are tenants and long-term leasing is rare, or because apartments are a stepping-stone into freestanding housing.4 If by-laws are a source of frustration, simply moving out is a realistic option.