Owners Corporation Case Law Updates - VCAT Barrister

Aqua Greenland Pty Ltd v Max Therapy School Pty Ltd (Building and Property) [2023] VCAT 449 and third storey exclusion.
1. The RLA 2003 does not apply to leases predominantly for the provision of services above the third storey; known as the Third Storey Exclusion.
1. The definition of ‘storey’ has caused consternation within the leasing community, as ‘storey’ does not equate to ‘floor’ or ‘level’.
1. In Aqua Deputy President Riegler during a costs dispute in a rent relief case the Tribunal found that:
  1. Ground floor = Storey 1
  1. Level 1 = Storey 2
  1. Level 2 = Storey 3
  1. Level 3 = Storey 4.
1. Earlier decisions; Evans & Ors v Thurau Pty Ltd [2011] VCC 1444 provides an indication of how to apply the Third Storey Exclusion.
In Aqua the tenant, Max Therapy School Pty Ltd leased a premises located on Level 3, 310 King Street, Melbourne, from the landlord, Aqua Greenland Pty Ltd.
1. The tenant’s business (a training facility delivering diploma courses in remedial massage) was severely affected by the Covid-19 pandemic and as result, the tenant made a number of requests for rent relief under both the COVID 19 Omnibus Act & Regulations and the CTRS Regulations.
1. The landlord ended up making several offers for rent relief, some of which were accepted. In relation to the unaccepted offers, the tenant alleged that they were deemed to be accepted and therefore binding on the parties whilst the landlord contended that it was forced to initiate the proceeding to seek a declaration that rent relief be determined in accordance with the unaccepted offers.
The Aqua matter ultimately resolved by consent, save that both parties sought their costs against the other.
1. The landlord argued that it was entitled to its costs under s 109(3)(e) of the VCAT Act on the basis that the landlord was forced to commence the proceeding because the tenant failed to agree on an appropriate level of rent relief.
1. The tenant submitted that the unaccepted offers for rent relief were not in dispute and were therefore deemed to have been accepted by the tenant under the relevant regulations.
1. It was not in dispute that the tenant operated a retail business from the premises. Ordinarily in such circumstances s 92 of the RLA 2003 (that each party bear their own costs of the proceeding unless the circumstances in s 92(2) are engaged) would apply.
1. However, the landlord further submitted that the RLA 2003 did not apply because the premisses were located on the “fourth storey” of the building.
1. Sub-section 4(2)(f) of the RLA 2003 provides that certain premises which are the subject of a Ministerial Determination are to be excluded from the operation of the RLA 2003.
The Third Storey Exclusion itself states that (emphasis added):
1. Acting under Section 5(1)(c) of the Retail Leases Act 2003, I determine that the following kind of premises to which Section 4(2)(f) applies:
1. Premises that are located entirely within a building which, under the terms of the lease relating to the premises, or part of the premises, are used, or are to be used, wholly or predominantly for the retail provision of services, other than premises located entirely on any one or more of the first three storeys in a building, excluding any basement levels.
1. In determining whether or not the premises was located on the fourth storey of the building, Deputy President Riegler referred to the definition of “storey” in the Building Code of Australia 2019 – Volume One (emphasis added):
  1. As indicated in the Ministerial Determination, the exclusion of the RLA 2003 does not apply to retail premises which wholly or predominantly occupy the first three storeys in a building. It is unclear from the affidavit material whether the Premises fall within this description. Neither the RLA 2003 nor the Ministerial Determination define what constitutes a storey, for the purposes of the Ministerial Determination. This is regrettable because it is sometimes unclear whether the reference to a building ‘Level’ or ‘Floor’ corresponds to the same number of storeys. In relation to Class 2 to Class 9 buildings, the Building Code of Australia 2019 – Volume One defines a storey as:
  1. Storey means a space within a building which is situated between one floor level and the floor level next above, or if there is no floor above, the ceiling or roof above but not –
    1. a space that contains only –
    1. a lift shaft, stairway or meter room; or
    1. a bathroom, shower room, laundry, water closet, or other sanitary compartment; or
    1. accommodation intended for not more than 3 vehicles; or
    1. a combination of the above; or
    1. a mezzanine.
1. On the assumption that the ground floor of the building in which the Premises are situated is described as the Ground Floor and having regard to the definition of a storey in the BCA, I am satisfied that the Premises are located on the fourth storey. I have formed that view based on the following:
  1. Ground floor to Level 1 (the Ground Floor) being the first storey;
  1. Level 1 to Level 2 (Level 1) being the second storey;
  1. Level 2 to Level 3 (Level 2) being the third storey; and
  1. Level 3 to Level 4 (Level 3) being the fourth storey.
1. However, despite finding that the premises were located on the fourth storey and that the RLA 2003 didn’t apply due to the Third Storey Exclusion, Deputy President Riegler did not make an order as to costs, holding that:
  1. However, notwithstanding my finding that the space between Level 3 and Level 4, occupied by the Premises, is the fourth storey and as a result, s 92 of the RLA does not apply, I am not satisfied that it would be fair in the circumstances to order costs in this proceeding…
1. Aqua confirms that retail premises located above the third “storey” will be excluded from the operation of the RLA 2003 and when considering third “storey” do your calculation.
Supreme Court of Victoria decision of Justice Richards in Real Estate Victoria Pty Ltd v Owners Corporation No.1 PS 332430W[1] (REV Case).
1. Following the precedent set by the REV Case, the Disgruntled Majority or the owners corporation could make an application under section 34D(1)(b) of the Act requesting an order from VCAT consenting to the proposed resolution on behalf of the members that are refusing consent. In considering such an application, VCAT must apply the requirements prescribed by section 34D(3)(c) of the Act as follows: ‘The Victorian Civil and Administrative Tribunal must not make an order on an application under subsection (1)(b) unless it is satisfied that—
1. the member or group of members cannot vote because the member is or the members are dead, out of Victoria, or cannot be found; or
1. for any other reason it is impracticable to obtain the vote of the member or members;
1. the member has or members have refused to consent and:
1. more than 50% of the members (based on lot entitlement) have consented to the proposed action; and
1. the purpose for which the action is taken is likely to bring economic and social benefits to the subdivision as a whole greater than the economic and social disadvantages to the members who did not consent to the action.‘
1. Disgruntled Majority to make a successful application under section 34D(1)(b) if they can satisfy the test under section 34D(3)(c)(ii) (assuming sub-sections 34D(3)(a) and (b) are not applicable).
1. However the Amending Act has changed section 34D(3)(c) to read:

