The New South Wales strata and Community Titles Acts

• Author: Cathy Sherry
• Position: Faculty of Law, University of New South Wales, Sydney, Australia

Introduction

Significance

High-rise buildings and master planned communities¹ have become an increasingly dominant form of new housing in Australia. There has been a corresponding increase in academic interest in these kinds of development, although the body of legal writing is still small ( Everton-Moore et al., 2006 ; Christensen and Wallace, 2006 ; Sherry, 2006, 2008, 2009 ; Ilkin, 2007 ). This is a significant gap in research, as legal form is a fundamental aspect of high rise and master planned communities and it is difficult to theorise accurately about these developments without some understanding of their legal structure.

To urban planners, it may be surprising to link high-rise dwellings with low-rise master planned estates as they are at opposite ends of a physical spectrum. However, for a lawyer, they may be manifestations of the same legal structure. This is a result of the central role of legislation in the creation and/or regulation of these communities in many countries, including Australia. Australian legislation, in particular that in New South Wales, has international significance as an influential model for other jurisdictions, including the Singaporean Land Titles (strata) Act (Cap 158), the UK's Commonhold and Leasehold Reform Act 2002 and the Dubai International Financial Centre (DIFC) Strata Title Law, Law No. 5 of 2007. The latter, drafted by University of Sydney Emeritus Professor Peter Butt, governs one of the most intensive areas of high-rise development in the world.

Nature of the legislation

The essence of the Australian Acts is that individual home owners purchase a “lot”, automatically rendering them a co-owner of “common property” and a member of a governing body corporate. In high-rise buildings, the “lot” will be an apartment and the common property may be stairs, lifts, laundries and perhaps a pool. In master planned communities, the “lot” will be a townhouse, freestanding home or block of land and the common property may be streets, parks, tennis courts, pools or even marinas². Both high rise and master planned communities will be affected by private “by-laws”, the set of rules that govern the behaviour of owners and occupiers within the specific development. The community itself has the power to determine whether a by-law has been breached, with neighbours sitting in judgement on neighbours, and ultimately, breaches can lead to the imposition of fines by a tribunal. Thus, despite the physical differences between high rise and legislatively created master planned communities, their legal structure is identical. Further, in contrast to other forms of freehold ownership where legal connection with one's neighbours extends no further than a dividing fence or party wall, collective ownership of amenities and membership of governing bodies in high rise and master planned communities creates extensive and enforceable legal rights and duties between neighbours.

Terminology

Almost all apartments in Australia and increasing numbers of master planned communities, are created under state “strata” or “community title” legislation. In New South Wales, “strata title” refers to high-rise development and “community title” to low-rise master planned estates. In Queensland, the state with the second highest number of high-rise developments, “community title” means both low- and high-rise development. Inconsistent legal terminology is a problem not just nationally, but globally. The UK opted for the unique term “commonhold”, while the USA uses the sometimes overlapping terms “condominium”, “common interest community”, “planned unit development”, “cluster developments” and “homeowner association community” ( McKenzie, 1995 ; Hyatt and French, 2008 ).

Differences in terminology present a real challenge to accurate transnational discussions of development. This is particularly so as terminology does not always reveal the markedly different legal structures that lurk beneath the label, legal structures that are extremely difficult to understand without an insider's knowledge of the property law in question. This paper will attempt to highlight some of the significant differences in common law systems, using the New South Wales legislation as a benchmark. Particular reference will be made to the USA, the jurisdiction that leads the world in legal practice and discussions of these kinds of developments.

The need for statutory intervention

Australian strata and community title legislation, like the UK's commonhold legislation ( Chappelle, 2003 ) and the USA' condominium legislation ( Clurman and Hebard, 1970, pp. 12-20 ), was written partly to overcome limitations in existing property law. The most significant limitation in relation to high-rise development is the difficulty of creating freehold ownership of cubic parcels of air, unconnected to the land beneath ( Clarke, 1995 ). Leasehold, corporate and co-operative structures have all been used in Australia ( Butt, 2006 ), the UK ( Davey, 2006 ) and the USA ( Clurman and Hebard, 1970 ), but all fall short of the freehold, fee simple, the most expansive and secure interest known to property law in common law systems.

The most significant legal limitation to the creation of master planned communities is the narrow range of legitimate restrictions that can be attached to freehold land in Anglo-Australian law and the difficulty of enforcing these over time. In Anglo-Australian law, only restrictive, not positive covenants, can “run” with freehold land³ that is be enforced by and against subsequent owners of land ( Law Commission, 2008 ; Butt, 2006 ). This means that it is not possible to attach to land detailed architectural or behavioural restrictions which endure into the future. In particular, obligations to pay money for the upkeep of common facilities cannot be imposed. Obligations of this nature are the essence of effective master planning. In contrast, USA law has been largely freed of the traditional technical limitations on servitudes ( McKenzie, 1995, pp. 29-55 ; Hyatt and French, 2008, pp. 13-17 ) and as a result, sophisticated master planning can be achieved with covenants, conditions and restrictions, colloquially known as “CC&Rs”.

Despite the severe limitations on restrictive covenants in Australian law, the majority of master planned communities are still created with them as their underlying legal structure. While communities have an initial look of uniformity, the restrictions imposed will be relatively limited (for example, prohibiting subdivision or building in certain materials) and will rely on individual neighbours, as opposed to a collective governing body, initiating court action for their enforcement. Many restrictions eventually fall into disuse ( Sherry, 2008, pp. 5-8 ). The transient nature of this form of master planning in Australia is sometimes not appreciated by purchasers or researchers.

To achieve the kind of detailed master planning that is possible in the USA with covenants, conditions and restrictions, Australia needed legislation. The strata and community title legislation allows detailed architectural restrictions and positive obligations to be included in by-laws, which by virtue of the legislation, bind all purchasers, mortgagees and tenants, thus unerringly running with the land.

In addition to overcoming limitations in existing property law, the strata and community title legislation also provides legal mechanisms for:

the collective ownership of common property and amenities;

the creation of rules that govern behaviour within a development; and

the creation of a governing body to control and administer (1) and (2).

These three things have no real counterpart in orthodox Anglo-Australian property law. As a result, they are likely to be unfamiliar to new owners and occupiers of high rise or master planned communities and may constitute a surprising yet pervasive part of community life.

The New South Wales statutes

In this section, the New South Wales legislation will be used to explain the statutory framework for the creation of high rise and master planned estates. As noted above, it has been used as a model for other jurisdictions, both within Australia⁴ and overseas. There are two main sets of legislation that govern high rise and master planned communities in New South Wales. The Strata Schemes (Freehold Development) Act 1973 (NSW) (the Development Act) governs the development of high-rise buildings and determines land titling issues, while the Strata Schemes Management Act (the Management Act) 1996 regulates the on-going management of strata schemes. The Community Land Development Act 1989 governs the development and titling issues in master planned communities, while the Community Land Management Act 1989 regulates their on-going management. Both the development acts fall within the purview of the Department of Lands, while the management Acts are within the Office of Fair Trading in the Department of Commerce. The latter Department is predominantly concerned with consumer protection. There is also a Strata Schemes (Leasehold Development) Act 1986 (NSW), but as long-term urban leasehold is rare in Australia, it has mainly been used for a limited number of harbour-front development sites.

The existence of separate development and management acts, as well as their location in different government departments, highlights the fact that these kinds of developments fall within discrete, yet inevitably connected, spheres of law: land ownership and on-going community relationships.

Strata title

The real innovation of the Strata...