Developers will often impose long-term leases and licences over Common property sometimes associated with infrastructure service agreements.
The purpose of those agreements is to maximize the return on investment for the developer. Some long-term onerous agreements have been successfully challenged enabling the Owners Corporation to resume control of the common property with real benefits flowing back to the owners and occupiers rather than the erstwhile developer.
Careful and considered licensing by the Owners Corporation of the common property on appropriate terms and conditions will however often produce real benefits for the owners and occupiers.
There are typical examples of Common property which if the subject of carefully drawn licences can produce these advantages:-that they wish to dispose of for a stipulated period but not indefinitely. For example:
- under staircases
- cupboard space
- garden areas
- car spaces
The reasons why the Owners Corporation may wish to dispose of these areas are many but include:
- difficulties of access to the areas by all members for their enjoyment
- onerous upkeep and maintenance requirements
- requests from particular Lot owners to be able to use those areas exclusively
In these instances, we recommend, and it is very common for an Owners Corporation to grant a particular Lot owner or occupier a Licence or Lease over these types of common property areas.
The question then becomes, should the Owners Corporation grant a Lease or a Licence over a common property area.
Lease –v- Licence
A Lease confers exclusive possession on the individual Lot owner and confers an interest in land.
A Licence is merely a contractual arrangement between two parties for the right to use or occupy the land. Although a licence may be exclusive, it is not an interest in land.
In general terms, as a Licence does not provide you with an interest in land it cannot be assigned or transferred to a successor in title as can be with a lease. Rather, a licence is a contractual relationship between the two parties that have agreed to be bound by its terms.
Form of Lease or Licence
The Lease or Licence must be in writing and executed by the relevant parties. It is important that the lease or licence is drafted appropriately to ensure that the following is included:
- who is responsible for the maintenance of the area the subject of the
- is the lease/licence assignable and what is the procedure for doing so
- any indemnification to the Owners Corporation for damage or injury arising
as a result of the use of the area
- the term of the lease/licence
- the consideration for the lease/licence
- clear stipulation of the parties and the area the subject of the lease/licence
- stipulations that the use of the area must not breach the Owners
- which law will govern the lease/licence
This is not an exhaustive list of the recommended inclusions of a lease or licence however it provides some guidance
Granting a Lease or Licence over Common Property
In granting either a licence or lease over the common property to the individual Lot owners, the Owners Corporation must first pass a special resolution to do so.
Section 14 of the Owners Corporations Act 2006 states:
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.