“When “Unreasonable” Refusal Is Actually Reasonable”
In commercial and strata-related contracts, clauses requiring consent to not be “unreasonably withheld” are critical. They’re designed to ensure fairness, prevent arbitrary decision-making, and create a balanced playing field between parties.
But what actually counts as “unreasonable”?
The Case in Focus: B32 Investments Pty Ltd v The Owners – Strata Plan 81539 [2026] NSWSC 160
This recent NSW Supreme Court decision provides useful clarity.
The plaintiff argued that the defendant had unreasonably withheld consent to a proposed substituted security. While the replacement security met the minimum contractual value, the defendant rejected it on the basis that it was inferior in quality, marketability, and overall risk profile.
The Court ultimately sided with the defendant.
Minimum Compliance Isn’t Enough
The ruling reinforces an important principle: meeting the minimum contractual threshold does not automatically entitle a party to consent.
Instead, the Court confirmed that:
- Decisions must be assessed through a commercial lens
- Refusal can be justified where there is increased risk or reduced value
- “Reasonableness” allows for informed commercial judgment, not a rigid box-ticking exercise
In short, this clause protects both sides, not just the party seeking consent.
Strata and Commercial Agreements
For owners corporations, developers, and commercial stakeholders, this case highlights the importance of:
- Carefully assessing substituted securities or variations
- Documenting the commercial rationale behind decisions
- Understanding that “reasonable” is context-driven, not formulaic
This is a space where we often see assumptions made too early, particularly where a party has technically met the minimum requirements under a contract.
In practice, disputes tend to arise not because the clause is unclear, but because the commercial implications haven’t been fully tested. What looks acceptable at face value can quickly shift when factors like risk profile, marketability, and long-term exposure are properly considered.
The Court’s approach here reinforces that “reasonableness” is not a low bar, it’s a commercially informed one.
This decision is a good reminder that “reasonableness” isn’t about ticking boxes, it’s about whether the outcome genuinely aligns with the commercial intent of the agreement.
If you’re navigating a similar situation, it’s usually worth stepping back and pressure-testing the commercial position, not just the wording.
Read the full case analysis here.
