THE OWNERS OF 106 TERRACE ROAD PERTH - STRATA PLAN 6289

Strata Titles resolution ­ Whether invalid - Whether works for the benefit of all the proprietors ­ Whether expenditure approved

Strata Titles Act 1985 (WA), s 19, s 35(1)(b), s 35(1)(g), s 42(8), s 44(1), s 47, s 47(1), s 47(2)(e), s 79(2), s 97(1)

Glenwood Lumber Co v Phillips [1904] AC 405

Rucci & Anor v The Owners of 95 Banning Terrace, Mandurah-Strata Plan 20610 [2002] WADC 33

Sisto and The Owners of Glenway Gardens Apartments [2005] WASAT 282

Velovski and The Owners of Hector Gardens-Strata Plan 6448 [2004] WASTR 12

1 The applicant applied for an order that a resolution for the provision of additional parking bays passed at the Annual General Meeting of the respondent on 23 August 2005 be invalidated.

2 It was contended by the applicant that a resolution without dissent was required because the resolution would have the effect of granting exclusive use of the parking bays, contrary to s 42(8) of the Strata Titles Act 1985 (WA). Alternatively, if the resolution was capable of being passed by simple majority, the applicant contended that the resolution was invalid as it was not made for the control and management of the common property for the benefit of all the proprietors. Further the applicant contended that expenditure for the works had not been authorised in accordance with s 47(1) of the Strata Titles Act 1985.

3 The Tribunal concluded that the intent of the resolution was to authorise proposed works, not to grant any rights to particular individuals. In that context the references in the explanatory memoranda to the intention of leasing the car bays was regarded by the Tribunal as no more than loose terminology. It was extremely unlikely that the respondent would wish to comply with the requirements of s 19 of the Strata Titles Act 1985 to effect formal leases, when licenses could be used in a manner which would be more flexible. However, after assessing the proposed works, the Tribunal concluded that while it would benefit all proprietors to some degree, it would also be detrimental to lot owners on the ground floor to a substantial degree. The Tribunal concluded that although a consideration of whether or not to provide further car parking would ordinarily fall within the control and management of common property, it remained necessary for any proposal to be for the benefit of all proprietors, and that was not so, in this matter.

4 The terms of the resolution were insufficiently clear so as to authorise expenditure for the proposed works. Provided that any proposed works affecting common property could be shown to be in the interest of all proprietors and was then authorised as part of the budget, the Tribunal held that authorisation could be made by way of a resolution passed by a simple majority. As the budget did not include any proposed expenditure for the works the council was not authorised to expend in excess of $1650 pursuant to s 47(1) of the Strata Titles Act 1985. The Tribunal accordingly made orders invalidating the resolution.

5 The applicant is the proprietor of Lot 2 on strata plan 6289. The respondent is the corporation which came into existence upon the registration of the strata plan on 14 August 1978.

6 The parcel reflected in the strata plan comprises a three storey brick and tile building, containing 33 units together with the ground floor common property with exclusive use areas, which the Tribunal has been informed are car parking bays, although they are not described as such on the strata plan and are not all of a uniform size. Pursuant to a notification of change of by-laws, registered on 13 September 1991, exclusive use of each area is granted to the registered proprietors of 17 identified lots. The remainder of the common property consists of an undercroft area, and a driveway serving the said car parking bays.

7 The parcel abuts Terrace Road to the south. The building is in the shape of a reversed figure seven, with the top of the seven on the northern side of the parcel and the "upright" limb of the figure angling almost diagonally across the parcel from west to east. The car parking is provided on the eastern side of the building, the whole of which is under concrete, which extends from the car parking area to join Terrace Road. The portion of the concrete apron from the southern edge of the building to Terrace Road is also widened. Consequently, the whole of the length of the eastern side from the head and the seven on the northern side to Terrace Road is under concrete. The land on the western side of the building and the remaining area between the building and Terrace Road in the south consists of grassed lawn and a row of small trees along the western boundary. The area under lawn is approximately similar to the area under concrete.

8 The applicant's Lot 2 is on the ground floor and has windows overlooking the garden area.

9 A dispute has arisen between the applicant, and those proprietors of lots within the Scheme who support him and the strata company, and those proprietors of lots within the Scheme who oppose the applicant, concerning a resolution passed at an Annual General Meeting of the strata company on 23 August 2005. The resolution is in the following terms:

"That, following a proposal by Council, the Council be directed to undertake the works required to convert the common property grassed area, as per the sketch attached to the agenda, to nine paved car bays, after obtaining all necessary local government approvals for that work; to be funded from accumulated strata funds."

