Which body corporate rules are ultra vires?

by | Aug 31, 2010 | General property Law, Unit Titles

This is a brief look at body corporate rules found to be ultra vires by the Court to date.  Ultra vires is latin for "beyond the powers".  These are body corporate rules that go beyond those allowed under the Unit Titles Act 1972. 

You can expect a similar approach from the Courts to rules under the Unit Titles Act 2010.  When body corporates are reviewing existing rules and determining which existing rules should be adopted under the 2010 Act, considering any ultra vires issues would be recommended.  

The principles that have developed from case-law were summarised in a High Court decision in July 2010.  A brief summary is as follows:

  1. Amendments to rules which introduce a power or duty are limited to those that are incidental to the performance of the duties or powers imposed by the Act;
  2. A rule which “appreciably expands” the existing powers and duties of the body corporate goes too far;
  3. An addition to or amendment of a rule may not prohibit or restrict the devolution or transfer, lease, mortgage or other dealing with a unit or destroy or modify any right implied or created by the Act.

Rules that have been found to be ultra vires to date include:

  • Interference with voting rights at general meetings including reserving powers of veto, appointing the original developer to exercise registered proprietor’s votes, by default appointing the body corporate secretary as proxy to vote for a registered proprietor and/or precluding the passing of resolutions without a particular owner’s consent;
  • Interference with the make-up and election of the body corporate committee such as requiring the secretary and original developer to be members and not replaceable;
  • A requirement that the body corporate be a party to a management agreement where the consideration payable to the manager expressly includes a large compensation payment to the original developer for negotiating a rent-free period for the body corporate;
  • Allowing termination of the appointment of the body corporate secretary (or a management company) only by special or unanimous resolution;
  • Prohibiting any changes at all to be made to a unit without the body corporate’s consent;
  • Granting wide redevelopment rights to a registered proprietor without a right for the body corporate to consent and be involved in the manner contemplated by the Act;
  • The grant of exclusive letting arrangements to management companies.
  • Decisions on these rules could be contentious if the party relying on them is still involved in the body corporate.  However, the new voting thresholds mean parties relying on rules like this are at risk.  Looking at it the other way, body corporates do have a very real opportunity to normalise ultra vires rules once the 2010 Act commences.  In order to change body corporate rules before the expiry of the 15 month transitional period a special resolution would be required (75%).  To actually change the rules an ordinary resolution (50%) is all that is required. 

    By <a href="" target="_self">Denise Marsden</a>

    By Denise Marsden