This article discussing Property Repairs has been provided by Warwick van Ede, JS Mueller & Co Lawyers.
Introduction
Owners corporations are not uncommonly faced with the need to repair common property. Cracked walls and failing waterproof membranes are two of the common issues which owners corporations have to deal with. Particular difficulties may arise where, if the owners corporation takes no action, there may be further consequences in terms of damage to other common property, damage to particular lots, and damage to the property of lot owners.
An example of what can happen is where there is water penetration to a lot caused by a cracked or insufficiently sealed roof, and because of an owners corporation’s failure to rectify the water penetration issue, the entire ceiling located beneath the roof in question collapses, and in the course of doing so, destroys all the furniture in rooms of the relevant lot.
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For some owners corporations, the backing of an insurer can be a “life saver” in a situation like this – but what should the owners corporation do if their insurer declines coverage or otherwise refuses to pay for all or part of the damage which the owners corporation (or a lot owner) is seeking to have fixed?
It is important that owners corporations understand that there may be a difference between their strict obligations under the Strata Schemes Management Act 2015 (the Act), and the rights (if any) they may have to recover the costs of meeting those obligations from their insurer.
Owners Corporations and Common Property – A Strict Obligation
Section 106 of the Act imposes on owners corporations a strict obligation to maintain and repair common property. Owners corporations need to understand that this obligation is not optional, and nor is it simply a duty to “do your best”.
Where there is a failure of common property (such as the failure of a waterproofing membrane in bathrooms) the owners corporation has already breached the duty imposed by section 106 of the Act. That is, the failure of the waterproofing membrane (in this instance) is evidence of the failure of the owners corporation to meet its obligations pursuant to section 106.
Once again, the duty imposed by section 106 is not merely a duty to “do your best”, or to “take reasonable steps” – it is a strict responsibility [see for example the decision of the Supreme Court of NSW in Seiwa Pty Ltd v Owners Strata Plan No. 35042 [2006] NSW SC 1157].
Failure of Common Property and Subsequent Damage
Very often, the first time that an owners corporation may become aware of the failure of certain common property is when a lot owner reports evidence of that failure, for example, evidenced by water leaking into a lot from an upstairs bathroom. At this point, a breach of the owners corporation’s duty under section 106 has already occurred, and the owners corporation needs to take swift action.
The reason that the owners corporation needs to take swift action is because of the potential liability it has pursuant to section 106 (5) of the Act. Section 106(5) makes it possible for a lot owner to recover from the owners corporation (monetary) damages which the lot owner suffers as a result of the failure of common property.
At this point, it is natural for owners corporations to seek advice from their insurer as to whether the owners corporation is covered by the insurer for the costs of rectifying the damage.
Insurance Coverage?
Whether the owners corporation is covered by its insurance, either in relation to any repairs required to common property and/or in relation to any consequential damage, will depend upon the terms of the insurance policy which the owners corporation holds. It is possible that the insurance policy will cover part but not all of the costs of works which need to be done, both in relation to the failure of the common property and in relation to any consequential damage.
What are the owners corporation’s responsibilities in such a situation, where there is only partial insurance coverage?
The Owners Corporation is not “off the hook”
The strict responsibility referred to above which the owners corporation has under section 106 of the Act, is not lessened merely because the owners corporation’s insurer will not cover the total costs of works required to common property, or to other damage caused by the failure of common property.
We have seen incidents where owners corporations had suggested to lot owners that because the owners corporation’s insurance will not cover the total cost of repairs, the lot owner is responsible for the balance of those costs – such a suggestion is incorrect. If the damage is caused by the failure of common property, and therefore a breach of section 106 of the Act, the owners corporation cannot avoid its responsibility for the rectification and repair.
If the owners corporation is fortunate, it will have appropriate insurance to cover the costs of rectification. However, that is not always the case.
If the owners corporation refuses to take responsibility for repairs to common property (and consequential damage), then a lot owner who is affected is likely to be successful if they bring proceedings at the NSW Civil and Administrative Tribunal (NCAT) seeking an order requiring the owners corporation to rectify common property. An action of this kind is a relatively common type of action in NCAT which is brought by individual lot owners.
If such an action is commenced by a lot owner, then the owners corporation will, in addition to having to pay for any works which are its responsibility, need to obtain legal advice, and possibly have representation and pay for that in the NCAT proceedings. There is also the remote possibility that an owners corporation which has acted unreasonably in refusing to carry out works which are its responsibility, may be ordered to pay the legal costs of a lot owner who brings such an action.
There is also the possibility that the owners corporation may be responsible to pay monetary damages to a lot owner. For example, the lot owner may lose a tenant or be unable to get a new tenant, if there is a persistent and unresolved issue with common property (for example, water leakage). The loss of rent may be something which the owners corporation has to pay for.
The question as to whether NCAT has the power to award monetary damages to a lot owner for breach by an owners corporation of a statutory duty to maintain and repair the common property in accordance with section 106 of the Act is now well established (see for example, The Owners – Strata Plan No. 30621 v Shum [2018] NSWCATAP 15).
What Should an Owners Corporation do?
When an owners corporation becomes aware that there is a failure of common property, or that there may be a failure which will occur, the owners corporation should immediately take steps to have that issue assessed. In some instances, an insurer may assist with this process, but if they do not then the owners corporation should still take prompt responsibility for doing so.