10 The applicant, and his supporters wish to preserve the amenity of the garden area, whereas the majority of owners consider it to be beneficial for the common property to be converted to car parking, because they consider that there are presently insufficient car bays and that the revenue received from renting the car bays will assist in meeting the costs of operation of the complex.

11 The applicant applies under s 97(1) of the Strata Titles Act 1985 (WA) (ST Act). The section empowers the Tribunal to make an order, on the application of a proprietor, if it considers that the provision of the ST Act have not been complied with in relation to a meeting of the strata company, invalidating a resolution.

12 The applicant also initially sought an interim order, in terms effectively restraining the strata council from not spending corporate funds on any work associated with adding additional parking on common property, pending a final decision. The need for any interim relief fell away because the Tribunal was given an undertaking on behalf of the respondent, that it would not proceed with the works in issue pending determination of the application.

13 Subsequently, the respondent informed the Tribunal by letter dated 6 February 2006 that the council of owners of strata plan 6289 had resolved not to proceed with the motion "Parking Bays" as detailed under "Special Business" and as passed by ordinary resolution at the Annual General Meeting held on 23 August 2005, or any of the works described therein. Further that the council of owners was exploring alternative options to that motion, which would be detailed and presented at a future general meeting of the strata company. The Tribunal was informed that the undertaking was given to facilitate the conclusion of the matter.

14 Unfortunately, the undertaking was not sufficient to satisfy the applicant, who was not prepared to withdraw the proceedings unless the respondent agreed to particular conditions which he wished to impose. Those conditions concerned the manner in which any future proposal was put to a general meeting of the strata company, and further, that any such proposal be passed by way of a resolution without dissent. The respondent was not prepared to accede to those conditions.

15 Pursuant to s 44(1) of the ST Act the council of the respondent is subject to the direction of members given at a general meeting and members are entitled insist that the council comply with the resolution passed a the Annual General Meeting, unless it is revoked by members in general meeting. By the terms of that resolution the council is directed to undertake the works. In any event, the issue between the parties is not entirely extinct. It may resurrect itself in a different form, before another general meeting, but the substance of the issue between the parties will be the same, namely, whether the common property garden can be converted into a car park area by way of an ordinary resolution. It is therefore desirable to determine the matters in issue.

16 The issues can be distilled from the grounds raised in support of the application, the documentation attached thereto, and the responses from notified persons, being the persons identified in s 79(2) of the ST Act, who have been served with a copy of the application, as follows:

1. Was it necessary for the resolution to be passed as a resolution without dissent because it is alleged to confer exclusive use of the car parking areas?

2. If a resolution without dissent was not required, could the resolution be passed by way of a simple majority, because it related to the control and management of common property for the benefit of all proprietors?

3. In any event, is the respondent precluded from incurring any expenditure authorised by the resolution, by reason of s 47(1) of the ST Act?

Was a resolution without dissent required because exclusive use of the individual car bays will be granted?

17 The resolution which was passed, or purported to have been passed by way of a simple majority, is set out above. It does not by its express terms grant any right of use.

18 Attached to the agenda for the meeting was an explanatory statement of the reasons why additional parking bays would benefit the complex. References are there made to the bays being leased. It is also there stated that it would constitute an advantage to owners to rent their units with site parking. In a response filed on behalf of the respondent it is explained that the resolution would not give individuals exclusive ongoing use of the car parking bays as the council would have the power to cancel the lease of the bays at any time. There is nothing in any of the materials submitted which enables the Tribunal to assess the terms of any proposed "lease".

19 It is an essential element of any lease that exclusive possession is granted to the lessee, Glenwood Lumber Co v Phillips [1904] AC 405 and the discussion in "Commercial Tenancy Law in Australia", (2nd edition) by Bradbrook and Croft, (Butterworth 1997) at par 1.3. But, it is noted that the subject matter of the motion which was proposed was the conversion of the common property into a car park. There was no firm proposal or authority sought to enter into a lease or leases with any particular individuals. It would be unusual for a formal lease meeting the requirements of s 19 of the ST Act to be entered into in relation to the use of a car bay. It appears likely that the referral to the term "lease" was used loosely. The language used in the respondent's response reflects that it was intended to be able to cancel "the lease" of the bays at any time, which is more consistent with the giving of a license to use the bays, than the grant of a lease.

20 The information provided to the Tribunal reflects that many of the lots are occupied by tenants. The purpose of obtaining additional car bays was explained in the respondent's response as being in part to address the adverse effect on the rentability of the units, because car bays could not be offered to prospective tenants. The reality of the situation is that it is most likely that any car bays would be made available pursuant to licenses, which could be revoked by the strata company.

