LORD CARNWATH:
Introduction
1.
“The Pinnacle” is a condominium development of 34 residential apartments
and associated facilities at Providenciales, Turks and Caicos Islands. It was
developed under an agreement between The Pinnacle on Grace Bay Ltd and the
Government under the Encouragement of Development Ordinance 1972. It was
registered in the Land Registry under the Strata Titles Ordinance (CAP 9.04)
(“the Ordinance”) on 12 September 2005. The respondent (“the Corporation”) is a
statutory body corporate created under section 4(1) of the Ordinance, which
provides: “The proprietors of all the strata lots contained in any strata plan shall,
upon registration of the strata plan become a body corporate.”
2.
Section 20(1) of the Ordinance provides that “… the control, management,
administration, use and enjoyment of the strata lots … shall be regulated by
by-laws”. The section authorises the making and variation of by-laws, including
standard by-laws set out in Schedules 1 and 2 to the Ordinance. Section 20(4)
provides:
“No by-law shall operate to
prohibit or restrict the devolution of strata lots or any transfer, lease,
mortgage or other dealing therewith or to destroy or modify any easement
implied or created by this Ordinance.”
3.
The material by-laws for The Pinnacle, which are the subject of this
appeal, were created at the time of initial registration. All purchasers therefore
acquired their strata lots subject to the by-laws and with knowledge of their
terms. They included the following:
“7.1 Each Proprietor shall:
…
9. 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 ... (Emphasis added)
16. Not use or permit to be
used the Strata Lot or any part thereof for any illegal or immoral purpose, nor
for the carrying on of any trade or business other than periodic renting or
leasing of the Strata Lot in accordance with these by-laws unless such trade or
business activity has been approved in advance by the Executive Committee in
writing, which approval may be revoked for cause.”
For this purpose “Residential Strata Lot” is defined as
“a Strata Lot which is intended for use as a residence”. The central issue
turns on the construction of the words in italics.
4.
The appellants (“the O’Connors”) are the registered owners of Unit 102.
From 2007 onwards they allowed Unit 102 to be occupied by paying holidaymakers
for periods of less than one month at a time. The present proceedings were
brought by the Corporation for orders restraining their use as contrary to
by-laws 7.1.9 and 7.1.16. The trial judge (Ramsay-Hale J) dismissed the claim,
but her decision was reversed by the Court of Appeal. The O’Connors appeal to
the Privy Council with permission granted by the Board.
5.
The main issues in the appeal turn on the interpretation of those
by-laws, and their validity having regard to section 20(4).
Strata Title
6.
Strata title has no direct parallel in the United Kingdom but it is a
familiar concept in Australia, and other parts of the Commonwealth. As the
judge observed (para 2), the Turks and Caicos Ordinance was modelled on the New
South Wales Conveyancing (Strata Titles) Act 1961.
7.
Prohibitions of restrictions on disposal are common in such statutory
regimes. In a study of the Australian law and practice (Cathy Sherry, Strata
Title Property Rights: Private Governance of Multi-Owned Properties
(Routledge, 2016)) the author notes (pp 32-33):
“Most states [in Australia] ban
by-laws that restrict transfer, leasing or mortgaging of lots, to prevent the
problems that existed in relation to company title, namely banks not wanting to
lend on the security of an apartment if they cannot exercise a power of sale
quickly and easily.”
8.
Thus, as Mr Thom QC submits for the O’Connors, the purpose of section
20(4) of the Ordinance is to ensure that a strata title unit is freely
marketable. This, as he says, is not only in the interests of the proprietor
for the time being, but others who may become or wish to become successors in
title, including purchasers, chargees, receivers and creditors. It thus serves
an important public purpose and should not be approached in a restrictive
manner.
9.
The function of by-laws was described by Campbell JA in White v
Betalli [2007] NSWCA 243 (cited by Mottley JA in the present case):
“204. It is that ancient notion
of a by-law that the New South Wales legislature chose to adopt, without
definition or explanation, when first enacting legislation concerning strata
titles in 1961: section 13 Conveyancing (Strata Titles) Act 1961. It has
appeared in legislation governing strata titles ever since. Such legislation
creates a statutory framework within which a type of local community can be
created and administered. It is a type of community where co-ownership, and the
physical proximity of the spaces that the owners are entitled to occupy, create
the opportunity for both cooperation and conflict. It is a type of community
that was new in 1961, though it had some analogies with the communities that
had previously existed through the creation of home unit companies under the
Companies Act, or allowing for individual occupation of apartments in a
building through a tenancy in common scheme.
205. There is nothing in the
notion of a by-law that, of itself, imposes any kind of limitation on the kind
of regulation that might be adopted, beyond that it is for the regulation of
the particular community to which it applies. Any limitation on the type of
restriction or regulation that can be a by-law must arise from the statute that
enables the by-laws to be created, or from the general framework of statute
law, common law and equity within which that local community is created and administered.”
10.
The Board has been referred to a number of Australian decisions,
including decisions of tribunals and adjudicators under specialised statutory
systems. It is not proposed to refer to these in any detail, since, apart from
the level at which they have been decided, there are material differences in
the various statutes. It is clear however that statutes prohibiting
restrictions on dealing in strata lots do not prevent reasonable restrictions
on the uses of the property, even though such restrictions may have the
inevitable effect of restricting the potential market for the property.
11.
