Most Read Contributor in Australia, September 2016
In a judgment given on Friday 24 June 2011, the NSW Court of
Appeal overturned the recent case of Santai v The Owners
– Strata Plan 77971  NSWCA 628
(Santai), ending a difficult period of uncertainty
for developers of more complex strata and community schemes.
It has been common practice for many years for developers to
seek to ameliorate development costs, and reduce future strata and
community levies, by providing for individual schemes to share
common facilities such as pools, tennis courts and gyms, and
increasingly infrastructure such as recycled water treatment plants
with other nearby schemes and properties. Such shared facilities
are often outside the physical boundary of the scheme, so it has
been common practice for the scheme association to be empowered by
its by-laws to enter into a shared facilities agreement with the
adjoining third party to document the right to use and obligations
to upkeep the facilities. The view taken was that such agreements
enhanced the use and enjoyment by owners and occupiers of the lots
and association property of the scheme, and so it was within the
power of the association to enter into them.
The Santai case posed many challenges for developers,
as it held that associations normally had no power to make such
After Santai, if the occupiers within, say, 4 strata
schemes were to all have access to a pool, strictly, 4 pools would
need to be constructed, one in each scheme. Similarly, in a
community scheme context, if neighbouring community schemes wanted,
for economic reasons, to share a common sports ground located in
the middle of the community schemes, they could not.
The Court of Appeal has now reversed the single judge decision
in the Santai case and has taken a much broader view of the powers
of associations to enter into such third party agreements. In
short, such agreements are valid if the amenity the subject of the
agreement is capable of enhancing the owners' use or enjoyment
of their lot.
The key principles of the Court of Appeal decision
The key principles of the Court of Appeal's decision are as
A valid by-law must have a clear nexus between the by-law's
subject matter and the use or occupation of the lot in the strata
There is no precise rule to determine if that nexus exists. The
question to be determined is one of fact and degree. In
Santai, the amenity was a fitness club, which was a 15
minute walk from the strata scheme and therefore easily accessible
by the lot owners. The Court of Appeal found that a nexus
For by-laws relating to amenities, the amenities must be
capable of enhancing the lot owner's use or enjoyment of their
lot. It is not necessary for the amenity to be enjoyed within their
lot or the common property of the strata scheme. The amenity can be
located outside of the strata scheme.
The power to make by-laws should be generously construed and
limited only to the doctrine of fraud and a test of
The reference to these arrangements in the "original"
by-laws of a strata scheme will further assist in making an
argument that the by-law is valid. "Original" by-law
means a by-law included in the by-laws on the scheme's
creation. Buyers of a lot in a strata scheme buy with notice of an
original by-law. Only in rare circumstances will an original by-law
be deemed invalid.
As an original by-law, all owners were (or should have been)
aware of the proposed by-law and subsequent third party agreement
before deciding to buy the property. This reinforces the importance
of disclosing all such arrangements in your contracts for sale
before the launch of sales.
Case Note – Casuarina Rec Club Pty Limited v The
Owners – Strata Plan 77971  NSWCA 159
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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