Recently, NSW Fair Trading updated its Strata Living Handbook suggesting that owners corporation’s are unable to restrict an owner from letting their lot, including short term letting, and that the only way short term letting can be restricted is by council planning regulations. NSW Fair Trading suggest that any by-laws regulating these matters are invalid.  Is NSW Fair Trading’s position correct?

1. The amendments to the Strata Living Handbook have caused confusion in circumstances where the Government’s position in respect of this vexed area is not yet known.

2. The NSW government is presently conducting a review of short term letting and has foreshadowed releasing discussion paper regarding proposed legislation to deal with holiday letting. Despite the review not yet having concluded, NSW Fair Trading has in the midst of the review and discussion paper, decided to update the Strata Living Handbook with the above comments.

3. The first thing to note is that the Strata Living Handbook is merely a guide and is not the law. NSW Fair Trading is entitled to their opinion about the law but their function is not to interpret the law.  The interpretation of the law is the function of Courts and Tribunals.

4. Neither the Courts nor the NSW Civil and Administrative Tribunal in NSW have yet determined the question of whether by-laws prohibiting short term letting are valid. There is authority in Western Australia whereby the Court of Appeal in Western Australia upheld a by-law prohibiting short term letting in a local government area where short term letting was permitted subject to council approval.  The Western Australian Court of Appeal held such by-law was valid and it only restricted the term of the lease rather than restricting the lease of a lot altogether.

5. NSW has a similar provision in the legislation to the provision considered in Western Australia. Section 139(2) of the Strata Schemes Management Act 2015 (“SSMA 2015”) provides:

“No by-law is capable of operating to prohibit or restrict the devolution of a lot or a transfer, lease, mortgage or other dealing relating to a lot.”

6. That provision is not new as it was also included in the Strata Schemes Management Act 1996: s 49(1).

7. If the Western Australian interpretation is correct then a by-law seeking to restrict short term letting would not be invalid for breach of this provision.

8. Section 136(2) of the SSMA 2015 provides:

“A by-law has no force or effect to the extent that it is inconsistent with this Act or any other law”

9. Planning instruments are laws. Therefore, care needs to be taken when drafting such by-laws to ensure that the by-law is not inconsistent with the applicable planning instrument. When we draft these types of by-laws, we consider the relevant provisions of the applicable planning instrument to ensure that the by-law, for example, does not prohibit short term letting if it is actually permitted with consent. In such circumstance, the by-law will provide that a lot owner cannot use the lot for short term letting unless consent is obtained from the local authority.

10. NSW Fair Trading have made comments in the media that “legislative regulations, including council regulations, can only be enforced by and at the discretion of the relevant authority, or delegated authority, Tribunal or Court as identified in their governing legislation”. With respect, we do not agree.

11. There are provisions in the Environmental Planning and Assessment Act 1979 that provide that anyone can bring proceedings for breach of that Act, whether or not their rights are infringed by the breach. Therefore, it is not only local Councils and other regulatory authorities that can enforce planning instruments, but anyone is entitled to do so.

12. Interestingly, the standard by-law 18 in schedule 3 to the 2016 regulation (by-laws for new strata schemes) provides:

“18.      Compliance with planning and other requirements

(1)        The owner or occupier of a lot must ensure that the lot is not used for any purpose that is prohibited by law.”

13. This model by-law, on Fair Trading’s interpretation, seems to be invalid or at least not enforceable by the owners corporation. We do not agree that is the case.

14. This area of the law is complex with overlay between strata schemes legislation and planning legislation. The government review that is presently being conducted may end up providing clarity in this area of the law.

15. In the meantime, the simplistic statements made by NSW Fair Trading, are not determinative one way or the other and it remains to be seen how the Courts or Tribunal deal with these by-laws and how any government legislation may affect their validity or enforcement.

  • Please note that the information contained in this article is not legal advice and should not be relied upon. You should obtain legal advice before you take any action or otherwise rely upon the contents of this article.