| JURISDICTION : STATE ADMINISTRATIVE TRIBUNAL STREAM : COMMERCIAL & CIVIL ACT : STRATA TITLES ACT 1985 (WA) CITATION : SURROL NOMINEES PTY LTD and THE OWNERS OF 1321 HAY STREET WEST PERTH - STRATA PLAN 9821 [2013] WASAT 77 MEMBER : MS C WALLACE (MEMBER) HEARD : 3 APRIL 2013 DELIVERED : 31 MAY 2013 FILE NO/S : CC 1898 of 2012 BETWEEN : SURROL NOMINEES PTY LTD DOMINION CORPORATION PTY LTD
PONYCILL PTY LTD
Applicants
AND
THE OWNERS OF 1321 HAY STREET WEST PERTH - STRATA PLAN 9821
Respondent
Catchwords: Strata titles Control and management of common property for the benefit of all proprietors Affixing of signage on common property Whether a licence fee can be a benefit to all proprietors
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Legislation: Strata Titles Act 1985 (WA), s 7, s 17, s 19, s 35, s 35(1)(b), s 42(8), s 83(1), s 94, Sch 2, Bylaw 7, Bylaw 14 Result: Application successful
Summary of Tribunal's decision: The applicants applied under s 83(1) of the Strata Titles Act 1985 (WA) for an order invalidating a resolution passed at an Annual General Meeting that the strata company execute a licence agreement granting Lot 1 proprietors the right to affix signage to common property.
The proposed licence agreement would enable the tenants of Lot 1 to affix signage to glass panels forming part of a tinted glass wall facing Hay Street advertising their digital printing business.
The Tribunal concluded that the exercise of the duty by the strata company pursuant to s 35(1)(b) of the Strata Titles Act 1985 (WA) was invalid because it was not exercised for the benefit of all of the proprietors. Although the Tribunal found that in certain circumstances a licence fee, in and of itself, could bestow a benefit on all proprietors, the licence fee in this proceeding could not be seen as a benefit, given that it was a modest amount, would be fixed for a 10 year period and had not been determined by an assessment of market rates or by consideration of strata company outgoings. Therefore, the strata company failed to objectively meet the statutory criteria set out in the relevant provision.
Category: B
Representation: Counsel:
Applicants : Mr R Kronberger
Respondent : Mr Douglas
Solicitors:
Applicants : Atkinson Legal
Respondent : Hotchkin Hanly
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<SolicitorList Name1="Atkinson Legal", Type1="Applicants", Name2="Atkinson Legal", Type2="Applicants", Name3="Atkinson Legal", Type3="Applicants", Name4="Hotchkin Hanly", Type4="Respondent",>
<CounselList Name1="Mr R Kronberger", Type1="Applicants", Name2="Mr R Kronberger", Type2="Applicants", Name3="Mr R Kronberger", Type3="Applicants", Name4="Mr Douglas", Type4="Respondent",>
Case(s) referred to in decision(s):
Banning and the Owners of 106 Terrace Road Perth Strata Plan 6289 [2006] WASAT 296
Clarke and the Owners of Waterfront Mews Strata Plan 14082 [2011] WASAT 110
Loveland v Owners of Northlands Centre Strata Plan 17160 [2006] WASAT 358
Maber & Anor and the Owners of Strata Plan 11391 [2007] WASAT 99
Rucci v Owners of 95 Mandurah Terrace, Mandurah Strata Plan 20610 [2002] WADC 33
Seghezzi and the Owners of 9 The Avenue Crawley Strata Plan 27842 [2013] WASAT 53
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REASONS FOR DECISION OF THE TRIBUNAL:
Introduction and background 1 This matter concerns a central issue as to whether the respondent strata company is entitled to enter into a licence agreement enabling an individual proprietor to affix signage onto common property as a valid exercise of the strata company's power to control and manage the common property. The application relates to a parcel depicted in a strata plan registered on 5 November 1981. The building comprises of 14 lots in a northfacing predominantly office building situated at No 1321 Hay Street in West Perth. The building has a basement car parking area, a professional office and retail shop on the ground floor, and additional offices on the first and second floors. Relevantly Lot 1 on the strata plan, being located at the front of the ground floor level and owned by David Fredrick Kurt Harris and Digicap Pty Ltd, is tenanted to an entity, Kalamazoo Pty Ltd, which conducts a digital printing, scanning and copying business, being the only retail shop present in the building. The Lot 1 proprietors are also part owners of that business. 2 On 23 July 2012 an Annual General Meeting of the owners took place and considered a number of agenda items, including whether the strata company ought to execute a licence agreement with the proprietors of Lot 1 granting a licence to them to use part of the common property, comprising the external face of the ground floor street window adjacent to Lot 1 (four segments of the window), for the purpose of signage, advertising the tenants' business (the licence agreement is Annexure B to Exhibit 2). The term of the licence agreement is 10 years and the fee payable by the licensees is $500 per annum. This proposal was resolved by an ordinary resolution with 10 of the lots voting in favour and 4 of the lots voting against. The motion was therefore carried by ordinary resolution such that the strata company would execute the licence agreement as a purported valid exercise of the strata company's power pursuant to s 35(1)(b) of the Strata Titles Act 1985 (WA) (ST Act). 