To continue our introductory guide series, we would like to turn now to Alternative Rules. If you are familiar with strata living, you would likely have encountered terms like ‘default rules’ or ‘house rules’. To ensure that all members of the Owners Corporation can live together peacefully and co-operatively, an Owners Corporation generally finds it desirable to implement rules to ensure that all members are on the same page.
Rules can also provide a mechanism by which the Owners Corporation can inform their members about how they intend to use the discretionary powers granted by the Unit Titles (Management) Act 2011.
What exactly do the new amendments change?
As part of the ACT Government’s suite of legislative amendments introduced in November 2020, an Owners Corporation is now required to have a single set of consolidated rules. Previously, it was common for an Owners Corporation to implement both the ‘Default Rules’ (that is, the basic set of rules for all Owners Corporations prescribed by the Unit Titles (Management) Act 2011) and their own set of ‘House Rules’.
While the Default Rules were enforceable, House Rules are better framed as ‘guidelines’ for owners and executive committee members to follow. An Owners Corporation could also seek to amend or add to the Default Rules by passing and registering a special resolution.
In practice, this system had several key issues. Firstly, the distinction between ‘Default Rules’ and ‘House Rules’ was often confusing for current members of the Owners Corporation and people looking to buy into the complex alike.
Secondly, it was difficult to keep track of the existing sets of rules, as each time a rule was amended or added to the relevant special resolution implementing the change would be registered over the legal title for the complex.
Purchasers who were trying to complete their due diligence would often be confronted with decades worth of meeting minutes, which they would need to sort through to find the relevant special resolutions amending the Default Rules or updating House Rules.
Rather than continue with this confusing and ultimately frustrating process, an Owners Corporation may now seek to create a single consolidated set of rules which will be registered over the legal title for the complex.
When the consolidated rules need to be amended, the document can simply be updated following the passing of the relevant resolutions and the updated document registered over the legal title. The rules of the Owners Corporation will be easily visible to its current members and prospective members alike.
What types of rules can an Owners Corporation create?
In addition to the ability to create a consolidated set of rules, an Owners Corporation may now, by special resolution, create a bespoke set of ‘Alternative Rules’ to the standard Default Rules. While Alternative Rules can only amend certain Default Rules, they can create additional rules that will assist in the management of the Owners Corporation.
The great benefit of Alternative Rules is that they can be tailored to meet the particular needs of the Owners Corporation – for example, a mixed-use development with both commercial and residential owners may need specific rules to create a process for commercial fit-out works to ensure that residential owners are not inconvenienced.
For the first time, an Owners Corporation may also create an Alternative Rule that determines levy contributions on a basis other than unit entitlement. For example, this means that an Owners Corporation may, by special resolution, determine that only a particular group of owners need to contribute to the maintenance of a facility.
This ability to create a ‘user-pays’ system will be of great benefit to mixed-use developments across the ACT, which disputes have previously plagued.
An Alternative Rule will now also include special privileges, in which a unit owner or person with interest in the unit may be granted a right to use the common property in a manner that is in addition to, or restrictive of, the rights of other people.
For example, an owner may be granted a special privilege to exclusively use the pool area in a complex. In exchange, that owner may be required to pay for all of the maintenance and water usage generated by the pool. If this special privilege right went for more than three months, it would need to be registered as an Alternative Rule of the Owners Corporation.
It is important to note that the Unit Titles (Management) Act 2011 provides in Section 108(3) that an Alternative Rule will not be invalid unless it is:
- Inconsistent with an ACT law;
- Inconsistent with a Building Management Statement;
- Incompatible with a human right as defined by the Human Rights Act 2004, or is otherwise harsh, unconscionable or oppressive;
- Giving a function to the Owners Corporation that is not incidental or ancillary to the exercise of its functions under the Unit Titles (Management) Act 2011 or under a Building Management Statement;
- Prohibiting or restricting the installation, operation or maintenance of sustainability infrastructure in or on the common property or in a unit;
- Inconsistent with an ACAT order which required a rule to be repealed or made, unless the Alternative Rule is made by unanimous resolution; or
- Prohibiting a unit owner from keeping an animal or allowing an animal to be kept within the unit or the common property in any circumstances.
It is important to remember that an Alternative Rule must not only comply with the requirements of the Unit Titles (Management) Act 2011 – they must not fall foul of any piece of relevant legislation. This means that when an Owners Corporation is considering making Alternative Rules, it would be prudent for the Owners Corporation to obtain legal advice.
If the Owners Corporation wants to ensure that their Alternative Rules will be enforceable, it is best to make sure that the rules have been drafted compliantly by a solicitor.
If you feel that your complex could benefit from implementing a consolidated set of Alternative Rules, please get in touch with our specialist team, who will be pleased to discuss further with you.
**Assisted by: Alex Miglietti**