“Defining case” on short-stay looms

By David Schout and Sean Car

A short-stay operator is seeking damages from the owners’ corporation (OC) of Southbank’s Prima Tower in what some have billed as a “defining case” in the context of COVID-19.

Marcela Zamora, an apartment owner at the 72-storey tower on Queensbridge St, claims that the building’s OC illegally prevented her and other owners from leasing apartments to anyone for less than 90 days from March 23 to May 4.

In response to the coronavirus pandemic, Prima Tower’s OC had passed a resolution that restricted any use of a lot which caused a health and safety hazard and contravened the state government’s stay-at-home directions, including for the use of short-stay accommodation.

But Mrs Zamora, an accountant who manages a small number of properties with her husband, said she believed that the OC had leveraged the pandemic to administer the ban, noting that it was imposed before stay-at-home directives were issued by the government.

“It’s wrong,” she said.

“The law says you can’t stop me from leasing my property, whether it’s for one night, or whether it’s long-term.”

She said she had initially abided by the ban and provided a lease of more than 90 days to a family unable to fly home due to COVID-19 restrictions.

But in early May, she alleged that the 90-day rule was overturned by the OC and replaced by a process requiring all owners to provide it with at least 48-hours’ notice to vet guests before entering the building.

Mrs Zamora said she ordinarily leased her Prima apartment for short-term stays of less than 90 days but had already made a commitment to accommodate the family based on the OC’s ban. She is now seeking damages of $14,000 through the Victorian Civil and Administrative Tribunal (VCAT).

“I can’t be sending away a family with young children looking for something. I stuck to my word,” she said.

“To lend a hand then be slapped in the face, it’s hard.”

Friction between residents and short-stay operators who utilise leasing websites like AirBnB is common in high-rise living.

Permanent residents often argue that the strain on amenity caused by short-term tenants, sometimes dubbed “party guests”, is excessive and that damage to common property is not unusual.

But while the Prima OC’s move on short-stays has come in response to COVID-19, arguing that the flow of guests posed an unacceptable public health risk to all owners, Mrs Zamora argued that dictating how she could utilise her property was against the law.

“There are more than enough cases in the judicial system that prove this is illegal. So, as a lot owner, I asked myself ‘are they not aware? How can they not be aware?’ We elected them in good faith to act in our best interest,” she said.

Prima Tower’s strata services are managed by Melcorp Strata, an associated company of developer PDG.

Melcorp Strata general manager Donna Rowe told Southbank News that, due to upcoming legal proceedings, it would not be commenting on the matter.

But while some have billed the case as “defining”, CEO and principal lawyer at Strata Title Lawyers Tom Bacon told Southbank News that it could potentially only be considered as “defining” in the context of providing OCs with greater clarity during COVID-19.

Mr Bacon said that the Lim decision in Doncaster by VCAT back in 2018 already clarified and confirmed that an OC may first require an induction by the building manager and three days’ notice between guests arriving; well before COVID-19 and the issuing of public health orders.

While he wouldn’t comment on the alleged 90-day ban, only to add that the actions of Prima’s OC weren’t “squeaky clean”, they needed to be considered in the context of all laws in Victoria and Australia, and not just through the “narrow prism” of the Owners’ Corporation Act 2006.

“By virtue of sections 4 to 6 of the Owners’ Corporation Act 2006, an OC actually has incredibly wide powers vested in it to carry out the functions imposed by the rules, the act, the regulations, and any other act or law in Victoria and the Commonwealth,” he said.

“An OC has also been vested with ‘all other powers necessary to enable it to perform its functions’. In addition, an OC must also act honestly and in good faith, and must exercise due care and diligence.” 

“With all of the above in mind and in the backdrop of the COVID-19 pandemic, I can’t see how any OC could be criticised by a short-stay operator in these circumstances for imposing certain restrictions.” 

“The Public Health Safety Orders are laws, and those laws must be obeyed by an OC. A building manager must have an accurate register of who is present in the building, for contact tracing by health authorities.”

“They [Prima Tower OC] have over-reached in their resolution and have not sought proper advice, and they will come in for criticism from VCAT. But I doubt that the short-stay operator will obtain any orders in her favour.”

However, the President of the Victorian Accommodation Industry Association (VicAIA) Linton Wood said he believed that the case could prove crucial, describing the Prima OC’s actions as “completely unacceptable.”

“To be not following any of the rules, in fact any of the laws, that are in place to make sure that the lot owners’ best interests are represented and then just pushing their own personal agenda to ban short stays. It’s just not okay,” he said.

Mr Wood said an OC could not legally restrict how long an owner leases their premises for, pointing to the case won by Docklands short-stay operator and former VicAIA president Paul Salter in 2016.

Mr Salter was successful in a landmark Supreme Court decision that went against the OC at Watergate Docklands apartment complex, which had tried to prevent stays of less than 30 days at the 18-storey tower.

“As a lot owner you’ve bought an asset, you want to make money from the asset, and the owners’ corporation has no power to restrict how long or short you rent out your property for. You can rent it to a tenant for three months, you can rent it to another resident for a couple of nights or a couple of weeks.”

Mr Wood said VicAIA would be assisting Mrs Zamora in her legal battle.

Harish Nair, senior associate at Hicks Oakley Chessell Williams and lawyer representing Mrs Zamora, said the case was currently in a preliminary stage, and would be heard at the Victorian Civil and Administrative Tribunal (VCAT) on July 28.

He too said the matter could become a defining case for strata law in Victoria.

“I would agree with that,” he said.

“There are a number of things managers and committee members of OCs need to learn; that they are only responsible for handling the assets of the common property, which is what OCs are created for. When they go beyond those rights, it becomes very questionable whether they’re acting in the interest of everybody in the building.”

But Mr Bacon said all OCs had a delicate balancing act to consider in responding to these unprecedented times.

“On the one hand, lot owners and lessees have freehold and leasehold rights to sub-let, licence and otherwise invite guests to come stay in their apartments for however long or short as they please, and the OC has to respect those rights,” he said.

“But on the other hand, the OC has the duty to act in the best interests of all owners and occupiers and must do all things necessary to ensure the safety and the health of all of the existing owners and residents in the building.” 

“When you weigh those two competing interests in the context of COVID-19, the health and safety of over 1000 owners and residents in the building must necessarily outweigh the rights and expectations of an absentee AirBnB landlord to rent the unit out to whomever of the general public that desires to use it, in order to turn a profit.”

Harish Nair said that if there was a negligence claim on the part of the OC, then the case may head to the Supreme Court.

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