The best outcomes are achieved where the owners corporation works together with the lot owner and the insurer to work out the most efficient means of rectifying the issue. Avoiding the issue, or delaying an owners corporation response to it, will almost always lead to unhappiness, and may leave the owners corporation significantly worse off financially.
Have a question or something to add to the article? Leave a comment below.
Read next:
- NSW: Q&A Exclusive use of common property. No access! Really…..?
- NSW: What are the New Works By-laws?
- NSW: Replacing Items of Common Property Just Got Much Harder
Warwick van Ede
Lawyer
E. [email protected]
W. JS Mueller & Co Lawyers
P: 02 9562 1266
This article has been republished with permission from the author and first appeared on the JS Mueller & Co Website.
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.
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Hi , hope you are all well , I do have a problem , the strata plan has our decking attached to our villa , it is common property which has been accepted by all , this decking has come to the end of servicable life , the safety railing is not BCA compliant , indeed the whole structure needs replacement , the range of cost is at the moment $19,000 approx to $14000 , that would leave a big hole in the Capital Fund , there are three other villas that have concrete porches , only small though , but have railing similar to mine , they also need to make BCA compliant , the suggestion by the Strata Manager was to replace some decking planks for now and wait untill February next year to raise a levy , I thought about that , I did not think it was a good idea , I sugested in a email to all that we take out a Strata Loan , get the work done in quick time that was about a month ago now , no response from either the Strata Manager nor the Committee
Thanks for the helpful article
My husband and I purchased a town house over 20 years ago – in 2006 the attached sunroom was inhabitable as it became extremely wet due to numerous water leaks and dry rot- we wrote to the Strata Committee seeking approval to replace it at our own cost with a room almost the same size but covered by the same roof line as the rest of the building which meant we also replaced the roof with a new one. The construction had Local Council Approval Building approval and Strata Committee approval.
In February 2020 a car from next door accidentally ran into the Colorbond fence and smashed into the corner of this new Sunroom and pushed in the whole lower corner off the building plate about 20cm. The driver did report this incident to his insurer but we are having trouble making a claim because the current Strata Committee refuse to get involved because it was an improvement. However , rest of the town house is covered by the Strata Insurance but I am unable to obtain insurance for part of a room – can you give advice please
We live in a Strata complex ( ours is a town house purchased in 1992 ) about 20 years ago we had a water leak in the upstairs shower and we made repairs by removing the corroded copper basin and water proofing according to specifications and then replacing the floor of the shower basin with new tiles and also up the wall a few rows as they were cracked in the process. Just very recently there was water makings and mould on the ceiling of the rooms directly under that upstairs bathroom. We contacted the body cooperative who advised us that because we repaired the shower basin at our cost previously they were not responsible. However in the end they did consent to the shower unit repairs but we had to pay for new ceiling and painting in the down stairs rooms. Should all the repairs be covered by the Strata Insurance?
Hi Tuula
I think your enquiry comprises of 2 questions:
1. Is the shower basin covered by insurance?;
2. If the shower basin is not covered by insurance who is responsible?
Please see my answers to both below:
1. Water damage claims are our most contested claims with insurers because there is often a component of maintenance and also repair of water damage. Insurers cover the cost to repair water damage but generally exclude repairs costs related to fixing and finding the leak, as it is generally considered a maintenance matter or wear and tear. The insurer has exclusions such as lack of maintenance, rust, oxidation, wear & tear, corrosion, gradual deterioration, developing flaws, building defects etc. Generally, leaks are only covered if the leak is caused from “sudden and accidental damage” such as impact damage, storm damage etc. However, the consequential water damage (to insurable property) should be covered as water damage. If your property is in NSW, legislation states that paint is excluded for the purpose of strata insurance & therefore you will need to contact your contents insurer if the insurer is excluding cover for paint.
2. Outside of an insurance claim, lot owners are responsible to maintain their lot, so irrespective of whether the leaking shower basin is the original or a renovated version, lot owners are generally responsible for the maintenance of their shower basin. If the insurer excludes cover for repairing the leaking shower basin (as they do so in the absolute majority of circumstances), then lot owners are responsible to maintain items inside their lot.
I trust this answers your queries, but feel free to call me if you would like to discuss furhter.
Tyrone Shandiman
[email protected]
1300 554 165
Strata Insurance Solutions
http://www.stratainsurancesolutions.com.au
This information is of a general nature only and neither represents nor is intended to be personal advice on any particular matter. Shandit Pty Ltd T/as Strata Insurance Solutions strongly suggests that no person should act specifically on the basis of the information in this document, but should obtain appropriate professional advice based on their own personal circumstances and the specific coverage afforded under their policy wording. Shandit Pty Ltd T/As Strata Insurance Solutions is a Corporate Authorised Representative (No. 404246) of Insurance Advisernet Australia AFSL No 240549, ABN 15 003 886 687.
Hi,
I live in a block of 3 townhouses connected by a slab on ground, We own the middle one, Recently we have noticed both in lot 1 an 2 grouting cracking and coming loose, We had a tiler out and he said it was caused by the original tiler laying his tiles before the waterproofing was dry. (Built in 1999)
Lot 1 has their entire floor as tiles, and we have 3/4 carpet and 1/4 tiles, now Lot 1 wants to replace their entire floor,
What is the owners corp responsibility?
Thanks
Hi Steven
This article should answer your questions: NSW: Q&A Common Property Defects and Reimbursement for Repairs, particularly Question 5.