For “oppressive” strata by-laws in NSW, it’s now game, pet, and match

The proposition that what matters is not the size of the dog in the fight, but the size of the fight in the dog, was exemplified in the NSW Court of Appeal this week.  In one corner was a miniature schnauzer named Angus (no relation); in the other, the owners corporation of the 43-story, 341-lot “Horizon” apartment building in Darlinghurst in inner Sydney.

In a dispute about whether a by-law which prevented Horizon owners from keeping pets was “harsh, unconscionable or oppressive” (and was thus liable to be invalidated under the Strata Schemes Management Act 2015 (NSW)) the Court of Appeal invalidated the by-law, thereby finding for the dog, with costs.  The case provides an important lesson on the limitation of the power of owners corporations to make by-laws, especially in relation to the keeping of pets.  As a result, pet owners throughout New South Wales are likely to greet the decision with a hearty, “Fantastic. Great move. Well done, Angus” (although the enthusiasm of those who advise owners corporations is likely to be rather, well, miniature).

The challenged by-law

By-law 14.1 of the Horizon’s by-laws operated as a blanket prohibition on the keeping or bringing of any animal onto any lot, or onto any common property, in the Horizon building.  An attempt to amend the by-law to permit the keeping of small cats and dogs had been defeated at the 2018 AGM by a margin of approximately 4 to 1, and the by-law (or a similar by-law under previous legislation) had always applied in the Horizon, including when the Coopers (the owners of Angus) had purchased their apartment in the building.

In 2019, the owners corporation sought orders in the NSW Civil and Administrative Tribunal (NCAT) that Angus be permanently removed from the Horizon building, with the Coopers responding by seeking an order that by-law 14.1 was invalid.  The Coopers succeeded at first instance in establishing that the blanket ban was “harsh, unconscionable and oppressive”.  However, that decision was overturned on appeal by the NCAT Appeal Panel, setting the stage for the matter to go to the Court of Appeal.

What makes by-laws “harsh, unconscionable and oppressive”?

The Court of Appeal started from the proposition that the owners of strata title units are still owners of freehold property, notwithstanding the constraints which are necessary to make strata ownership viable.  Accordingly, lot owners “are entitled to enjoy and exercise the ordinary incidents of ownership of property except to the extent that they are lawfully constrained from doing so”.

The appropriate test for a lawful interference with the property rights of lot owners was whether the interference was necessary to prevent a material and adverse effect on the enjoyment of other lot owners of their lots (or of the common property).  The blanket nature of the prohibition (so that it prohibited, for example, the keeping of fish in an aquarium) meant that the interference with the rights of lot owners to keep pets could not be shown to confer a material benefit on lot owners who did not wish to keep pets.  Accordingly, the interference with property rights, without a corresponding benefit to other lot owners (namely, the avoidance of a material and adverse affectation of other lot owners’ rights) made the by-law oppressive.

The owners corporation argued that if it was required to assess applications to keep animals on a case-by-case basis, this would create an administrative burden, which would potentially require the drawing of “invidious distinctions” between applications.  However, the Court of Appeal rejected this argument, finding that there was no evidence that there would be a “flood” of applications (a finding entirely consistent with the 4 to 1 support for the by-law by owners who, presumably, did not wish to keep pets).

Further, the Court noted that the owners corporation was required to make “evaluative judgments” in relation to the enforcement of other by-laws (such as the by-law requiring lot owners not to behave in a manner likely to interfere with the enjoyment of other lot owners, and went so far as to say that “the need to make evaluative judgments from time to time in the administration of the by-laws of residential strata buildings is an inescapable incident of this type of property ownership”.  Accordingly, a preference for a blanket ban to avoid the need to make decisions could not be justified.

The Court of Appeal also rejected the proposition that the Coopers’ knowledge of the by-law at the time that they bought into the Horizon was relevant.  First, the test for considering whether a by-law is “harsh, unconscionable or oppressive” requires consideration of how the by-law affects all lot owners, not just the specific lot owner who challenges the by-law.  Second, a lot owner’s actual or constructive knowledge of a by-law will not prevent a challenge to the by-law, because the lot owner can also be assumed to have actual or constructive knowledge of the legislation which permits the invalidation of by-laws which are “harsh, unconscionable or oppressive”.

Finally, the fact that a by-law was adopted by a large majority (or even unanimously) does not prevent a finding that the by-law is “harsh, unconscionable or oppressive”.  The oppressive nature of the prohibition of conduct which no lot owners wish to engage in at the time that a by-law is made “may come to be felt by a person who acquires a lot at a later date”, with the consequence that “by-laws adopted unanimously or by majority are not inviolate; they are amenable to declaration of invalidity if they infringe a statutorily prescribed standard” (such as, here, the “prescribed standard” that by-laws must not be “harsh, unconscionable or oppressive”).

Lessons from the case

Although the most obvious implication of the case relate to by-laws concerning the keeping of pets, owners corporations (and those who advise them) will need to consider every by-law which operates as a blanket prohibition through the lens of the Court of Appeal’s analysis in this case.  The question in each case will be whether the blanket prohibition is necessary to prevent a material and adverse impact on the enjoyment of other lot owners.  There may be cases in which this test can be satisfied (for example, if the strata scheme is characterised by a very high turnover of short-term tenants, with a corresponding large volume of applications) but “making decisions is hard and time-consuming” is not going to be a viable justification.

So, every dog has its day, and for now, it seems that Angus’ tenure at the Horizon is as safe as schnauzers.   This may provide perhaps the final lesson from the case; in litigation, as in certain other contexts involving putting large amounts of money at risk, you can’t beat the schnauz.

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October 14
Litigation and dispute resolution Property Law