Special Rules – they might be made by the owners corporation but are they valid?

An owners corporation has the power to make special rules under s138 of the Owners Corporation Act through a special resolution.  Special rules are required to be lodged with the Registrar of Titles (s142 of the Act) and can therefore be found on the Register by prospective purchasers.

Importantly, making rules by special resolution and placing those rules on the Register does not mean those rules are necessarily valid.  The Registrar does not determine the validity of rules before making them available on the Register.  That is not the Registrar’s role.  There are many examples of special rules that an owners corporation has been operating under, sometimes for years, which are, in fact, invalid when they are tested in VCAT or the courts.

The power of an owners corporation to make rules under the former Subdivision Act provisions relating to bodies corporate was considered recently by the Tribunal in Sulomar v Owners Corporation No 1 PS511700W [2016] VCAT 1502.  Rules requiring compliance with owners corporation building design guidelines were found to be invalid essentially on the basis that the powers of bodies corporate under the Subdivision Act in relation to private lots was very limited.  Under those provisions, bodies corporate were largely limited to owning and managing common property.

The case also considered the effect of the Victorian Supreme Court decision in Owners Corporation PS501391P v Balcombe [2016] VSC 384 which is now the primary authority in relation to the validity of special rules.  Balcombe examined rules prohibiting short-term letting made under the former Subdivision Act provisions.

Although the powers of owners corporations under the Owners Corporation Act provisions are broader in relation to private lots, they still fall far short of the powers conferred on an owners corporation in relation to common property.  Owners corporations need to consider this when purporting to make special rules that seek to limit the rights of property owners in relation to their private lots.

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