To continue our last article on Rules, we will now delve deeper into special privilege rights. Special privilege rights may, at first, appear to be an alien concept. To understand why they are required, you first need to know that a units plan is divided into personal and common property. Personal property is owned directly by the unit or lot owner – for example, the interior of your apartment, car parking space and storage areas. Common property is collectively owned by the Owners Corporation, being the entity that amalgamates all of the owners in the units plan. Common property must be cared for and insured by the Owners Corporation, and may include pool areas, common gardens or other communal facilities.

What is a special privilege rule?

In the ACT, a special privilege right can be granted by the Owners Corporation pursuant to Section 22 of the Unit Titles (Management) Act 2011 (ACT) to establish an ‘exclusive use right’ over the common property. It is generally granted in favour of a particular unit owner or class of unit owners. You may also come across the terms ‘exclusive use by-law’ or ‘special privilege by-law’, which are used in NSW. In addition to providing a specific unit owner or class of unit owners with the exclusive use right, the special privilege rule can also provide that the party who is benefiting from the exclusive access will meet the costs of maintaining that area of the common property.

To provide an example, in a mixed-use building containing ground floor commercial shops or restaurants with residential units above, it would be possible to create a special privilege rule which would grant the commercial units exclusive use over the ground floor toilets. In this scenario, the residential unit owners will no longer be permitted to access these facilities, but they will also not be required to paid for them. The cost of cleaning and maintain the toilets (and stipulations around when that must occur) can be included in the special privilege rule. This means that these costs can be levied exclusively to the commercial units.

Taking that same example further, there may be other facilities in the building (including a pool or gym area) which can be exclusively set aside for use by the residential unit owners with the associated costs and maintenance obligations. This means that the commercial unit owners will not be required to pay for these facilities which they would not obtain the benefit of in any event.

A special privilege rule is essentially one of the best mechanisms available to an Owners Corporation to codify a ‘user-pays’ system, which can be tailored to take in to account the nuances of that unique complex. As the special privilege rule will be included in the consolidated set of rules for the Owners Corporation when they are granted for a period of 3 months or more (which must also be registered over the legal title), it will also be easier for incoming owners to identify whether there are any active special privilege rights and whether they have been granted in favour of the unit that they propose to purchase.

Are there any limitations on what a special privilege right can do?

As noted above, a special privilege right must contain a maintenance obligation for the benefited owner or class of owners, including:

  1. The type and frequency of maintenance the benefited owners must undertake; and
  2. An acknowledgement that the Owners Corporation is relieved of its obligations under the Act to conduct that maintenance to the extend that the rule places it on the grantee.

A special privilege right can also not be granted without obtaining the consent of the benefited owner or class of owners. While these owners cannot unreasonably withhold their consent to the granting of the special privilege right, this protects unit owners from having a special privilege and the associated maintenance obligations imposed upon them by the Owners Corporation.

A unit owner or Owners Corporation may also apply to ACAT in the event of a dispute around a special privilege rule. An Owners Corporation may argue that the grantee has unreasonably withheld consent to creating or amending a special privilege rule, while a unit owner may seek an order that the Owners Corporation has unreasonably refused to make, amend or revoke a special privilege rule or has imposed unreasonably maintenance obligations on the grantee.

As noted in our Alternative Rules article, an alternative rule (including a special privilege rule) must also not be inconsistent with any Act or law, be incompatible with a human right or otherwise by harsh, unconscionable or oppressive.

Can property developers create special privilege rules?

The previous policy position was that developers were unable to amend the Default Rules of the Owners Corporation prior to the end of the ‘developer control period’ – that is, until the developer was no longer the main stakeholder in the complex.

Now, a developer will have the ability to create a bespoke set of Alternative Rules prior to the registration of the units plan, provided that the proposed Alternative Rules have been disclosed appropriately in the Contract for Sale. This allows a developer to consider the specific needs of their development and creates an opportunity to curate the experience of the Owners Corporation in relation to access and maintenance of common property while providing a fair apportionment of costs. A developer can also improve the general understanding of their project by prospective purchasers by providing a clear outline of how the complex will operate, what shared facilities may exist and which user groups will be entitled to access them.

Should you require further advice on special privilege rules, either for your established Owners Corporation or your new development, please contact our specialist strata team for further information.