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The Basics: Costs Under a By-law
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Commonly, a by-law incorporates a clause allowing an Owners Corporation to recover from a Lot Owner the costs and expenses related to enforcing a breach of that by-law. In our previous article, “Unlocking Complexity: Striking the Right Balance with By-Laws“, we dissected the subject of recovering costs and expenses as a levy debt. However, the topic also contains nuances such as restrictions on by-laws aiming to recover these amounts as a debt.
Levies are debts as defined by the Strata Schemes Management Act 2015 (‘Act’) and they not only accrue interest immediately once overdue, but they also tag a lot owner as an ‘un-financial owner’. This restricts them from voting at any general meeting. Conversely, a debt is a simple amount that is due and owing without having specific implications under the Act.
Key Cases: Gokani and Coscuez
The 2022 cases namely Gokani-Robins Pty Ltd v The Owners – Strata Plan No 77109 (‘Gokani’) and Coscuez International Pty Ltd v The Owners – Strata Plan No. 46433 (‘Coscuez’) shed light on by-laws that included a mechanism for the respective Owners Corporation to recover costs and expenses as debt (in lieu of a levy debt).
In the case of Gokani, when an owner or occupier violates the by-laws or the Act, the Owners Corporation is entitled to recover the costs involved in enforcing and remedying the breached by-law. The term ‘costs’ was seen as wide-ranging enough to include legal costs, as well as any general costs of the Owners Corporation.
The problem that arose was that the term ‘costs’ gave the Owners Corporation the liberty to incur legal costs in court proceedings and recover those amounts from an owner without needing a court order. This was determined to contradict section 98(2) of the Civil Procedure Act 2001, rendering that by-law unenforceable according to section 136(2) of the Act.
Moreover, the by-law was declared invalid under sections 139 and 150 of the Act due to being ‘severe, unconscionable and oppressive, and functioning in an arbitrarily inevitable manner’, given the following aspects:
- There wasn’t a requirement for the enforcement costs to be reasonably incurred, of a reasonable amount or proportionate to the breach.
- There lacked an opportunity for review or independent evaluation of the costs.
- The determination of costs was solely at the discretion of the Owners Corporation.
Coscuez, analyzed a few months post-Gokani, resonated similar conclusions. In Coscuez, three separate by-laws under scrutiny had a provision for cost recovery. As was in Gokani, these by-laws did not provide an owner with a mechanism to dispute the reasonableness of the amount or to have the amount assessed by an independent body, or any control over the incurred amounts. These by-laws were judged to be severe, unconscionable and oppressive.
Key Learnings from Gokani and Coscuez Cases
By-laws that overly empower an Owners Corporation at the expense of an owner risk being classified as severe, unjust, or unconscionable and hence, invalidated. By-laws aiming for cost recovery should be designed to ensure the following:
- Costs should be reasonably incurred, reasonable in amount, and proportionate to the owner’s breach.
- A mechanism should be in place giving the owner some agency over the incurred costs.
- Costs charged to the owner should be reviewable by an independent third party.
Looking For Assistance?
If you are a lot owner, a representative, or an Owners Corporation and seeking further information, don’t hesitate to contact us on 4288 0150 today. Avail advice from our seasoned strata lawyers to navigate through complex by-laws.
Kristy has experience in dispute resolution, civil and commercial litigation, including but not limited to debt recovery, bankruptcy and corporate insolvency, contractual disputes and employment law and has appeared in the Local and District Court, and the Fair Work Commission.