21 The applicant contends that because exclusive use of the car bays is to be given that it is necessary to comply with s 42(8) of the ST Act which requires a resolution without dissent. That argument, with respect, is misconceived because it is clearly the case that there was no intention to pass any by-law granting exclusive use. The precise form by which any right to use the car bay might be given, is a matter not yet addressed. Nevertheless, a resolution without dissent would be required if it was intended to lease common property pursuant to s 19 of the ST Act.

22 On the evidence provided, the Tribunal is not prepared to find that the purpose of the resolution was to grant a lease to any particular individual. The purpose of the resolution was to authorise the carrying out of the proposed works. It was therefore not necessary for the resolution to be passed as a resolution without dissent.

Could the resolution be passed validly by way of a simple majority because it related to the control of management of common property for the benefit of all proprietors?

23 Section 35(1)(b) provides that a strata company shall control and manage the common property for the benefit of all the proprietors.

24 The resolution in issue was passed at a duly convened Annual General Meeting of the strata company on the 23 August 2005, 23 of the 33 lots were represented at the meeting, either by the proprietors in person, or by proxies. On a show of hands, all but four votes were in favour of the motion and it was regarded as having been passed by a simple majority. Subsequently, following notice in terms of s 79(2) of the ST Act, one proprietor Mr Juan Fernandes, who had voted in favour of the motion by proxy, reversed his position and supported orders being made in accordance with the application. Mr Fernandes is the owner of Lot 13/Unit 104.

25 All other responses from notified persons opposed the application. Apart from a response filed on behalf of the council of the respondent, an individual response was received from S Timpene a co-proprietor of Lot 16/Unit 107. The other co-proprietor, K Timpene, joined with S Timpene as a member of the council of the strata company in the response filed by the counsel of the respondent and maintained support for the resolution, for which they had voted at the Annual General Meeting. The other responses filed were on behalf of GN and LD Duffin, the proprietors of Lot 14/Unit 105 and P Van Dyk, the owner of Lot 29/Unit 208. These responses opposed the application on grounds largely similar to those set out in the explanatory statement which was provided with the agenda for the Annual General Meeting. In summary, the reasons given in favour of the resolution are that the income from "leasing" fees will provide financial assistance to maintain the complex, will assist owners to rent their units with site parking, increase the property value, and will reduce the cost of lawn maintenance and mowing.

26 This is no more than a summary of the perceived benefits. The Tribunal has taken into account each of the 17 reasons set out in the notice and the specific points raised in each response, one of which, in particular, should be noted, and that is as asserted by GN and LD Duffin, that there is a need for extra parking facilities.

27 It is evident that there is a significant majority of owners in favour of the resolution.

28 The applicant contends that the creation of nine new car bays on the west side of the complex will constitute a substantial interference with the amenity provided by the garden to those he refers to as "the Southern strata proprietors/tenants".

29 It is submitted that their enjoyment of the common property will be unreasonably reduced.

30 Similar issues for determination were identified in the case of Sisto and The Owners of Glenway Gardens Apartments [2005] WASAT 282.

31 In the Sisto decision the Tribunal referred to the District Court Decision in Rucci & Anor v The Owners of 95 Banning Terrace, Mandurah-Strata Plan 20610 [2002] WADC 33 and the earlier decision of the Strata Titles Referee in Velovski and The Owners of Hector Gardens-Strata Plan 6448 [2004] WASTR 12. It was found in these cases that a strata company was entitled, by reasons of its obligation under s 35(1)(g) of the ST Act to control and manage common property for the benefit of all the proprietors, to effect improvements to common property where the additions were necessary on the grounds of safety and security. The Tribunal went further in Sisto to rationalise that proper control and management of the common property includes taking reasonable steps, possibly including the erection of new structures, to ensure that it is maintained and presented in a way which accords with the reasonable expectations of the proprietors as a whole. The Tribunal specifically noted that it is a question of fact and a matter of degree as to when the erection of new structures on the common property goes beyond control and management.

32 In all of the above decisions, the conclusion was reached that the proposed works were for the benefit of all the proprietors. There is little difficulty in satisfying that requirement, when the works relate to safety and security. Although some proprietors may prefer not to spend the money on works of that nature, the result will obviously benefit all because the complex as a whole becomes safer and more secure. Although the conclusions reached in Sisto, on the facts of the case, were less obvious, the Tribunal concluded that because of the complex's prime location near the river, there was a reasonable expectation by proprietors as a whole that it would be presented in a particular way. While there was no express finding that in those circumstances the proposed works were for the benefit of all the proprietors, that was clearly the case because all proprietors would benefit equally in the improved appearance of the complex.

