Unit Titles Bill Update [February 2010]

On Thursday 11 February 2010 the Unit Titles Bill commenced its second reading in the House. This was completed on 16 February 2010. It is now Schedule No. 14 on the Order Paper for the Committee Stage. This is where Parliament debates the Bill part by part. Members can also introduce Supplementary Order Papers or amendments to the Bill and these are voted on. We understand that the Minister is considering tabling a Supplementary Order Paper at the Committee Stage to address some minor and technical detail.

 Exclusive Letting Arrangements

 It is not uncommon for Body Corporate rules to be amended giving the Body Corporate power to enter in to an exclusive letting arrangement with a letting manager, on behalf of all the unit owners in a development. The amended rules will usually outline the basic arrangement and often the specific contractual obligations are documented in a Management Agreement between the letting manager and the Body Corporate. The letting manager will then arrange leases direct with each unit owner.

Understandably this is an attractive arrangement for a unit owner who should receive regular rental income. However the High Court in a 2008 case Russell Management Ltd v Body Corporate 341073 declared that the granting by a Body Corporate of exclusive letting rights to one party was prohibited and a rule amendment allowing this was in breach of the restrictions in ss37(5) and (6) of the Unit Titles Act 1972. The Court held that the rule amendments expanded the Body Corporate powers far beyond what was allowed under the Act and restricted the unit owners' right to let their units themselves or through an alternative letting manager which was ultra vires.

In subsequent cases (which have referred to the Russell Management case) the Courts have also focused on the Management Agreement entered into between the Body Corporate and the letting manager. The clauses in the Agreement that create the exclusive letting arrangement have been held to be invalid because the Body Corporate does not have the power to grant them, despite amendments to the rules purporting to give them such power.

So, what does this mean for Bodies Corporate and unit owners who are parties to exclusive letting arrangements? Obviously whether or not the particular arrangement is prohibited and in breach of the Act will depend on the drafting of the rule amendments and provisions in the Management Agreement (if any). Essentially all Bodies Corporate and unit owners should be aware that an exclusive letting arrangement could be challenged by a disgruntled unit owner (or even the Body Corporate itself) and be unenforceable which may have significant financial consequences for all involved.

Will exclusive letting arrangements be allowed under the new Unit Titles Bill? The Bill widens the powers of the Body Corporate but not to the point where exclusive letting arrangements are allowed. The requirements under the 1972 Act that Body Corporate rule amendments must be incidental to current powers and duties of the Body Corporate still apply under the new Bill, therefore based on the Russell Management case it is highly likely exclusive letting arrangements will still be prohibited and ultra vires under the new Act.

For more information contact Liza Irvine

View Liza Irvine Profile

Search Publication Library