Strata Gavel: The Trentelman Case Appeal
Or, don’t promise the strata pool when you don’t really mean it …
The NSW Court of Appeal decides Trentelmans Case by holding the hotel/motel operator to promises made at a strata meeting and giving the strata owners and corporation permanent rights to the pool despite them voting to give them away as part of a redevelopment proposal. Seems a fair enough decision, but there are also a few extra tasty legal gems for all the strata geeks out there …
[10:00 minutes estimated reading time, 1934 words]
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Introduction
In my article ‘Bad drafting, loose lips, and sloppy surveying saves the common property pool [for now]: Lessons in taking care with strata title documents, surveys & meetings …’ I reported on how a northern New South Wales strata complex managed to save its strata owners’ right to use the swimming pool the hotel/motel operator had converted to their own property as part of an approved redevelopment.
My point in the article was that poorly drafted documents [including motions and explanatory notes on strata meeting agendas] and careless statements made to strata owners had unravelled the hotel/motel operator’s otherwise compliant strata decisions.
The decision was being appealed and that appeal has now been decided.
So, what happened in the appeal and what, of interest, did the NSW Court of Appeal say?
Some background
I’ve outlined the background to the dispute before, but here’s a quick summary.
Cabarita Lakes Apartments was a staged strata development that began in 2006.
In the beginning, there was a 4-storey apartment building comprising private lots, a common property carpark and other areas, a separate pool and pool pavilion lot and, 6 development lots.
There was an easement over the pool in favour of some, but not all, of the other strata lots, that ending October 2017.
The pool lot was owned by the Trentelmans, who had owned all strata lots along the way and operated a serviced apartment and caretaking business in the strata complex.
The Trentelmans controlled the strata committee and effectively ran the strata building until 2016.
When the original staged strata development contract expired, the Trentelmans explored redeveloping the strata complex by building more townhouse dwellings on the pool lot and, later, by removing the future development lots from the strata complex and converting them into freehold property lots.
At the annual general meeting in July 2014, a series of decisions were made that authorised the Trentelmans’ redevelopment proposal and approved some re-subdivisions and transfers of lots and common property.
Relying on those decisions the Trentelmans registered subdivision documents where the pool lot and a future development lot boundaries were changed and a notation was added that the pool was part of the common property.
In early 2016 the remaining future development lots were removed [by further subdivision and transfer] from the strata title scheme.
Relations started to sour between the Trentelmans and the other strata owners over strata building operations, strata committee control, and their construction of the new townhouses.
By mid-2017, the Trentelmans had stopped strata owners from using the pool since they owned it and the easement had expired.
The strata owners said that when they approved the redevelopment and subdivision proposals in 2014 and/or 2016 the Trentelmans promised [directly or indirectly] that they would keep their rights to use the pool.
The first Supreme Court decision
In a series of decisions in February 2021 and April 2021, Parker J in the NSW Supreme Court made orders [Trentelman v The Owners - Strata Plan 76700; The Owners - Strata Plan 76700 v Trentelman [2021] NSWSC 155] that effectively changed the strata plan at Cabarita Lakes Apartments to:
1. Create a new easement over the pool in a private lot in favour of the strata corporation for the benefit of all the other strata owners, and
2. Leaving the pool notation on the strata plan but saying it probably has no effect.
It was a win for the strata owners that resulted in pretty significant changes to registered property rights in the strata plan that are rarely ordered.
And, here’s the disputed pool …
The NSW Court of Appeal decision
In July 2021 the NSW Court of Appeal heard the Trentelman’s appeal from that decision and delivered their judgment last week.
It dismissed the appeal and confirmed the earlier Supreme Court orders granting an easement over the pool in favour of the strata corporation and strata owners.
In reaching its decision the majority of judges said the following 7 instructive things.
1. The primary issue to determine in the case, as this was a claim of proprietary estoppel by encouragement, was whether the Trentelmans had encouraged the strata owners and strata corporation [by way of a representation] to alter their position in the expectation of obtaining a proprietary interest in the pool and that [as a result] the strata owners and strata corporation had detrimentally changed their position, such that it was unconscionable for the Trentelmans to avoid fulfilling the representation.
2. The relevant strata meeting motion for the Trentelmans’ redevelopment was a composite resolution as it included decisions:
approving the development proposal,
to create easements or covenants, and
to take the necessary steps to give these things effect,
so, that each part was integral to the Trentelmans’ proposal.
3. The circumstances of the strata building’s approval of the Trentelmans’ proposal included that:
it occurred when all strata lot owners could access the pool and strata building was responsible for it including costs,
the strata meeting explanatory notes contained statements that the easements were so that strata owners and residents could continue using the pool, and
at the meeting at which the resolutions were passed Mr Trentelman emphasised that, under the proposal, strata owners would have continuing use of the pool.
4. The Trentelmans’ statements and actions [as representations] created an expectation for the strata owners that if they voted in favour of their proposal; thereby causing the strata the corporation to do the requested things, the strata corporation would have an ongoing interest in the pool for their benefit.