33 In this case, it may be true that additional car bays will add to the value of the complex as a whole, and in that sense it might be concluded that the works will benefit all proprietors. But, there are disadvantages which also have to be taken into account and it is only on a consideration of all factors that a final view can be reached. The applicant has provided photographs showing the complex as it currently presents. There is nothing attractive about the car park area to the east of the building. It presents as a large expanse of concrete. There is no detailed specification for the proposed works or any evidence before the Tribunal, which is of any assistance, other than the terms of the resolution itself. The resolution refers to the conversion of the common property grassed area "to 9 paved car - bays" (underlining added). There is no indication that the concrete driveway and car bays will be altered. It is fair to assume that the proposed works will be finished in the same way. The ordinary dictionary meaning of "paved" is to cover or lay (a road, walk, etc) with stones, bricks, tiles, wood, concrete, etc., so as to make a firm, level surface - Macquarie Dictionary (4th edition, 2005).

34 The sketches which were attached to the Agenda for the Annual General Meeting show that there is very little area to the west of the building available for any form of landscaping and that most of the area would be taken up by the proposed car parking. The appearance of the parking on the east side of the building is ameliorated by the grassed area and trees presently existing on the western side of the building. If both sides of the building are effectively under concrete it will be far from attractive. There is no doubt in the Tribunal's view that the alteration will substantially affect the ground floors lots which presently have views over the garden area, even if the value of the complex as a whole might be increased.

35 While, no doubt, the lot owners on the ground floor with views of the garden area will benefit in accordance with their unit entitlements in any income derived from the car parking, their amenities will be substantially reduced, whereas many other proprietors will not be affected by the removal of the grassed area. The value of their lots will more likely be reduced.

36 Although considerations by a strata company relating to the provision of car parking, is a matter, which falls within the control and management of common property, the control and management, in the particular circumstances prevailing, must be for the benefit of all proprietors. Taking all submissions and information provided to the Tribunal into account, I conclude that the proposed car park cannot be said to be for the benefit of all proprietors, when it will be detrimental in a substantial way to some but not all of the proprietors.

Is the respondent precluded from incurring expenditure authorised by the resolution because of a non compliance with s 47(1) of the ST Act?

37 Section 47(1) provides that "except as authorised by or under this section" a council of a strata company shall not in any one case undertake expenditure exceeding the sum obtained by multiplying either (a) a sum per lot fixed by special resolution of the strata company, or (b) if no such sum is fixed, the prescribed amount per lot.

38 There is nothing to indicate that any special resolution has been passed, and assuming that to be the case, the prescribed amount as at the date of the Annual General Meeting on 23 August 2005 was $50 per lot. Consequently, unless expenditure is otherwise authorised under s 47, the council can incur a total expenditure, in any one case, of only $1650. The applicant asserts in his application that the estimated cost of the proposed works was approximately $27 000, based on information provided to him by the strata manager. Expenditure of any amount in excess of $1650 cannot be incurred, unless otherwise authorised under the remaining subsections of s 47. Subsection 47(2)(e) provides that subsection (1) does not apply in relation to expenditure authorised by the Strata company in general meeting as part of the budget of the company.

39 The applicant has provided the proposed budget which was considered at the Annual General Meeting. The minutes of that meeting reflect that the proposed budget was adopted, subject to some qualifications which are not relevant. The proposed budget did not include any provision for carrying out the proposed works. Also, apparently enclosed with the proposed budget, was the respondents Financial Statements for the period 1 April 2004 to 31 March 2005, which showed surplus funds of some $30 848.73. The resolution as passed authorised the council to carry out the works to be funded from accumulated strata funds.

40 While it might be argued that in the circumstances the resolution constitutes an authority to the council to incur expenditure up to the amount of the surplus, that is far from clear. If that was intended the resolution should have been expressed in terms "to be funded to the extent of available accumulated strata funds". But, even if so worded, for the expenditure to be properly authorised, it had to be considered as part of the budget of the company, and it was not. As determined in Sisto, if such expenditure, relating to control and management to common property, is included as part of the budget, the works will be properly authorised by way of a simple majority. It remains however, necessary to demonstrate the proposed works will be for the benefit of all proprietors, and that is not demonstrated in this matter.

41 For the above reasons, the Tribunal makes the following order;

1. Pursuant to s 97(1) of the Strata Titles Act 1985 (WA) the resolution in respect of parking bays passed at the Annual General Meeting of the respondent on the 23 August 2005 is invalidated.

I certify that this and the preceding [41] paragraphs comprise the reasons for decision of the State Administrative Tribunal.

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MR C RAYMOND, SENIOR MEMBER