Common property can be leased or licensed for a unit owner’s personal use, such as an area for a car park, storage space or a private courtyard. Ordinarily, your Owners Corporation manager will engage a solicitor to prepare the lease or license along with a diagram on the plan of subdivision of the proposed area. Before an Owners Corporation enters into a lease or licence with a lot owner, a special resolution (75% voting approval of all unit owners) is required to approve the lease or licence. The Owners Corporation and the lot owner should also be aware of the distinct differences between a lease and licence prior to entering into and signing the agreement.
Do you have the power to lease or license the common property?
By special resolution, an Owners Corporation may lease or license the whole or any part of the common property to a lot owner or other person (Section 14 of the Owners Corporations Act 2006)
Getting your Special Resolution right first time
The choice between a lease and licence should be made before the special resolution is obtained. The Owners Corporation has to be clear on what it wants so that the special resolution is specific and reflects exactly what is going to be entered into by the Owners Corporation.
Should the lease or licence become subject of a dispute at VCAT, the special resolution may be at risk of being declared as invalid if it refers to the wrong type of agreement or provides a choice between the two.
What is the difference between a lease and a licence?
The aspect that distinguishes a lease from a licence is exclusive possession, amounting to an interest in land, as distinct from a personal permission to enter and use the property for some stipulated purpose.
A lease confers greater protection to the lessee than that of a licence. A holder of a licence (a licencee) cannot enforce its rights against third parties, it may or may not have exclusive possession and may have its licence revoked by the licensor at any time.
With a licence, the Owners Corporation is effectively saying “You are entitled to occupy the common property for some time, but we can interrupt at any time and ask you to stop.” The advantage to the Owners Corporation of using a licence is that it is easier to exercise control.
A lease runs with the land (remains with the unit) and can be transferred to a new owner whereas a licence remains with a unit owner. If there is change of ownership of a unit with a licence, a new licence must be issued and approved for the new owner.
If the lease is longer than three years, then it can be registered for a small lodgement fee and it will be shown as an encumbrance on title for common property.
Leases are usually short term agreements as oppose to licences which are normally long term, however this can vary.
A lease and a licence are subject to different requirements when transferring the rights and obligations under the document to other parties.
Notwithstanding the above, the label parties put on the document is a factor, however, it is by no means conclusive. What matters is whether the terms of the transaction are characteristic of a license or of a lease.
Can a lot owner alter common property under the lease or licence?
A significant alteration to common property by the Owners Corporation ordinarily requires special resolution (Section 52 of the Owners Corporations Act2006). However, this provision only applies to Owners Corporations and not an individual lot owner carrying out an alteration to common property. As long as there are no financial consequences for the other lot owners and the individual owner bears the cost, there is no requirement for a special resolution (Martin Ors v Owners Corporation 431576 (Civil Claims)  VCAT 2699).
Owners Corporations are advised to incorporate certain terms into the lease or licence which operate to protect the Owners Corporation’s interests and allow the Owners Corporation to maintain some level of control over any works to be carried out to the lease premises. Such terms include , but are not limited to, requiring the lot owner intending to alter the common property to make a written application to the Owners Corporation for approval, to submit all documentation required by local authorities and councils, to have all works carried out by duly qualified tradespeople and to have the lot owner reinstate the lease premises to its original condition.
If you have an Owners Corporation query and would like to speak with an Owners Corporations lawyer. Sylvia can be contacted on:
T: (03) 9249 9556
The content in this paper is intended only to provide a general overview. It is not intended to be comprehensive nor does it constitute legal advice. You should seek legal or other professional advice before acting or relying on any of the content.