Manly long leaseholders stranded high and dry as Court of Appeal dismisses Spring Cove appeal
In the Owners—Strata Plan No 91322 v Trustees of the Roman Catholic Church for the Archdiocese of Sydney  NSWCA 89 the Court of Appeal gave short shift to the question of whether an owners corporation, holding a 99 year leasehold interest in common property, was entitled to enforce the Home Building Act statutory warranties.
The development under scrutiny was that of 16 luxury townhouses and apartments perched above Sydney Harbour, at Manly’s Spring Cove.
This decision provides further food for thought for prospective purchasers of strata units.
The central issue on appeal was the construction of the phrase ‘successor in title’ within the meaning of the Home Building Act 1989.
The trustees of the Roman Catholic Church for the Archiocese of Sydney held the freehold title in the land, part of the historic garden estate between Collins Beach and Little Manly Cove.
In 2015, the Trustees granted development rights to Spring Cove Developments Pty Ltd (Developer). The Developer contracted with SX Projects Ptd Ltd (Builder) to construct the luxury lots. The prospective lots were sold ‘off the plan’ and by agreement that the Trustees would, on registration of the strata plan, sell the leasehold in each lot to each purchasers.
In August 2015, the strata plan was registered. The Trustees retained ownership of Spring Cove and granted leases over each of the lots in the strata scheme. he Trustees also agreed to lease the common property in Spring Cove directly to the OC. All leases were for a term (including an option to renew) of 99 years. By February 2016 a liquidator had been appointed to the Builder. Defects later emerged in the common property.
In 2017, the OC sued the Developer and the Trustees seeking to enforce the statutory warranties.
It was accepted that the Trustees were a deemed ‘Developer’ under the Act and it was common ground that the interest acquired by the OC was a leasehold interest. However, to succeed on its claim the OC had to establish that it was a ‘successor in title’ under the HBA and therefore entitled to enforce the statutory warranties.
The OC argued that the question should be considered within the prism of the consumer protection intent of the HBA, which should be advanced to protect purchasers with unequal bargaining power.
In October 2018, ADCJ Cowdroy rejected those arguments.
The OC advanced different arguments on appeal, including that s24 of the Strata Schemes Development Act 2015 operated to vest the common property in the OC.
The problem was that the 2015 Development Act did not apply in August 2015, when the strata plan was registered, but the Strata Schemes (Leasehold Development) Act 1986 and the Strata Schemes (Freehold Development) Act 1973 did. Those acts distinguished between freehold and leasehold title.
The Court held that the nature of the title held by the OC must be determined according to the legislation in force at the date of registration. The repeal of the 1986 Leasehold Act could not effect a retrospective vesting of the common property. Thus, the common property remained a leasehold interest and the Trustees contained to own the freehold.
The practical point is that if you are an OC intending on suing a developer you need to check that developer had the same estate or interest as the OC to ensure that the OC is a successor in title. This decision further adds to the current woes of the Owners Corporation.
Do you need advice in strata and leasehold titles?
Clare Peacock is an experienced construction lawyer working on Sydney’s Northern Beaches. Clare provides practical, cost-effective building approval advice to property owners, builders and strata managers. Services include residential building disputes, body corporate issues and strata building problems.