The decision handed down on 8 December 2025 in Nicholson v Woodrow & The Owners – Strata Plan No. 104042 [2025] NSWCATCD has shed further light on this restriction in relation to a by-law regulating short term rental accommodation arrangements.
Facts
Ms Angela Nicholson (“the Applicant”) was the owner of a lot in a strata plan in Newcastle. The scheme was a mixed use strata development known as “Sky Residence”. The Applicant utilised her lot for short term rental purposes. On 21 December 2022, the owners corporation (“the Respondent”) adopted a by-law known as Special By-Law 1 (“SBL 1”) purporting to regulate the use of short term rental arrangements. SBL 1 required lot owners to notify the owners corporation of such arrangements and imposed financial obligations, including the payment of a security bond and administration fees.
The Applicant contended that SBL 1 was invalid. She argued that the by-law was inconsistent with the Strata Schemes Management Act 2015 (NSW) (‘SSMA’). She also submitted that the by-law was harsh, unconscionable, or oppressive, particularly in relation to the imposition of the bond and administration fees.
Consideration of grounds
- Inconsistency with SSMA
It was explained by the Tribunal that a by-law has no effect to the extent that it is inconsistent with the SSMA or any other law (SSMA, s136(2)). Further, an owners corporation can make a by-law prohibiting the use of a lot for the purposes of a short-term rental arrangement, but only where the lot is not the principal place of residence of the person giving the right of occupation (SSMA, s 137A).
However, the clauses in SBL 1 expressly permitted short-term rental accommodation where the lot is the principal place of residence and prohibited such arrangements where it was not.
- The Administration Fee
SBL 1 allowed the Respondent to recover “any reasonable administrative … costs” and any other costs incurred “as a direct result of an Owner … using their Lot for a Short-term rental accommodation arrangement”.
The Tribunal referred to The Owners – Strata Plan No. 77109 v Gokani-Robins Pty Ltd [2023] NSWCATAP 82 (“Gokani-Robins”) in which the Appeal Panel confirmed that a by-law permitting an owners corporation to unilaterally determine and recover “costs and expenses” as a debt, without any requirement for those costs to be reasonable or independently assessed, is harsh, unconscionable, and oppressive.
It was found that the definition of “Administration Fee” was cast in similarly broad terms as that considered in Gokani-Robins.
The Tribunal states at [45] of the decision:
The Tribunal finds that the imposition of an open-ended liability for “any other costs and expenses”, recoverable as a debt, places an unreasonable burden on the lot owner. It shifts the financial risk of the Owners Corporation’s administrative decisions entirely onto the lot owner without independent oversight. Consequently, … the Tribunal finds that the definition of “Administration Fee” and the operative clauses relying upon it are harsh, unconscionable, and oppressive.
- The Bond
SBL 1 also required a “Bond” of “$1,000.00, or another amount reasonably determined by the strata committee”. The payment of the bond was a condition precedent for an owner of a lot to use it for short-term rental.
Here, the Tribunal cited Cooper v The Owners – Strata Plan No 58068 [2020] NSWCA 250 as authority for the proposition that a by-law must be reasonably proportional to the benefit it seeks to achieve.
It was found requiring an upfront financial security deposit from a lot owner to exercise a permitted use of their freehold property would be a significant encroachment on property rights. Further, the discretion of the Strata Committee to determine “another amount” created uncertainty and the potential for discriminatory application. In any case, the SSMA already provided a mechanism to recover costs for damage to common property and for the enforcement of by-laws.
As the Tribunal put it at [49] of the decision:
The Tribunal finds that the imposition of a mandatory bond, particularly one with a variable quantum determined by the Committee, is oppressive. It imposes a financial barrier to the exercise of a property right that exceeds what is necessary to protect the interests of the scheme.
Severance
It was then queried whether the invalid parts of SBL 1, namely, the clauses imposing the administration fee and bond, could be severed from the regime without causing the instrument to operate “in a manner wholly different from the original instrument passed by the Owners Corporation”.
It was found that the requirement for a bond and the ability to recover administration fees were integral protections which the owners corporation relied in determining to regulate short term rental accommodation.
The Tribunal considered at [53] of the decision that:
[…] to sever those provisions would leave a regulatory framework lacking the financial safeguards that formed part of the “package” approved by the lot owners, resulting in a by-law operating in a manner substantially different from what was intended.
Accordingly, as the Tribunal declined to sever the offending parts of SBL 1, the by-law was declared invalid in its entirety.