It is apparent also that the problem of distinguishing between short and
long term residential uses is a familiar one. A useful example is a judgment of
the Court of Appeal of Western Australia: Byrne v The Owners of Ceresa River
Apartments Strata Plan 55597 [2017] WASCA 104. It concerned lot 14 in a
development which lay within an area where the permitted use in 2011 was “human
habitation on a permanent basis”, and where “short stay accommodation” (as
defined) was not permitted without planning approval. On 23 May 2013, planning
approval was granted for change of use to “serviced apartment” which was
defined as “an independent living residential unit providing for short stay
accommodation.” By-law 16.1, applicable to lot 14, was in the following terms:
“16. Use of Premises
16.1 … a proprietor of a
residential lot may only use his lot as a residence.
16.2 Notwithstanding bylaw 16.1
a proprietor of a residential lot may:
16.2.1 grant occupancy rights in
respect of his lot to residential tenants …”
12.
The Court held that, on their proper construction, by-laws 16.1 and 16.2
provided that lot 14 could only be occupied by persons who used it “as their
settled or usual abode” (paras 150 to 155). This was derived from the words
“residence” in by-law 16.1 and “residential” in 16.2.1. Mr Byrne, who had been
letting lot 14 for short periods, relied on a provision in the Western
Australian Strata Titles Act 1985 (in similar terms to section 20(4) in the
present case). His argument was not that section 42(3) of the 1985 Act made
by-law 16 invalid, but that the by-law should be construed as permitting
short-term letting in order to make it consistent with the Strata Titles Act.
The court held that the by-law operated as a restriction on use rather than on
alienation, and was therefore unobjectionable.
The Present Case
13.
Turning to the present case, the judge held that section 20(4) would not
apply to a by-law which precluded the grant of a licence, but that the
O’Connors’ arrangements properly assessed were leases. That part of her
judgment is not now in issue. But she went on to hold that, regardless of that
specific finding, the by-law was contrary to section 20(4) and to that extent
invalid, because it was expressed in terms which would restrict the grant of
leases of less than a month. The Court of Appeal disagreed, holding that the
by-law was in effect a restriction on use rather than on leasing as such.
14.
As already noted, the O’Connors appeal with leave of the Privy Council.
There was a possible question whether the appeal lay as of right. This was on
the basis of section 3 of the Turks and Caicos Islands (Appeal to Privy
Council) Order 1965, which allows such an appeal in relation to “some claim or
question to or respecting” property of the value of £300 or more. The O’Connors
submit that this is a claim or question “respecting” their strata lot, the
value of which clearly exceeds that figure. In the circumstances, it is
unnecessary for the Board to express a view on this issue.
Discussion
15.
Without disrespect to the detailed submissions of counsel on both sides,
the Board regards this appeal as turning on a short question of construction of
the relevant by-laws. They are to be construed benevolently, having regard to
their purpose in assisting the good management of the development for the
benefit of its residents as a whole, and with a view if possible to avoiding
inconsistency with the governing statute.
16.
Two features of the by-law attract immediate attention. First, it
applies to a “Residential Strata Lot”, that is a lot “intended for use as a
residence”. It is common ground that a by-law designed to secure restriction to
residential use is in principle unobjectionable. By the same token there can be
no objection in principle to the inclusion of words designed to define what is
meant by use as a residence.
17.
Secondly, the latter part of the by-law (the part beginning
“notwithstanding”) is not a restriction, but a relaxation of what precedes. The
first sentence is very tightly drawn since it restricts use not simply to
residential use, but residential use by the proprietor of the strata lot. Taken
literally, that would make it impossible for anyone other than the proprietor,
even a long-term lessee, to occupy the lot as his home. The second part of the
by-law is therefore essential to relax that restriction, by allowing reasonable
residential use by others, including reasonable exploitation of the property
for rental by others (whether lessees or licensees). That element of business
use, within the residential category, is recognised by by-law 7.1.16, which
prevents business use without consent “other than periodic renting or leasing …
in accordance with these by-laws”. That must be a reference to residential
renting under by-law 7.1.9, since there appears to be no other by-law which
allows any form of business use without consent.
18.
In the Board’s view, the limitation to one month can be seen as designed
to provide some definition of what is meant by “use as a residence” for this
purpose. The character of the use is clearly affected by the length of
occupation. Short-term use by holiday-makers is different in kind from
longer-term residential use, even if it may be difficult to draw a clear
dividing line.
19.
As already noted, this is a familiar problem in the law. For example, in
an English case, Caradon District Council v Paton (2001) 33 HLR 34, the
Court of Appeal had to decide whether a covenant requiring a house not to be
used other than as a private dwelling-house was breached by use for occupation
by holidaymakers under tenancies for short periods. Latham LJ said:
“Both in the ordinary use of the
word and in its context it seems to me that a person who is in a holiday
property for a week or two would not describe that as his or her home. It seems
to me that what is required in order to amount to use of a property as a home is
a degree of permanence, together with the intention that that should be a home,
albeit for a relatively short period, but not for the purposes of a holiday.”
(para 36)
The Board respectfully agrees with this analysis, and
would apply the same thinking to the concept of use as a residence.
20.
Seen in this light, in the Board’s view, the emphasis of the second part
of the by-law is not so much on the word “rental” (which in this context can be
read as an ambiguous term apt to cover a letting or a licence), as on the
period of occupation. By requiring rentals, and therefore occupation periods,
to extend for at least one month, the by-law is seeking to ensure the degree of
stability which is necessary to maintain the character of the residential use.
In the Board’s view this is properly regarded as part of a legitimate
restriction on the use of the strata lot, to ensure that the residential
purpose of the development is protected. It does not involve an impermissible
restriction on leasing contrary to section 20(4).
21.
For these reasons, the Board will humbly advise Her Majesty that the
appeal should be dismissed. It is understood that in these circumstances issue
(4) relating to costs does not arise. Accordingly, subject to any submissions
received within 28 days of this judgment, costs before the Board will follow
the event.
