The Victorian Civil and Administrative Tribunal has held that an owners corporation rule seeking to prohibit a particular type of use of a lot is an invalid rule which is beyond the owners corporation’s rule making power provided for by the Owners Corporation Act 2006 (Vic) (Act).

Hall & Wilcox represented the successful applicant in Lawandi v Owners Corporation 21842D. In this case, the owners corporation sought to prevent our client from using the premises for residential purposes in a building which is primarily used for commercial purposes. By special resolution, the owners corporation introduced a new rule which provided:

A lot owner or occupier must not use the lot, or permit it to be used, for residential or other accommodation, whether short term, long term or otherwise.

In considering the rule, the Tribunal closely considered the wording of section 138 of the Act and Schedule 1 of the Act. Vice President Judge Davis found that the matters which an owners corporation may make rules about are confined to the subject matter in Schedule 1 of the Act. Clause 5 of Schedule 1 of the Act (relating to lots) was found to enable an owners corporation to make rules regulating the external appearance of lots or activities being carried out on a lot so far as they impact on common convenience or common areas, but did not extend to prohibiting a particular use of a lot.

Vice President Judge Davis found:

[T]he power under the Act in an OC to make rules “for and with respect to” a “change of use of a lot” cannot be construed to allow an OC to make a rule prohibiting the change of use of a lot.  Rather, the power is to be construed as a power to make rules for and in respect of any change of use of a lot that are necessary for the carrying out of its functions under the Act.

Rules limiting types of uses within buildings affected by owners corporations are common in inner city developments (for example the Republic Tower at 299 Queen Street, Melbourne (the subject of Morrish v Republic Tower Body Corporate [2004] VSC 56) and the Watergate Building in the Docklands (the subject of Owners Corporation PS501391P v Balcombe (Owners Corporations)[2015] VCAT 956)). The case therefore has important ramifications for owners corporations and members of owners corporations as it calls into question the validity of any owners corporation rule which seeks to prohibit a lot from being used for a particular purpose, such as a residential use or a commercial use, and a member’s obligation to comply with a rule of this nature.