‘c. the member has or the group of members have refused consent to the proposed action and—

the member owns or the group of members own more than half of the total lot entitlement; and
1. all other members of the owners corporation consent to the proposed action; and
1. the purpose for which the action is to be taken is likely to bring economic or social benefits to the subdivision as a whole greater than any economic or social disadvantages to the member or the group of members who did not consent to the action.’
1. This change to section 34D(3)(c) has totally altered the intention of the previous version of the section. The previous version allowed the Disgruntled Majority to make an application for an order in circumstances where a unanimous resolution was required but was not able to be obtained.
1. The Amending Act has changed the requirements for an application to deal with a situation where a member or group of members hold more than 50% lot entitlement and the majority lot owner or owners have refused consent to a proposed action.
1. If all other members have consented to the proposed action then the member or group of members in the minority can seek an order against the majority lot owner or owners. It is difficult to reconcile how often a scenario under the new section 34D(3)(c) will arise as compared to the dilemma faced by the Disgruntled Majority.
1. Intention behind the change was to remove the ability of a majority lot owner to prevent an application to VCAT for changes to the lot liability and lot entitlement of members in circumstances where all other lot owners have consented to the change.
1. The impact of the change has arguably extended far beyond that intention and too far in the opposite direction as it is certainly not helpful to members of an owners corporation such as the Disgruntled Majority who have a clear mandate to request VCAT to make orders under section 32 or 33 of the Act but are being thwarted by a small minority of recalcitrant members.
Justice Garde whilst sitting as President of VCAT in Conroy v Owners Corporation Strata Plan 30438 [3] (Conroy) concluded that it was possible to make a separate application under section 34D(1)(a) of the Act. He stated at paragraph 54 of the decision:
1. “As I have said, the powers conferred on the Tribunal by s 34D(1) are cumulative. Each is expressed in different language and has a different task to perform. It is up to applicants to identify in their application which one or more of the powers contained in s 34D(1)(a)-(d) and (6) they seek to enliven, and then to satisfy the Tribunal that they meet the requirements (if any) imposed by s 34D(2)-(6) on the exercise of that power, and that the Tribunal after having considered all relevant considerations should grant the desired relief.”
However, in the REV Case, Justice Richards concluded that section 34D(1)(a) of the Act did not, of itself, empower VCAT to make an order requiring an owners corporation to alter lot entitlement or lot liability in the absence of a unanimous resolution.
1. Her Honour concluded that when considering making an order under section 32 or 33 of the Act in the absence of a unanimous resolution, the applicant must apply for orders consenting to the proposed resolution on behalf of the non-consenting members pursuant to section 34D(1)(b) and accordingly, must take into account section 34(D)(3)(c) of the Act. After analysing two subsequent decisions of the High Court [4], and analysing principles of statutory construction, Justice Richards concluded that section 34D must be read as a whole and when considering whether to grant an order, in the absence of a unanimous resolution of the owners corporation, the purpose of section 34D(3) could not be undermined.
1. Before the decision in the REV Case, it was considered that an application for an order in the absence of a unanimous resolution under section 34D(1)(a) could be used as an alternative to an application under section 34D(1)(b).
1. After the REV Case, which is not currently subject to appeal, a separate application under section 34D(1)(a) is not possible without application under section 34D(1)(b) and regard being given to section 34D(3)(c).