O’Connor (Senior) v The Proprietors, Strata Plan No.51  UKPC 45
Guy Fetherstonhaugh QC and Martin Dray appeared for the successful respondent in an appeal to the Privy Council from the Court of Appeal of the Turks and Caicos Islands concerning an issue of considerable interest and significance in relation to the short-term use of units in a residential condominium development.
The Pinnacle is a luxury condominium development comprising 34 residential apartments and associated facilities at Providenciales, Turks and Caicos Islands. It was registered under the Strata Titles Ordinance (“the Ordinance”) in 2005. The respondent is the body corporate charged under the Ordinance empowered to make by-laws for the purpose of regulating the control, management, administration, use and enjoyment of the strata lots at The Pinnacle.
The relevant by-laws, which are effectively positive and negative freehold covenants, were created at the time of the initial registration of the Pinnacle. By-law 7.1.9 provides:
“Each proprietor shall not use or permit his residential strata lot to be used other than as a private residence of the Proprietor or for accommodation of the Proprietor’s guests and visitors. Notwithstanding the foregoing, the Proprietor may rent out his Residential Strata Lot from time to time provided that in no event shall any individual rental be for a period of less than one (1) month.”
The appellants own a unit at The Pinnacle. From 2007 they allowed their unit to be occupied by paying holidaymakers – typically on week-long lets – for periods of less than one month at a time.
The respondent sought an injunction to restrain such use, contending a contravention of by-law 7.1.9. The appellants defended the claim. They argued that the by-law was of no effect, alleging that it fell foul of section 20(4) of the Ordinance which stipulates:
“No by-law shall operate to prohibit or restrict the devolution of strata lots or any transfer, lease, mortgage or other dealing therewith …”
The trial judge, Ramsay-Hale J, found in favour of the unit owners. The TCI Court of Appeal reversed that decision and granted an injunction. The case was appealed to the Privy Council.
In dismissing the appeal, the Privy Council held that by-law 7.1.9 is valid as a legitimate restriction on the use of residential strata lots and it does not involve an impermissible restriction on leasing contrary to section 20(4) of the Ordinance. In accepting the respondent’s submissions, the Privy Council held that:
- Statutes (such as the Ordinance) prohibiting restrictions on dealing in strata lots do not prevent restrictions on the uses of the lots, even though such restrictions may inevitably restrict the potential market for the lots.
- By-laws are to be construed benevolently, having regard to their purpose in assisting the good management of the development for the benefit of its residents overall. They are to be accorded a degree of respect and deference by the courts.
- It is noteworthy that by-law 7.1.9 applies, and is expressed to apply, to a “residential strata lot”, namely a unit “intended for use as a residence”.
- A by-law designed to restrict use to residential use is in principle unobjectionable.
- The first sentence of by-law 7.1.9 is a very tightly drawn and highly limiting restriction on the use of any lot; essentially, it prohibits commercial exploitation of the residential units.
- Properly construed, the second sentence of by-law 7.1.9 is not a restriction but, rather, a relaxation of what has gone before; it provides a measure of relief by allowing residential use by others, including exploitation for rental by third parties, provided always that any letting is for at least one month.
- Following the approach in Caradon District Council v Paton (2001) 33 HLR 34, short-term use by transient holiday-makers is different in character from long-term residential use. There is a qualitative difference. A person in a holiday property for a week or two is not using the same as his home or residence; such use lacks a degree of permanence.
- The temporal requirement in by-law 7.1.9 is justifiable because it is part and parcel of an attempt to limit the use of the lot to that of a residence; it seeks to ensure the degree of stability in occupation required to preserve residential use.
- All in all, by-law does not prohibit letting; it prohibits use other than as a residence.
The decision of the Privy Council is important and much awaited in the Commonwealth because statutory prohibitions of restrictions on the disposal and leasing of condominium units are common in strata title legislation. Strata title originated in Australia, where it is a familiar concept, and the TCI Ordinance itself is based on the New South Wales Conveyancing (Strata Titles) Act 1961 – so there are direct parallels with the position in that jurisdiction.
In this era of Airbnb and the like, many people want to profit from their units by allowing them to be occupied on short-term lets, and disputes – centred on the applicable by-laws – between those condominium owners who want their development to retain an owner-occupier character and those who regard their property as an asset ripe for commercial exploitation to holidaymakers are not uncommon.
What is more, until now the vast majority of decisions in Australia in similar cases have held by-laws similar to by-law 7.1.9 at The Pinnacle to be invalid on the basis that the same infringe the provisions of the governing statute which preclude restrictions on leasing.
The decision in O’Connor (Senior) v The Proprietors, Strata Plan No.51 fundamentally alters the landscape. Its impact across the Pacific and beyond is likely to be substantial.
Guy Fetherstonhaugh QC and Martin Dray appeared on behalf of the respondent, along with Conrad Griffiths QC of the TCI Bar, and were instructed by Sharpe Pritchard LLP.
A copy of the judgment can be found here
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