Owners Corporations powers clarified

Developers and Owners Corporations often use Owners Corporation rules as a way to manage the integration of various elements of a development.For example, to limit or restrict certain uses for the benefit of other members or to protect the commercial interests of some particular lot owners.This is particularly so in mixed use developments.However, the Supreme Court of Victoria has determined that rules which restrict or prohibit the use of a lot are likely to be invalid.

In Owners Corporation PS 501391P v Balcombe [2016] VSC 384, the Court was asked to consider whether an Owners Corporation has the power to make a rule prohibiting short-term letting of an apartment.Justice Riordan found that an Owners Corporation does not have the power to adopt a rule of this nature.

The Court determined that while an Owners Corporation has the power to make "conduct rules" which regulate the use of a lot by an owner or occupier for matters such as nuisance, hazard or undue noise, an Owners Corporation does not have the power to make rules which absolutely prohibit particular uses which would otherwise be permissible under common law, or by legislation or under the planning and environmental regulations.

The Court stated that a review of the legislation collectively indicated that it was always the intention that unit owners would retain the registered freehold interest in their lot.

This case highlights the balance that needs to be maintained by an Owners Corporation in creating and protecting a harmonious living and working environment with the need to respect the proprietary rights of lot owners.

What does this mean for you?

Developers and project managers should be wary when drafting Owners Corporations rules that seek to prohibit or restrict the uses of a lot.

We can assist with drafting and reviewing the rules to ensure that they will be enforceable while achieving the necessary protections to ensure that all occupiers and owners can live and work together.

An "embedded network" is, effectively, an intermediary distribution network that distributes (and sells) electricity to premises owned or occupied by that network operator.Embedded networks are noticeable in facilities such as shopping centres, apartment buildings, retirement villages and caravan parks.

DELWP has recently released a Draft Position Paper proposing changes to the framework for embedded networks arising from concerns regarding consumer protection issues and a customer's right to choose its retailer.DELWP is assessing whether improvements are required in the regulation of embedded network providers.The review aims to ensure that customers or network operators are not unreasonably disadvantaged compared to customers of licensed retailers or distributors.

For facilities that use embedded networks, this could lead to new obligations to be registered with the Essential Services Commission, increased disclosure obligations to potential purchasers and tenants, tightened consumer protection compliance, and empowering the Energy and Water Ombudsman Victoria to hear complaints.For strata lot developments, there is also the prospect of losing access to the exemption altogether, and instead being required to hold a licence.

What you should do

Embedded network arrangements, notably in large residential developments, are going to be more closely examined and therefore we suggest developers and operators make a concerted effort to focus on adequate disclosure to consumers, and be mindful of likely regulatory changes that may impact the business model.Specifically, we suggest you:

  1. ensure that you are complying the current conditions of the exemption;  
  2. ensure that purchasers in any development you are undertaking are not being charged service charges twice in the process of the embedded network arrangement;  
  3. ensure there is appropriate disclosure of the nature of the embedded network;  
  4. review current practices in light of likely regulatory changes to assess whether any changes to your current business model should be factored in.

Submissions

Submissions are due to DELWP by 22 August 2016 and the Final Position Paper being estimated to be released late 2016.We are happy to assist you to prepare a submission or to explain in more detail the recommendations and proposals outlined in the Draft Position Paper.

More to come?

We are seeing embedded network arrangements move away from electricity and into other service areas.It would be wise to keep this Draft Position Paper in mind when venturing into these other fields.

Draft Position Paper on the General Exemption Order [Click here for more info]