NSW: Is an Owners Corporation Responsible for Repairing Lot Property?

This article about responsibility for maintenance of lot property has been provided by Adrian Mueller, JS Mueller & Co Lawyers.

Introduction

In last week’s article, we reported on a recent NCAT case in which an owners corporation was ordered to repair damage to lot property caused by a common property roof leak. Our article generated considerable interest. The NCAT decision begs the question: Is an owners corporation responsible for repairing lot property? In this article, we take a closer look at that issue and consider whether the NCAT case we reported on last week (Mastellone v The Owners – Strata Plan No. 87110 [2021] NSWCATAP 188) was correctly decided.

Strata Legislation

The Strata Schemes Management Act 2015 (SSMA) confers various powers and imposes certain obligations on an owners corporation. Therefore, in order to understand whether an owners corporation is responsible for repairing lot property or the private property of an owner, the SSMA needs to be considered.

Key Management Responsibilities

The starting point is section 9 of the SSMA which sets out the key management responsibilities of an owners corporation. None of those responsibilities relate to the repair of private property of an owner in a strata scheme. Relevantly, section 9(3)(c) emphasises that the owners corporation is responsible for maintaining and repairing the common property of a strata scheme.

Fiscal Responsibilities

Part 5 of the SSMA sets out the responsibilities of an owners corporation for the financial management of its strata scheme. Under Part 5, an owners corporation must establish an administrative fund and a capital works fund.

Section 79 (which is in Part 5 of the SSMA) requires an owners corporation to periodically estimate how much money it will need to credit to its administrative and capital works funds for actual and expected expenditure (budget).

The type of expenditure for which an owners corporation must budget each year is confined to, relevantly, expenditure to maintain, repair, renew and replace the common property (see sections 79(1)(a) and (c) and (2)(a)-(f) and the notes to those subsections). The types of expenditure for which an owners corporation must budget that are set out in sections 79 (1) and (2) are exhaustive. In other words, an owners corporation is not able to budget for expenditure relating to the repair of the private property of an owner.

Restrictions on Raising and Paying Money

Section 81 (which is also in Part 5 of the SSMA) imposes a duty on an owners corporation to determine contributions to be levied to its administrative and capital works funds that will be payable by owners to pay for the expenditure for which it must budget each year. The levying of contributions on owners is the main source of funding for an owners corporation and is the usual way an owners corporation raises sufficient funds to pay its expenses.

The power of an owners corporation to levy contributions on owners is generally restricted to enable it to raise funds to cover the expenditure recorded in its budget. This means that the owners corporation is generally not able to raise funds, by levying contributions on owners, to pay for repairs to the private property of owners.

Sections 73 and 74 (which are contained in Part 5 of the SSMA) restrict the ability of an owners corporation to pay money from its administrative and capital works funds. More specifically:

1. Section 73(4) restricts the power of the owners corporation to pay money from its administrative fund only for the purposes of, relevantly, making payments for which estimates have been made in its budget (none of the other purposes for which an owners corporation is able to pay money from its administrative fund are presently relevant);
2. Section 74(4) restricts the power of an owners corporation to pay money from its capital works fund for the purpose of payments of the kind for which estimates have been made in its budget (there are other purposes for which an owners corporation is able to make payments from its capital works fund but none are presently relevant).

This analysis demonstrates that an owners corporation is not able to include in its budget, or contributions that are levied on owners, each year, or pay from its administrative or capital works funds, amounts to cover expenses to repair the private property of owners. In other words, Part 5 of the SSMA does not contemplate that the owners corporation will raise funds to carry out repairs to any property except the common property.

Repair and Maintenance Responsibilities

Equally importantly, the SSMA does not impose any obligation on an owners corporation in relation to the lots or private property in its strata scheme.

Part 6 of the SSMA is headed “Property Management” and sets out the responsibilities of an owners corporation in relation to the property in its strata scheme.

Section 106(1) (which is contained in Part 6) imposes on an owners corporation a duty to maintain and repair the common property and any personal property vested in the owners corporation. Section 106(2) imposes on an owners corporation the duty to renew or replace any fixtures or fittings comprised in the common property and any personal property vested in the owners corporation.

It is telling that neither section 106 nor any other provision of the SSMA imposes a duty on the owners corporation to repair a lot or the private property of an owner. No such duty arises under the SSMA.

This omission is hardly surprising. The scheme of the strata titles legislation draws a fundamental distinction between the lots in a strata plan, and the common property. This distinction was carefully explained in Le v Williams [2004] NSWSC 645 at [51]-[56]. In Le Campbell J observed at [53] that:

A lot is something to which the Real Property Act 1900 applies (section 6) (2) Strata Schemes
(Freehold Development) Act 1973). Hence a lot can have its own registered proprietor, who
has the rights of ownership over that lot which are conferred by the Real Property Act 1900.
The common property in a strata plan vests in the body corporate (section 18,19 Strata
Schemes (Freehold Development) Act 1973), but the body corporate holds its estate or interest
in common property as agent for the proprietors of the lots (section 20 Strata Schemes (Freehold Development) Act 1973).

