AUTOMATIC REAL RIGHT OF EXTENSION

On 09 December 2024, the Supreme Court of Appeal handed down judgment - Body Corporate of San Sydney v Shivani Singh and Others - that seems to indicate that a body corporate of a sectional title scheme has an automatic real right to extend a scheme. We know that, in the ordinary course of developing a sectional title scheme, a developer can reserve the right to extend the scheme for its own account when applying for a sectional plan registration in the Deeds Office.? For this matter, the developer had reserved this right and exercised it by constructing further buildings, which were sold as units to end buyers. The problem arose when the developer constructed further buildings and obtained certificates of occupancy from the local authority, but without any further real right of extension. To regularise the buildings, the body corporate was forced to seek a court order for a certificate of real right of extension, intending to cede the right to a third party. Although the body corporate eventually obtained the order regarding the certificate of real right of extension, it did not obtain the order to cede the right as was requested.

The developer began constructing some of the buildings in 2011 but abandoned the site.? Meanwhile, in 2012, the developer constructed other buildings, registered the scheme, and sold certain units as indicated in the registered sectional plan while reserving the right to extend the scheme for its own account. In 2013, the developer exercised its right to extend the scheme by constructing further buildings on the common property after which the sectional plan of extension was registered.? As a result of the developer's exercising this right to extend the scheme, the buildings constructed in 2011, for which sectional plans were yet to be registered, were left in limbo despite completion and the issuance of a certificate of occupancy in 2013.

At some point, the body corporate wished to obtain and cede the real right of extension relating to the buildings already constructed in 2011 to a third party. The matter came to a head when some unit owners were dissatisfied with the body corporate wishing to sell what they deemed common property without their consent. We know that a body corporate may alienate common property only upon the passing of a unanimous resolution. We also know that the body corporate may alienate a right of extension of a scheme by adding sections with the written consent of all owners, provided that an owner may not withhold such consent without good cause in law.

What was peculiar about the matter was that the developer constructed the buildings some time ago, but a sectional plan for them was not registered.? As a result, the body corporate had to regularise the buildings in the Deeds Office. This was complicated by some owners withholding their consent, not necessarily to the body corporate's issuance of a certificate of real right of extension, but to the cession of the right to a third party, which they deemed not to be in the body corporate's best interest. The withholding of consent seems to have rested on the premise that the cession would result in the alienation of common property.

In arriving at its decision, the Supreme Court of Appeal had to examine the structure of sectional title ownership in comparison to conventional land ownership.?A point was made that, with conventional ownership of land, buildings constructed there accede to the land, with the result that the land owner becomes the building owner. In a sectional title scheme, however, an owner of a section is not the sole owner of the land; the land belongs to all sectional owners in the scheme.? Therefore, an owner of a section can only co-own any building constructed on land that is common property. That being the case, the Supreme Court of Appeal differentiated between alienation of common property, which required unanimous consent, and the alienation of a right of extension of the scheme by the addition of sections, which requires the consent of all owners.? This consent may only be withheld with good cause in law. In this regard, the Court stated that "...the extension of the scheme on common property does not involve an alienation of the common property."

My reading of the judgment is that a body corporate has an automatic right to extend a scheme by simply electing to add additional sections. Of course, the body corporate would need the consent of all owners, but any owner who wishes to withhold their consent may do so; however, only withholding consent with good cause in law. Practically speaking, this means that, as opposed to subdividing part of the common property and selling it to third parties, a body corporate may circumvent unanimous consent by simply adding additional sections to the common property. Adding sections, and/or selling or leasing them after construction, will, of course, come at a cost that will require approval, but for commercially run sectional title schemes, the mechanism of adding sections without the need for a unanimous resolution may be handy.