3 The applicants, being proprietors who voted against the proposal that the strata company execute the licence agreement, have brought their application pursuant to s 83(1) of the ST Act on the basis that a purported grant of signage rights by the respondent in favour of the proprietor of Lot 1 is invalid as being beyond the power of the strata company or alternatively is inconsistent with the ST Act and its bylaws. Other orders were initially sought by the applicants in relation to inspecting and, where necessary, undertaking repair and maintenance work. However, that part (Page 5)
of the claim was settled at mediation between the parties and orders were made by the Tribunal on 7 March 2013 disposing of that aspect of the application. 4 The digital printing and copying business operating at the Lot 1 premises has conducted business there for some time, approximately 15 years. It is the only retail business in the premises, the other lot proprietors using their premises as professional offices. The common property in question comprises 40 panels of tinted reflective glass which does not have any signage or material visible on its surface. The common property glass wall is then fronted by a decorative lowwalled courtyard area. The common property glass wall faces Hay Street and therefore any signage affixed to it would be clearly visible to passersby who would be made aware of the retail shop conducting business within that premises. 5 It was not in contention in the proceedings that no other proprietor wishes to use or could use that part of the common property and, in any event, no other proprietor conducts a retail business in relation to which signage would be desirable. No evidence was adduced as to the form of the proposed signage. The motion carried in favour of execution of the licence agreement included a resolution that no external building signage would be permitted without prior approval by the Council of Owners. The licence agreement has not been executed, pending the outcome of this application.
The proceedings 6 During the course of the proceedings the parties filed a number of documents which were accepted as exhibits at the hearing for ease of reference. I have read and had regard to all of those documents, being: the Applicants' Application and Annexure (Exhibit 1), the Applicants' Statement of Issues, Facts and Contentions (Exhibit 2), the Applicants' Supplementary Submission (Exhibit 3), the Applicants' Response to the Respondent's Evidence (Exhibit 4), the Respondent's Response to the Applicants' Statement of Issues, Facts and Contentions (Exhibit 5), the Respondent's Outline of Submissions excluding the engineers report (Exhibit 6), the Respondent's Notice of Evidence and Supplementary Submissions (Exhibit 7) and a letter to Mr Harris from the City of Perth dated 21 March 2012 together with attachments (Exhibit 8). In addition, the respondent called two witnesses, Ms Hargraves, being one of the joint owners of Lot 1, and Mr Lommers, a member of the Executive Council of the respondent. (Page 6)
7 I should note that the Tribunal received a further document, being a letter from Mr Lommers dated 15 April 2003, following the conclusion of the hearing despite no orders being made for the provision of any further submissions or evidence. I have not read that letter and therefore have had no regard to its contents. To do so would be inappropriate given the inability of the applicants to respond to its contents and the inappropriateness in any event of a witness attempting to supplement their evidence following the conclusion of a hearing. The only submissions and documentary evidence to which I have given consideration are those which were received as exhibits at the hearing itself and to which I have referred above. 8 The submissions and documentary material to which I have referred clearly set out that there is one main issue in this matter which requires determination. That issue is whether the strata company is entitled to enter into a licence agreement enabling an individual proprietor to affix signage onto common property as a valid exercise of the strata company's power to control and manage the common property. If so, a second issue arises as to whether the grant of that licence for the affixing of signage is for the benefit of all the proprietors.
Control and management of common property 9 Section 35(1)(b) of the ST Act provides as follows: (1) A strata company shall – … (b) control and manage the common property for the benefit of all the proprietors[.]
