When the validity of a by-law is challenged
Mar 12, 2019Proper procedure should be followed when changing by-laws within a strata scheme – this includes adding, modifying or repealing a by-law. But in some circumstances a resolution in relation to a by-law may still be effective even if the proper procedure was not followed.
The validity of a by-law was recently challenged in the Supreme Court by a lot owner who, along with a number of other lot owners within the 32 lot scheme, had the benefit of a special by-law granting exclusive use of certain parts of the common property for the purpose of carparking (see Khadivzad v SP 53457 [2019] NSWSC 157).
Upon registration on the common property’s title, and as shown in the title search when the lot owner purchased lot 9 in April 2000, the special by-law was noted in Item 3 in the Second Schedule:
“By-law pursuant to section 58 (7B) of the Strata Titles Act 1973"
At the Owners Corporation’s AGM the prior December, a resolution was passed to the effect that certain by-laws and additions by-laws “be confirmed” and that “the by-laws in existence up to this time be repealed”. Thereafter, the building manager erected “visitor parking” signs on the 9 affected car spaces.
Lot 9’s owner alleged the special resolution was not effective to validly repeal the special by-law, because the procedure in section 52 (1) of the Strata Schemes Management Act 1996 (NSW) was not followed. That procedure required written consent of the lot owners concerned and in accordance with a special resolution.
“Special Resolution - a resolution which is passed at a duly convened general meeting of an owners corporation and against which not more than one-quarter in value, ascertained in accordance with clause 18 (2) and (3) of Part 2 of Schedule 2, of votes is cast”
The lot owner sought “declaratory relief” – that is, a declaration by the Court that the special by-law remained in full force and effect.
The Court noted that whilst the terms of the special resolution did not expressly state the special by-law to be repealed, the terms were clear enough to indicate that all existing special by-laws were to be repealed. It was clear that the intention of the special resolution was to replace the existing by-laws with a new set of by-laws.
However, the evidence presented to the Court showed that the written consent of the owners of “the lots concerned” was not obtained prior to passing the special resolution.
Following concerns raised by the Lot 9 owner in 2000, the Owners Corporation lodged a Change of By Laws form in 2001 (almost 2 years since passing the special resolution).
The Court’s attention was drawn to section 52 (3) of the Act which provided that any condition or preliminary step precedent is conclusively presumed to have taken place if no challenge is made to the by-law within 2 years.
That is, if the validity of a special resolution is to be challenged on the grounds that a preliminary step was not taken (such as, in this instance, obtaining consent of all affected lot owners), then such challenge must be made within 2 years of the special resolution.
The lot owner suggested to the Court that his lawyer’s letter in 2000 was sufficient “challenge”, but this was rejected by the Court.
Rather, the Court held that due to the operation of section 52 (3) and the passage of more than 2 years since, the 1999 special resolution can no longer be challenged.
Contact the Shire Legal team if you have any questions.
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