Beware of restrictions in by-laws – short stay use

The recent decision of the Court of Appeal of the Supreme Court of Western Australia in Byrne v The Owners of Ceresa River Apartments Strata Plan 55597 1 (Ceresa Case) involved the increasingly common scenario of an owner seeking to use his lot for short stay accommodation within a residential apartment building.

With the growing popularity of Airbnb and similar online short stay accommodation services, disputes relating to the use of lots for short stay accommodation are becoming more common.

The Ceresa Case highlights the importance of undertaking a proper review of the by-laws when buying, leasing or financing the acquisition of a strata lot.

Summary of Decision

The Ceresa Case involved a dispute between Mr Byrne, the owner of a strata lot, and the strata company for a residential apartment complex comprising 113 lots.  This dispute concerned whether his strata lot could be used for short stay accommodation.

The City of Belmont Local Planning Scheme No 15  (Planning Scheme) provided that the apartments could not be used for short stay accommodation without planning approval.  Under the Planning Scheme, short stay accommodation was defined as accommodation of short stay guests where occupation by any one person was limited to a maximum of 3 months in any 12 month period.

After purchasing his apartment, the owner obtained the required planning approval from the City of Belmont and commenced letting out his apartment to short stay guests.

The strata company’s position was that short stay use was not permitted under the by-laws for the strata scheme.  The strata company sought orders restraining the owner from using apartments for short stay use.

The relevant by-laws provided that owners may only permit their lot to be used “as a residence” or grant occupancy rights “to residential tenants”.  Much of the dispute concerned the proper construction of the terms “residence” and “residential tenants” in the by-laws:

  • the owner submitted that the grant of occupancy rights of any duration was permitted under the by-laws and that the concept of residence/residential referred to the category of use of the lot;  such that it prohibited commercial or industrial use for instance, but did not regulate the duration of stay.
  • the strata company submitted that the ordinary meaning of “residence” and “residential tenant” should be adopted which required a sense of permanence or accommodation for a significant period.

The court held that the lot could only be occupied by persons who use the lot as their “settled or usual place of abode”.  Whether a lot is being used as a “settled or usual place of abode” will be a question of fact.  However, accommodation for holidays or other breaks that are away from a persons usual place or abode would not be an authorised use of the lot.  The court applied usual principles of contractual construction to the interpretation of the by-laws, whilst taking into account the statutory context of the by-laws.  The owner’s ability to obtain planning approval to use the lot for short stay accommodation was not a matter that the court considered relevant to the interpretation of the by-laws.

The owner also argued that section 43 of the Strata Titles Act 1985 (WA) prevented the by-law from operating in a manner that would restrict his ability to lease or otherwise deal with his lot.  The Court found that the by-law did not infringe section 43 of the Act, as the by-laws did not restrict his ability to grant occupancy rights in respect of his lot.  Instead, it restricted the use to which the lot could be put by the person occupying the lot.

Lavan comment

The Ceresa Case highlights the importance of undertaking a proper review of the by-laws when buying, leasing or financing the acquisition of a strata lot.  Understanding the by-laws is important given:

  • The by-laws are a statutory contract that binds every owner, occupier and mortgagee in possession of a lot in the strata scheme.
  • The by-laws can restrict the use of a strata lot beyond any restrictions contained in the planning laws.
  • Restrictions on use contained in the by-laws are not uncommon, can have a significant detrimental impact on the value of a strata lot and can not be modified unless consented to by other others in the strata scheme.