10 Section 17 of the ST Act deals with the ownership of common property and provides as follows: (1) Common property shall be held by the proprietors as tenants in common in shares proportional to the unit entitlements of their respective lots. 11 What this effectively means is that each individual proprietor can use and enjoy the common property unless the strata company takes one of the lawful avenues open under the ST Act to bestow a special right or interest in the common property, or a portion of it, upon one or more proprietors. The strata company might create an exclusive use right by a number of ways, including through a registered bylaw (s 42(8) of the ST Act), the grant of a lease (s 19 of the ST Act), or by granting a licence (Page 7)
entitling a proprietor/s exclusive use in the proper management and control of the common property (s 35(1)(b) of the ST Act). 12 The control and management of common property may at times result in the strata company making decisions which adversely impact on one or more proprietors on the basis that such action is required for 'the greater good' of the proprietors as a whole. A common example of when that might occur is where there are issues of safety and security: Rucci v Owners of 95 Mandurah Terrace, Mandurah Strata Plan 20610 [2002] WADC 33. When decisions are made in relation to the treatment of common property as part of the control and management of it, there is always the potential to impact on some proprietors' ability to deal with that portion of the common property to a lesser or greater extent. It is therefore always a matter of degree based on the individual facts of each case as to whether such adverse impact or interference with one or more proprietors' use and enjoyment of common property is justifiable when compared with the consequential benefit being derived for all proprietors: Clarke and the Owners of Waterfront Mews Strata Plan 14082 [2011] WASAT 110 at [37]. 13 The erection of signage was held to fall within the strata company's power to manage and control the common property in Loveland v Owners ofNorthlands Centre Strata Plan 17160 [2006] WASAT 358 at [17] (Loveland). In that case the Tribunal found that the resolution passed to grant the licence for the affixing of the signage resulted in a benefit being received by all proprietors (at [18]). 14 The applicants' submission that an exclusivity of use of common property can only be granted by a s 42(8) registered bylaw cannot be accepted, having regard to the provisions of the ST Act and case law as illustrated above. To the contrary, I am satisfied that, in an appropriate case, a strata company may grant a licence to an individual proprietor to affix signage upon common property in the exercise of its s 35(1)(b) power. 15 I now turn to the second issue of whether, in the particular facts of this case, there is a benefit for all proprietors arising from the granting of the licence to the Lot 1 proprietors.
For the benefit of all proprietors 16 Whether the purported exercise of the s 35(1)(b) power has been demonstrated to be 'for the benefit of all proprietors' is for the Tribunal to determine objectively: Seghezzi and the Owners of 9 The Avenue (Page 8)
Crawley Strata Plan 27842 [2013] WASAT 53 at [30]. In objectively assessing whether there is a benefit for all the proprietors, the Tribunal undertakes a balancing and assessment of benefits. It must consider, first, whether there is a benefit to a significant proportion of proprietors. If so, it must go on to consider whether there are any disadvantages which are sufficiently significant to result in a conclusion that, on balance, the decision is not for the benefit of all proprietors: Banning and the Owners of 106 Terrace Road Perth Strata Plan 6289 [2006] WASAT 296 at [33]. The absence of a material disadvantage or detriment to any proprietor does not equate to the presence of a benefit. The question is whether what is done by a strata company pursuant to its authority under s 35 is for the benefit of all proprietors: Maber & Anor and the Owners of Strata Plan 11391 [2007] WASAT 99 (Maber). 17 Put succinctly, the applicants say in respect of this issue that the motion passed by the Council of Owners to execute the licence agreement in favour of the Lot 1 proprietors confers a special privilege on that one proprietor and that no other proprietor receives a benefit. The applicants go further to suggest that there would also be a detriment suffered by the other proprietors if the strata company executed the licence agreement. 18 I will address shortly the submissions put on behalf of the respondent which sets out what it says the benefits are to all the proprietors. First, I wish to refer to the oral evidence given at the hearing by Ms Hargraves, the joint owner of Lot 1 as well as a cotenant of the premises, and of Mr Lommers, a member of the Executive Council of the respondent, in relation to this issue. Whilst of course the question must be determined objectively and not subjectively, the oral evidence is of some significance. It is significant in this way: if a strata company purports to exercise a power bestowed upon it by a provision of the ST Act which requires it to consider certain statutory criteria in the exercise of that power, the Tribunal's expectation would be that such criteria is considered and an attempt made to achieve that criteria in the purported exercise of that power. In circumstances where there is an absence of subjective intent to satisfy the statutory criteria, it is unlikely to be objectively met. 19 It is in the context of those comments that I briefly summarise the evidence of the witnesses in relation to the considerations which were taken into account in the purported exercise of the strata company's duty to control and manage the common property for the benefit of all proprietors. The evidence of Ms Hargraves was that the necessity for the affixing of signage to the common property to advertise the business in which she is coowner was because the economic climate was bad and (Page 9)
