From Sun TCI

The Turks and Caicos Islands Supreme Court has delivered a landmark ruling approving strata corporations operating with a single rental manager. 

The ruling by Chief Justice Margaret Ramsay-Hale on December 7, 2018, which resulted from a case between Ocean Club West in Grace Bay and the owners of seven strata units on the property, has major implications for the commercial operations of resorts in Turks and Caicos Islands under the provisions of the Strata Titles Ordinance.

It also has major implications for strata unit owners who seek to operate commercial short-term holiday rentals through popular direct rental platforms such as ‘VRBO’ and ‘Airbnb’, paving the way for strata by-laws and polices which may lawfully prohibit these commercial rentals and impose financial sanctions on direct renters who rent their units short-term for commercial purposes in contravention of such prohibitions by strata corporations. 

Ocean Club was represented by Conrad Griffiths, QC, and David Cadman of Griffiths & Partners, while Ruth Jordan and Neale Coleman of Karam & Missick appeared for the owners of 7 strata units.

In delivering her ruling, Chief Justice Hon. Margaret Ramsay-Hale quoted from a ruling of the UK Privy Council that strata by-laws “are to be construed benevolently, having regard to their purpose in assisting the good management of the development for the benefit of its residents as a whole”. 

Following that Privy Council’s ruling in O’Connor and others v The Proprietors, Strata Plan No. 51 in 2017 (“the Pinnacle Case”), the Chief Justice handed down her judgment which now restricts short-term rentals to rental only through the resort’s single designated rental manager, Ocean Club Management Ltd, appointed by the strata corporation. The policy was approved by a majority of owners at Ocean Club West.

The Privy Council confirmed in the Pinnacle case that short-term holiday rental does not amount to private residential use and that legitimate restrictions on the use of a strata lot are permissible.

Julianne Dodds and her husband, Kevin Dodds, were among a number of owners of strata units at Ocean Club West who continued to rent their apartments directly online without using the designated rental manager appointed by the strata corporation in accordance with the policy. 

Dodds and the other owners, Blue Grass Holdings Ltd, Grace Holdings Ltd, Valerie Anne Beattie, Howard Grant Beattie, Litlan ltd, Michael William Craig and Sara Ayres Craig, who continued to rent in defiance of the policy, contended that it was an unlawful restriction prohibited by the Strata Titles Ordinance. They brought court proceedings against the strata corporation. The Supreme Court has now rejected their arguments. 

Larry Marshall, spokesman for the Executive Committee of Ocean Club West, commented: “We repeatedly urged a minority of strata unit owners more than two years ago to work with the elected representatives of the corporation, the Executive Committee, for the good management of the strata corporation in the interests of all owners.” 

He added: “We particularly urged them not to instigate court proceedings seeking to bar the democratic policy of the majority of owners to regulate the use and enjoyment of the resort in our common interest. Sadly, our requests were not heeded and as a result very significant costs have been incurred in court proceedings which the strata corporation did not invite or encourage. We are pleased that the Supreme Court has endorsed the democratic decision of the strata owners collectively in choosing to operate the resort with a single rental manager which was judged to be in all our interests. We look forward to working with all strata owners in future in working with our single rental manager, Ocean Club Management Ltd which has done a tremendous job in managing our property for many years.”

The ruling means that strata unit owners have an obligation to comply with the communal decisions of all owners. This is the necessary implication of democratic majority management of strata corporations.

The owners of the units at Ocean Club, all rent their units to holiday guests from time to time as well as using them for their own private use.

When the developer sold the units to owners in 2002, it retained ownership of the reception building, the maintenance building, the restaurant building and the brand Ocean Club West Resort. These are now all owned by Ocean Club Management (OCM).

As well as, but separate to, managing the resort on behalf of the hotel, OCM runs a rental program at OCW (and also at the nearby resort known as Ocean Club Resort (informally known as ‘Ocean Club East’) whereby it manages rentals for owners who chose to join the program and sign up to a bilateral Rental Management Agreement (RMA) with OCM.

OCM provides and manages marketing services, booking enquiries, reservations, payment, maintenance and décor of units, reception and concierge services, housekeeping, bed linen, welcome baskets and airport transfers (rental services). To this end and for these purposes OCM hires its own staff. 

OCM is directly reimbursed (with an additional 10% uplift) by the owners in its programme for many of the rental services such as maintenance and decoration, welcome baskets, housekeeping and airport transfers and is reimbursed for the other rental services it provides via an overall commission of 40% on owners’ gross adjusted rental revenue.

According to the 40-page judgment, on August 2016, OCM introduced a new policy that banned all owners from directly renting their units to holiday guests and approved only OCM to rent units to holiday guests.

The unit owners assert that OCM introduced the policy to avert higher fees which would ostensibly become necessary if direct renting continued, as OCM indicated its intention to withdraw an alleged subsidy that was off-setting expenses that would otherwise have to be paid by the owners if direct renting continued. 

This, the judgment continued, was communicated by the defendant in the covering email to owners that attached the ‘Notice to Owners Regarding Rental, Trade or Business Activities at Ocean Club West’.

According to the Chief Justice, the owners were faced with “a simple question: “Do I want to pay, or cause others to pay, higher strata fees?” 
The Chief Justice stated: “The Defendant (OCM) does not resile from that position but says, in addition, that the policy was introduced after careful consideration by the EC which concluded that direct renting by individual proprietors was proving an obstacle to operating a well-run full-service resort and assisting the good management of the development as a whole, including the common property, in the interests of the owners as a whole. This, the defendant asserts, was because the direct renters do not use on-site management and guest services but operate with off-site management services which has destabilized the operations of the resort overall which was intended to be operated as a full-service resort.”

She added: “In essence, direct renting gave rise to non-full service resort rental operations within a 4-star full service resort as the guests of direct renters were excluded from services provided by OCM to their resort guests, on the grounds that the owners engaged in direct renting made no contribution to them. That said, the policy is what it is and the merits of it are not for consideration by the court but rather the basis upon which the policy was introduced.” 

The judgment noted that OCM contends that By-law 10(k) restricts the owners use of their strata lot to use as a private residence by the owners, their tenants and the owner’s visitor and guests and that use for holiday lets is a commercial use of the units for which purpose they require approval from the EC. 

The unit owners challenged this construction of the By-laws and assert that, as a matter of construction, By-law 10 (k) permits vacation rentals by owners and that owners can rent without EC permission. This issue was identified by the Plaintiffs as the “Construction issue”.

The Chief Justice concluded: “The plaintiffs’ (unit owners) breach of the restriction on use of the strata lots has not caused the defendant (Ocean Club) any loss. The defendant does not rent the units at OCW. It does not make profits from engaging in rental activity of which it has been deprived of profits by the plaintiffs activity. The by-law is not intended to preserve such right for the benefit of the defendant. In my judgment, it cannot be said that the plaintiffs have taken something for nothing for which the defendant is entitled to require payment and the defendant would not be entitled to negotiating damages.”

For more on this story go to: http://suntci.com/supreme-court-delivers-landmark-ruling-for-strata-corporations-p3812-129.htm