A 2025 successful ACAT outcome regarding short-term letting being an illegal use in a residential owners corporation

Proctor Legal has recently successfully represented an ACT Owners Corporation in seeking orders confirming that a Unit Owner, using their residential two bedroom apartment, as a 16 bed hostel, was operating outside the residential permitted use under the Crown Lease for the Units Plan and was therefore in breach of the default rules and ordered to cease such operations.  The Owners Corporation was also successful in obtaining orders that the Unit Owner pay the legal expenses arising due to the rule breaches and the ACAT action that the Owners Corporation incurred in the sum of $18,850.00.[1]

What does this mean for your Owners Corporation and short-term letting in the ACT?

Unfortunately, when it comes to Strata Living, nothing is straightforward and in the ACT there are additional layers to Strata Living connected to our leasehold title system.  Every buyer needs to understand that when a Unit is purchased in the ACT, there are obligations every unit owner is bound to comply with contained in the Crown Lease over the Units that is in place with the Territory and that specifically contain covenants that permit the use and occupation of units on the terms set out in the Crown Lease.  

The terms of the Crown Lease dictate what uses may be available to you for your unit and the common property for the Owners Corporation, and such uses are not necessarily what the parcel of land is currently zoned for.   Every Owners Corporation is likely to have a differently worded Form 4 (which is the Crown Lease covenants for each owner within the Units Plan.)

While the Territory Plan may indicate which uses are permissible in a particular zone of the ACT, it is only if such uses are actually permitted uses under your Crown Lease (Form 4 in an Owners Corporation) and the building class permits that use, that such a use will be permitted/lawful.

In addition to restrictions on use in the Crown Lease, there are Default Rules[2] set out in regulations which every Unit Owner/Occupier is bound to. Some Owners Corporations also adopt additional alternate rules, which become effective when registered within certain time frames of being adopted by special resolution in general meeting.

Relevantly, Default Rule 1.11 states that a unit owner must not use the unit, or permit it to be used, to contravene a law in force in the ACT.

Every Unit Owner needs to understand what it is permitted to do with its unit as part of its due diligence when purchasing, including understanding what is permitted under the Crown Lease and what rules have been adopted by the Owners Corporation.

Why is there confusion? – the ACT Leasehold system is unique. 

The Leasehold System

The ACT has predominately a leasehold system of Land, where owners of property are lessees pursuant to a registered crown lease that contains covenants that bind the parties.  While the concept of a lease is a private law concept, it has been adopted for use in the Territory as the foundation for land planning and development, and it is recognised that public policy is implemented through the device of a crown lease.[3]

In a Units Plan the crown lease is the Form 4 of the Units Plan for all Units and the Form 5 is the crown lease for the common property.  The uses allowed for each unit within the Units Plan are those set out in the Form 4 of the Units Plan. 

Case Law

In 2020 there was an interesting ACAT decision[4], commenced by the Australian Hotels Association (AHA) who had previously applied directly to the ACT Planning and Land Authority for a controlled activity order, which if granted, would require the Lessee of a then recently built building in Kingston where 56 serviced apartments were being operated. 

When ACT Planning refused to issue the controlled activity order the AHA took the matter to ACAT and on 1 December 2020 ACAT set aside the decision of the Planning Authority and issued a controlled activity order against the Lessee which had the effect that they had to cease using the building as Serviced Apartments.

In that decision the relevant permitted use under the crown lease considered was “for the purpose of multi-unit housing of not less than three (3) and not more than fifty-six (56) dwellings” and no other uses.  The words “residential” were not expressly contained in the Crown lease and the Tribunal went down a pathway (later found to be incorrect[5]) to import the meaning of residential from the Territory Plan. 

However notably, in the matter Proctor Legal took to ACAT the express use in the Form 4 stated was limited to “single use residential dwelling only”, and accordingly, there was unnecessary to import any such meaning. 

The AHA decision usefully arrived at its view of the meaning of residential as follows;-

the ordinary meaning of the word ‘residential’ points to a degree of long-term and permanent habitation. This meaning is enhanced by the structure of the defined terms contained in the Territory Plan, under which residential use is distinct from the more transient or temporary habitation occurring in hotels, motels and serviced apartments listed under the umbrella term of commercial accommodation use. [6]  

In Bowler v Hilda Pty Ltd[7] the concept of residential use was identified as involving a degree of permanent residence or long-term habitation in distinction to the short term occupation of a serviced apartment.

Conclusion

Whether or not short-term letting is permissible in your Units Plan will depend upon the construction of the Crown Lease and any alternate registered rules. 

[1] The ACAT matter was unreported however the Owners Corporation involved has authorised the release of the particulars as contained in this article.

[2] Schedule 1, Default Rules, Unit Titles (Management) Regulation 2011

[3] Block 23 Pty Ltd v Qursa Pty Ltd, [2024] ACTCA 16 (2024) at 47

[4] Australian Hotels Association (as represented by ACT Branch ABN 37 315 422 917) v ACT Planning and Land Authority & Quanton Pty Ltd ACN 167 954 994 (Administrative Review) [2020] ACAT 98.

[5] Quanton Pty Ltd v ACT Planning and Land Authority, [2021] ACTSC 139 (2021) 359 FLR 127

In this matter the developer appealed the AHA ACAT decision in the Supreme Court which was in effect not upheld on the basis of matters of interpretation not directly related to the meaning of residential (but relating to the importing of meaning from the Territory Plan in the absence of explicit reference).

The Court relevantly also noted that the determination of whether or not the crown lessee was in breach of the crown lease or not was not resolved as the matter would have to be remitted back to the Tribunal to make a determination according to law and to consider all of the circumstances of the Lessee’s actual use of the building in light of the correct construction of the crown lease.

[6] Op. cit; at 86

[7]Bowler v Hilda Pty Ltd [2001] FCA 342