their sales were diminishing, and the business was not viable without the ability to advertise. Ms Hargraves gave evidence that the most common way of advertising for a digital print company was through the affixing of signage to attract walk-in trade. Effectively, Ms Hargraves' evidence was that the benefit which would be derived from affixing the signage to the common property would be a benefit in increasing profit for the retail business operating from Lot 1. Mr Lommers oral evidence was consistent in this regard. Mr Lommer's gave evidence that the Council of Owners obtained legal advice to identify how it would be able to establish a means by which Lot 1 would be permitted to affix signage. The advice that it received was that the licence agreement could be put as a proposal and passed as a majority vote, and therefore the Council of Owners acted on that advice. 20 Mr Lommers gave evidence that Lot 1 was in a unique position, being the only retailer in the premises which needed to affix signage in order for the business to survive. Mr Lommer's evidence was that he wanted to 'give them a fair go really to survive in business'. In relation to a question from counsel as to how the licence fee was determined, Mr Lommers responded that 'I think it was just put in … no discussion on it at all'. In response to a question from counsel in relation to the Annual General Meeting which took place on 23 July 2012 as to whether there was a discussion about the principles and the benefits that would be obtained by granting the licence, Mr Lommers responded as follows: 'no there wasn't. It was just a plain recognition that in order for the owners of the business that are trading on unit 1 are able to trade to their full capacity. That was all'. 21 The oral evidence provided to the Tribunal therefore identified an intention to bestow a benefit on one proprietor and that s 35(1)(b) of the ST Act was merely the vehicle through which to achieve that goal. That is a concern for the reasons that I have previously stated. However, the test as to whether a benefit for all proprietors has been achieved is an objective one and therefore I need to look beyond the oral evidence to ascertain whether there is in fact any identifiable benefit to all proprietors as a result of the purported exercise of the duty by the strata company. In this regard, counsel for the respondent identified the following benefits for all proprietors: 1) The business is not viable without the ability to affix signage. If the business folds as a result of the inability to advertise and the ground floor becomes vacant or changes (Page 10)
22 I will turn to consider each of the submitted benefits in the order as identified above. 23 The first claimed benefit is that concerning the viability of the business being operated from Lot 1, and its unique position. Mr Kronberger contended that this was not a proper consideration in the exercise of the duty under s 35(1)(b) of the ST Act. I tend to agree. The submissions to a certain extent sounded akin to the type of submissions which would be made in an application before the Tribunal under s 94 of the ST Act where a proprietor is seeking an order from the Tribunal to grant a licence where the lot is incapable of reasonable use and enjoyment unless the order is made. No s 94 application has been made by the proprietor of Lot 1 and nor could one be made, given that the licence was granted by the strata company. So I agree with Mr Kronberger's submission that the viability or otherwise of the tenants business at Lot 1 is not a relevant consideration in the exercise of the strata company's duty to manage and control the common property for the benefit of all proprietors. 24 As to the submission made on behalf of the respondent that ensuring the ground floor lot is occupied is of itself a benefit to all of the proprietors, I do not accept that submission. Firstly, there was no probative evidence that without signage Lot 1 would become vacant. The evidence before the Tribunal was that Lot 1 has been occupied for a significant number of years during which time the digital printing business has been operating. There was no evidence to support the contention that without signage the lot would be vacant or incapable of being occupied. In any event, even if the evidence was before the Tribunal that the lot would become vacant, I do not accept that that would necessarily be a disadvantage or detriment to the other proprietors and that therefore, conversely, an occupied space is an advantage. The other lot (Page 11)