Case Law

The dichotomy between lot property and common property, and the responsibility for the repair of each class of property, was explained by Holland J in Jacklin and Ors v Proprietors of Strata Plan No. 2795 [1975] 1 NSWLR 15 at 23:

The legislation makes in respect of the parcel of land contained in the strata plan, a distinction between common property and the property comprised in a lot. The distinction is made for a number of purposes. One is to enable to physical content of the two classes of property, the title thereto, easements in relation thereto and proprietors’ rights of use and enjoyment thereof to be defined. Another is to enable allocation of responsibility for control, management and administration, and the repair and maintenance of the two classes of property. The repair and maintenance of the property contained within a lot is left to the individual proprietor who, of course, has the exclusive use and enjoyment thereof, but responsibility for the control, management and administration and the repair and maintenance of the common property is taken out of the hands of the individual proprietors and imposed upon the body corporate.

The responsibility of an owners corporation to repair damage to or defects in the lots and common property was further considered by Needham J in Proprietors of Strata Plan No.6522 v Furney [1976] 1 NSWLR 412. Furney considered whether an owners corporation was responsible for repairing defects in the original construction of the common property in a strata building. In concluding that an owners corporation bore that responsibility the Court remarked as follows at 417:

I do not think it is likely that any difficulty will be met in determining whether the correction of the defect is a correction to common property or to the property of a lot holder, but it may be that it will not be until the work has been commenced that it will be ascertained that some of it will have to be done within the boundaries of a particular lot. Subject to the powers given by s.60(5) [of the Strata Titles Act 1973]¹ the plaintiff [the owners corporation] would have no power to make such repairs, and the responsibility for those repairs would fall upon the lot owner.

The conclusion in Jacklin was that an owner is responsible for the repair of their lot. Furney took that conclusion further by explaining that not only is an owners corporation not responsible for repairing defects within the boundaries of a particular lot but that the owners corporation does not have power to do so.²

Those conclusions were stated more broadly by the High Court in Humphries v Proprietors Surface Palms North Group Titles Plan 1955 (1994) 179 CLR 597. In Humphries the High Court concluded that the powers and duties of an owners corporation constituted under the Queensland strata titles legislation (the relevant provisions of which were substantially similar to the SSMA) did not extend to the provision of services to the owners of individual lots such as letting services or the use of its funds for the provision of such services. The High Court concluded that the powers of the owners corporation were largely confined to the management and control of common property and the owners corporation was not authorised to expend its funds on the provision of services for individual owners.

Humphries was embraced by the NSW Court of Appeal in White v Betalli [2007] NSWCA 243 at [139] in the following terms:

It should be noted that while the owners corporation is the occupier of the common property by virtue of its management and control of the use of the area… The Management Act [now the SSMA] does not confer any express role on it in relation to a proprietor’s use of a lot or lots owned by that person. It is “a statutory corporation, created by Act of Parliament for a particular purpose [and] is limited, as to all its powers, by the purposes of its incorporation as defined in that Act”: Humphries at 604 per Brennan and Toohey JJ

The Wash Up

This analysis demonstrates that an owners corporation falls under no duty (and does not have power) to repair lot property including consequential damage to that property caused by water leaks through common property defects.

In those circumstances, it is our view that NCAT most likely does not have power to order an owners corporation to repair damage to lot property even if that damage is caused by water leaks through common property defects.

However, that does not mean that an owners corporation is not liable for the cost of repairing damage to lot property caused by common property defects. In our view, an owners corporation that fails to repair a common property defect that allows water to leak into and damage lot property, would be liable for the cost the owner incurs repairing that damage under the general law and section 106(5) of the SSMA.

Therefore, the end result is essentially the same. An owners corporation is liable for damage to lot property caused by common property defects. The owners corporation is just not responsible for repairing that damage. It is responsible for reimbursing the owner for the costs to repair that damage.

It will be interesting to see whether the NCAT decision in the Mastellone case is followed in future cases in NCAT.

Footnotes:

1. S.60(5) finds its modern day equivalent in s.119(1) of the SSMA and permits (but does not require) an owners corporation to rectify structural defects comprised in a lot or defects in any pipe, wire, cable or duct within a lot.
2. Jacklin and Furney each considered the Strata Titles Act 1973 the relevant provisions of which were identical or substantially similar to the equivalent provisions in the SSMA. The general principles laid down in Jacklin and Furney are still applicable to strata schemes in NSW.

Adrian Mueller
Partner + Senior Lawyer
JS Mueller & Co Lawyers
E: [email protected]
P: 02 9562 1266

Disclaimer: The information contained in this article is provided for your personal information only. It is not meant to be legal or professional advice nor should it be used as a substitute for such advice. You should seek legal advice for your specific circumstances before relying on any information herein. Contact JS Mueller & Co for any required legal assistance.

This post appears in Strata News #504

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This article has been republished with permission from the author and first appeared on the JS Mueller & Co Lawyers website.

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