Owners Corporation Duty to Maintain and Repair Common Property – Lot Owners Entitlement to Claim Losses due to Owners Corporations Failure to Comply

13/09/2022

For many years Watson & Watson have acted for Owners Corporations and separately, Lot Owners in relation to issues arising in Strata buildings.  One of the most common areas of dispute between the Owners Corporation and Lot Owners relates to the Owners Corporation’s obligation to properly maintain and repair the common property. 

This article primarily relates to the operation and interpretation of Sections 106(5) and (6) of the Strata Schemes Management Act 2015 (SSM Act 2015).  These subsections relate to the rights of Lot Owners to recover damages as a result of the Owners Corporation failing to properly maintain and repair the common property. 

Section 106 of the SSM Act 2015 incorporated most of Section 62 of the SSM Act 1996 which set out the obligations of the Owners Corporation to maintain the common property.  In addition in the SSM Act 2015, the Act provides that a Lot Owner may recover from the Owners Corporation damages for breach of the Owners Corporation duty to properly maintain and repair the property in certain circumstances. 

In this regard Section 106 in part states as follows:

          “106 Duty of Owners Corporation to Maintain and Repair Property

(1)      An Owners Corporation for a Strata Scheme must properly maintain and keep in a state of good and serviceable repair the common property and any personal property vested in the Owners Corporation.

(2)      An Owners Corporation must renew or replace any fixtures or fittings comprised in the common property and any personal property vested in the Owners Corporation.

(5)      An Owner of a lot in a Strata Scheme may recover from the Owners Corporation, as damages for breach of statutory duty, any reasonably foreseeable loss suffered by the Owner as a result of a contravention of this section by the Owners Corporation.

(6)      An Owner may not bring an action under this section for breach of a statutory duty more than 2 years after the owner first becomes aware of the loss.”

Subsections (3), (4), (7) and (8) make other provisions which are primarily not relevant for the discussions of this article.  However when considering the issues Section 106 must be considered in its entirety together with other relevant obligations for example, incorporated by other laws and by-laws. 

There have been a great number of disputes relating to claims that the Owners Corporation has failed to maintain or repair the common property.  Some failures of the Owners Corporation to properly maintain and repair do not of themselves give rise to claims for loss or damages and in some cases, the damages are small when compared with the financial and emotional costs in dealing with the issues with the Owners Corporation. 

The main areas of damages for which claims are made include:

1.       Cost of rectification of damage caused to the lot by for example, water ingress due to the failure of the Owners Corporation to maintain.

2.       Loss of rent, or cost of alternative accommodation.

3.       Costs including legal costs and cost of associated experts to provide the appropriate evidence.

Over the years there have been numerous Decisions by the New South Wales Civil and Administrative Tribunal (NCAT) including NCAT Appeal Panel and relating to the interpretation and operation of Section 106(5) and 106(6) of the Strata Schemes Management Act 2015.  Those decisions to an extent have been inconsistent as to the interpretation and operation of Section 106(5) and 106(6) entitling the Lot Owners to damages in certain circumstances. 

The current position appears to be set out in a case decided in May 2022 by the NCAT Appeal Panel.

The NCAT Appeal Panel allowed an appeal in relation to the determination of the 2 year limit as referred to in Section 106(6).  This Appeal Panels’ interpretation and limitations provided in connection with Sections 106(5) and 106(6) differs to previous Decisions of NCAT.

As we understand it, there was no appeal from the decision of the Appeal Panel to the Supreme Court which was likely to be available to the Owners Corporation.  In the circumstances, the Supreme Court of New South Wales could make a different Decision as to the meaning and interpretation of Section 106(5)  and (6) which could potentially affect a Lot Owner’s rights.

In summary the NCAT Appeal Panel’s decision decided:

1.       The Lot Owner’s claim for loss must be as a result of breach of the strict liability duty in SSMA 2015 Section 106(1) and/or (2).  This is not contentious.

2.       The strict liability duty on the Owners Corporation to comply with Sections 106(1) and/or (2) is ongoing until the relevant strict liability obligation to repair, maintain and renew is fulfilled.

3.       That Section 106(5) covered “actual loss” that is reasonably foreseeable rather than future loss that may occur.  On this basis, the Tribunal determined that the loss “crystalised” when the Owners Corporation had complied with its obligation to repair, maintain and renew.

4.       Accordingly the date the Lot Owner “first became aware of the loss”  as referred to in Section 106(6) will be on or after the date the Owners Corporation complied with its obligations by completing the rectification of the repair and maintenance causing the loss, as the Lot Owners first awareness or knowledge of the loss could only occur when the loss “crystalised”.  This is on the basis that one must determine the actual loss albeit which was reasonably foreseeable due to the contravention of the Owners Corporation of Sections 106(1) and (2). 

5.       On this basis, the 2 year limitation basis would commence from that date.

If a case proceeds to the Supreme Court of New South Wales and there is a different interpretation of Section 106 (5) and (6), there could be signification ramifications to a Lot Owner and the alternatives available.

Most disputes resolve before proceedings are commenced however many require the intervention of a Lawyer specialised in the area to set out the legal position which can be a fundamental basis for moving forward to resolving the matter. 

Watson & Watson are experienced in attempting to resolve the matter at an early stage. 

The obligations of the Owners Corporation and rights of affected Lot Owners are not necessarily limited to the matters set out in Section 106 of the SSM Act 2015.  There are other issues that arise as to other obligations of the Owners Corporation.  These should be considered however they are not part of this article.

Separately there is a question as to which Tribunal for example, NSW Civil and Administrative Tribunal (NCAT) or Court for example Local Court, District Court or Supreme Court has the jurisdiction or the power to determine the issues that arise. 

These matters need to be considered to ensure that the proceedings are commenced in and dealt with in the appropriate Court or Tribunal to which the factual and legal disputes are to be determined.

If you find yourself involved in potential disputes that arise in strata living then contact the experienced Lawyers at Watson & Watson by contacting Richard Watson, Accredited Specialist Commercial Litigation specialising in building and construction matters including strata matters and other commercial matters or his Personal Assistant Shereen Da Gloria to discuss your matter and obtain appropriate advice.

This is only a preliminary view and is not to be taken as legal advice without first contacting Watson & Watson Solicitors on 9221 6011.