proprietors are all office premises; they do not rely on the ground floor being occupied for any consequential benefit. The position may have been different if a number of lot proprietors were on the ground floor and they were all retail shops and therefore benefited from walkin trade attracted by the surrounding lot premises. In those circumstances there may be a benefit in all of the lots being occupied. But I do not accept that there is a benefit to the lots on the other floors, being office premises, by ensuring that the ground floor is occupied. 25 The second 'benefit' submitted on behalf of the respondent, was the benefit to the Lot 1 proprietor, which could only be bestowed upon it because of its unique position. Effectively, the respondent submitted that the s 35(1)(b) power can be exercised to bestow an exclusive benefit on one proprietor who is in a unique position. However, this is entirely inconsistent with the position that common property is held by all proprietors as tenants in common. That submission is also inconsistent with the terms of s 35(1)(b) of the ST Act which requires any action to control and manage the common property to be taken for the benefit of all proprietors. Whilst it is often a matter of degree and balancing of interests, the common theme in all the cases is that there is some identifiable benefit to all, or a significant proportion, of proprietors. Such was the case in the Loveland decision. Therefore, I cannot accept that there would ever be a valid exercise of the duty to manage and control the common property for the exclusive benefit of one proprietor. Even if I accept the respondent's position that there would be no material disadvantage to any other proprietor, as the Maber decision has made clear, the absence of a disadvantage does not equate to a benefit. 26 That leaves the final consideration as to whether a licence fee, in and of itself, is sufficient to satisfy that there is a benefit to all proprietors in the granting of an exclusive use licence. I raised with counsel during the course of the proceedings that I was unaware of any case which has previously addressed this question, and therefore it remains open to be determined. Mr Kronberger, for the applicants, conceded that in his view there may be circumstances in which a licence fee, in and of itself, is sufficient to establish a benefit to all proprietors, accepting that there is also an absence of any detriment to the proprietors by the strata company executing the relevant licence agreement. Counsel for the respondent submitted that, indeed, this is such a case where the licence fee can be accepted as achieving a benefit for all proprietors, particularly in circumstances where the relevant common property cannot and will not be used by any other proprietor. (Page 12)
27 In my view, a licence fee can, in certain circumstances, be seen as providing a benefit for all proprietors. I say in certain circumstances because one would need to look at all the terms of the licence agreement to ensure that they are consistent with providing a benefit to all proprietors. There would also need to be an assessment as to whether there are any potential disadvantages which may be suffered by the proprietors which outweigh any benefit which would be derived from the licence fee itself. However, I do not accept that the licence fee set out in the terms of the licence agreement in this proceeding can be characterised as a benefit to all proprietors. This is because the oral evidence provided, to which I have already referred, makes it clear that there was no consideration in determining the amount of the licence fee such that it would result in any type of benefit for all the proprietors. It certainly appears to be a modest licence fee which is, pursuant to the terms of the licence agreement, to remain the same over an extensive 10 year period. Based on the evidence that the Tribunal received, it appears that no steps were taken to ascertain the market rate which would ordinarily be applicable for licence agreements of this nature, nor any consideration as to the general outgoings incurred by the strata company in the proper control and management of the common property by which to determine a licence fee which would benefit all proprietors in assisting to meet those outgoings. Without evidence of that nature it is difficult to establish that the licence fee itself was intended to, and objectively achieves, a benefit for all proprietors. As it currently stands, the licence fee split between the lot proprietors each year would give a 'benefit' of $35 per year per proprietor for the next 10 years. Given that the licence fee is the only ascertainable benefit which could possibly be derived by this purported exercise of the duty under s 35(1)(b) of the ST Act, it appears to me on the evidence presented that it fails to meet that categorisation. This is not surprising in circumstances where, in the purported exercise of the duty, it appears that the owners did not turn their minds to ensuring that there would be a benefit to all proprietors. 28 Given that I have found that the purported exercise of power by the strata company pursuant to s 35(1)(b) of the ST Act has not resulted in a benefit to all proprietors I do not need to consider the submissions raised by counsel for the applicants as to the alleged disadvantages which would be suffered by the proprietors, if the licence agreement were to be executed. However, I do note that in any event the applicants' reliance on Bylaws 7 and 14 of Sch 2 to the ST Act are not relevant as they do not relate to common property but, rather, restrict certain works from being performed within a lot. The same comment is made in relation to the (Page 13)
applicants' reliance on s 7 of the ST Act which again relates to a lot and not to common property.
Conclusion 29 For the reasons given, I am satisfied that the decision made reflected in the ordinary resolution passed at the Annual General Meeting of the respondent strata company on 23 July 2012 was contrary to s 35(1)(b) of the ST Act because the decision, although within the proper scope of the power to the control and management of common property, was not for the benefit of all the proprietors. The resolution must therefore be set aside.
Order 1. The resolution made by the Council of Owners at the Annual General Meeting on 23 July 2012 granting a licence to Digicap Pty Ltd in the form of Annexure B to Exhibit 2 is set aside as an invalid exercise of power under s 35(1)(b) of the Strata Titles Act1985 (WA). |