Lessons Learned from Hanna v Body Corporate for Surfers Hawaiian
On occasion, you’ll find situations in which tenants are promised something by representatives of Centre Management or Body Corporate. The tenants then act in reliance on the promise – only to be informed later on that the promise will not be honoured.
Hanna v Body Corporate for Surfers Hawaiian was a classic case of exactly that.
Mr and Mrs Hanna (“the Applicants”) ended up in a dispute with the Body Corporate of a high rise building known as Surfers Hawaiian over their rights to exclusively use an area of common property within the complex. The Applicants, as Tenants to a lease, were running a restaurant within the building in a lot owned by Mr and Mrs Hearns – the Landlords. Shortly after the Applicants started their restaurant, they sought a license to entitle them to exclusive use of an outside area of common property alongside their lot.
After attending a meeting with the Body Corporate, the Applicants spoke with a lady they believed to be the manager and the treasurer who informed them that their license application was successful. They were granted exclusive use of the common property for an initial three year period with two further three-year options.
However, it was later found that a licence for exclusive use of common area for more than three years could only be granted if the motion was passed in the general meeting without dissent. This meant that every member at the Body Corporate meeting had to approve of the motion. In this situation, it was only passed by a sufficient majority to constitute what was known as a “special resolution.”
Soon after the concern arose and comments by an adjudicator were made, the Landlords and the Body Corporate entered into a second licensing agreement without the knowledge of the Applicants. This license was for a term of three years only and had slightly more specific terms, costs, and restrictions to the previous agreement.
Hence, in accordance with the second agreement, the Body Corporate alleged to retake possession of the licensed areas upon expiration of that license.
Questions of Law
Should options be included in calculating the term of a lease or license?
It was argued by an adjudicator that the license would need to be approved again after the initial three year term ends since the license would extend beyond a three year term and was not passed as a resolution without dissent. Other cases pointed to the fact that the options would be regarded as separate.
Imperatively, however, the Body Corporate and Community Management Act 1997 (Qld) provides that if a person honestly enters into an agreement with a member of the Body Corporate who has the apparent authority to bind the Body Corporate, the agreement is valid and binding.
This implies that the first license agreement was valid, as the Applicants consulted with the treasurer and manager – representatives of the Body Corporate who both appeared to hold great authority – to make the agreement binding.
In relation to the second license agreement, since the lot was leased by the Landlords to the Applicants, the dealings between the Landlords and the Body Corporate could not make a valid license agreement which took precedence over the first valid license agreement between the Applicants and the Body Corporate. This was because of the practical reality that when property is leased, rights over the property are transferred to the Tenant (without transferring legal ownership of the property).
The Applicants’ request for an interlocutory injunction to prevent the Body Corporate from taking back the common area was permitted.
This was because, on the balance of convenience, there was no evidence that the Body Corporate would suffer any prejudice if the property was not returned to their possession right away, given that the Applicants had been using the licensed area for the past five years. It was also determined that damages would not be an adequate remedy since most evidence, on a practical level, pointed towards the Applicants being entitled to use the property.
Whether you’re a Landlord, Tenant, or a member of Body Corporate – this case is an important one to note. While arguments may be made about entitlements and legal rights on the basis of interest in the property, rights over the property, and those distinctions between common property and private property which are especially relevant to the function of Body Corporate – attention must never be shifted away from the facts and circumstances involved in any given day-to-day situation.
On a deeper legal level, if you are a Tenant, experience often tells that to know whether any statement or representation made by a Body Corporate representative has been run properly through their correct internal procedures is difficult from the outside looking in.
This case demonstrated the Court’s acknowledgement of the aforementioned difficulty and support of Tenants in these situations of detrimental information asymmetry by establishing that when the Tenant honestly and reasonably believes that they have entered into an agreement with Body Corporate, it may be valid even if the Body Corporate’s representations are not necessarily compliant with its own internal regulations.
While in an ideal world, business engagements would all follow internal regulations, terms of agreement, and relevant legislative provisions to a ‘T,’ experience tells us that reality does not always reflect the ideal.
In light of this, it is almost always a good idea to seek legal advice from your preferred law firm before entering into any major agreement to get a better picture of your legal position under the circumstances, and receive advice as to how to manage any risks of incurring legal liability before trouble comes.