5. There was no substantive difference when considering the strata owners in their personal capacities and in their constitutive capacity as an organ of the strata corporation as the strata owners were effectively voting to require the strata corporation to undertake a corporate act in general meeting. So, the strata owners did not need to be parties to the litigation and there were no adverse inferences to be drawn by the failure to call all strata owners as witnesses.
NB: This is a very significant determination for other situations where decisions are made in strata meetings binding the strata corporation and everyone else, as it effectively makes the majority voting strata owners [even if they are an actual minority of owners] the determiners of the strata building’s and other strata owners’ collective views and/or opinions [at least objectively].
6. Even though there must be certainty about the Trentelmans’ promise to create the required expectation in the strata owners and corporation, an equitable estoppel can arise even though it is vague and does not define the property interest, provided it’s clear enough to create a valid contract.
As the NSW Court of Appeal said:
‘What is important in my opinion is how the representation or promise would be reasonably understood by a person in the position of the persons to whom the representation was made.’
7. Detrimental reliance by the strata corporation [such that it was unconscionable for the Trentelmans to avoid their promise] occurred because the strata corporation lost:
the entitlement to receive strata levies from the developed lots, and
a significant measure of control over how those lots were developed, and
the right to regulate the use of those lots by the imposition of by-laws.
And, that was the case even though the development on the Trentelmans’ lots was substantially less than originally planned and the strata corporation was relieved of the burden of contributing to the maintenance of any common property that would be developed by them.
NB: This is also a very significant determination [in my view] since it highlights that in many strata approvals, there are many less obvious existing rights and benefits that are incident [and often forgotten] in a strata title structure that are reduced, limited or lost and they are the actual cost of giving that approval.
In many ways, the NSW Court of Appeal simply agreed with what the Supreme Court decided originally.
But, the two issues I’ve highlighted above, namely:
(i) the representative capacity of strata owners voting in strata meetings; and
(ii) the consideration of lost strata rights and benefits in determining detriment;
point to new and more advanced and sophisticated kinds of considerations in strata cases by superior Courts.
Some other musings on strata law by Leeming J
Although not strictly relevant to the NSW Court of Appeal’s decision [so ‘obiter’ in legal speak], Judge Leeming [he’s made a few appearances in NSW strata case decisions before] made a few extra comments that are even more interesting as clues to potential future legal issues and what the Supreme Court might decide.
Firstly, Leeming J mused about the artificial nature of a strata corporation as a separate entity from the strata owners but which operates by the actions of those strata owners and on their behalf concluding that the artificiality meant that the distinctions between the two were fine [as in complex] and not to be overly relied on when different.
That means that even the best judicial minds in the country are unsure about this unique and complex relationship in strata title buildings.
Secondly, Leeming J mused about the principle that a strata corporation [like any corporation] acts through agents so that a representation made to a strata corporation is made to one or more natural persons whose understanding of the representation is imputed to the corporation. In other words, that if a corporation relies on a representation, it is because one or more natural persons rely on it and their reliance is treated as that of the corporation.
But, he said that there could be some doubt about whether all aspects of the principles governing corporate attribution apply to a strata corporation general meeting [effectively questioning the majority view on that issue in the decision in point 5 above].
That means he believes that there could be situations where a strata meeting decision or action is not taken to be the decision or action of all strata owners.
Thirdly, Leeming J looked at the subtle changes in the way the latest NSW strata laws described how common property is held from the previous laws [the Strata Schemes (Freehold Development) Act 1973 and the Strata Schemes Development Act 2015].
In the new NSW strata laws, the language of the strata corporation holding common property ‘as agent’ for the strata owners is continued, but the reference to the strata owners holding a ‘beneficial interest’ has been replaced by strata owners holding an ‘interest’ only.
Leeming J wondered that because:
legal and beneficial interests are legal tools for splitting legal and equitable title in a trust, and
many of the superior Court decisions on strata title matters explicitly relied on the language of ‘beneficial’ interests to characterise the relationship between the strata corporation and strata owners as a trust or analogous to trust,
it must have some significance and could mean that common property is no longer owned by the strata corporation as a trustee or in a way that is analogous to a trustee
That means the NSW legislators may have intentional [or accidentally] changed the legal basis on which common property is held for strata owners by the strata corporation.
Conclusions
The NSW Court of Appeal’s decision in Trentelmans’ case is an interesting decision that highlights the dangers of poorly drafted motions, meeting notices and surrounding correspondence, saying too much at strata meetings, and, sloppily prepared strata and other plans.
So, it’s a timely reminder that when we’re playing around with core strata title documents like plans, by-laws, subdivisions, easements, etc it’s actually tricky stuff and another reason why strata owners, their advisors, strata committees, and strata managers should get better advice and take much more care when doing non-routine things.
But, the more subtle things in the NSW Court of Appeal’s decision point to some new and interesting legal propositions that strata stakeholders and future decisions by Tribunals and Courts might explore to advance our understanding of strata title laws.
October 18, 2021
Francesco
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KEY DETAILS OF THE CASE
Case Name: Trentelman v The Owners – Strata Plan No 76700 [2021] NSWCA 242
Judgement: https://www.caselaw.nsw.gov.au/decision/17c57e480076c52ffd34590c
The Parties:
Strata Building: The Owners - Strata Plan No. 76700
Owners: Natalia Trentelman