Tag Archive for: NSW

Grace Lawyers announces Special Counsel & new Partner

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Jessica Bates – Special Counsel

We are pleased to announce our newest addition to the Grace team, Jessica Bates – Speical Counsel.
Jessica is an experienced and enthusiastic solicitor with over 15 years’ experience in Litigation, Strata, Property & Building and Construction law.
Jessica is passionate about all things strata, and can assist you with your strata or community scheme’s by-laws, community management statements, leases, licences, property, strata management statements, building defects, building contracts, agreements (building management agreements/services agreements such as cleaning contracts), strata disputes and any strata questions.
Jessica strives to provide practical and straightforward advice in a timely and efficient manner and she looks forward to assisting you in the future.

“Jessica will contribute a wealth of hands on specialised strata experience to our strata, property and building and construction practice. As we grow, especially in the building and construction space, the appointment of Jessica underlines our continued investment in quality top end staff in order to maintain high levels of customer service and satisfaction.” – Colin

Sally Heimanis – Partner

Additionally, We are pleased to announce the promotion of Sally Heimanis to Partner.

Sally joined Grace Lawyers in 2015 as an Associate and due her tenacity and aptitude was quickly promoted to Senior Associate in 2016 and then Practice Group Manager in 2017.

During Sally’s recent maternity leave, she was missed by clients and staff alike and we are all very pleased to have her back on board.

Sally is now a Partner in our Insolvency, General & Commercial Litigation and Strata Disputes Practice Groups. As Partner Sally looks forward to building relationships with new clients and strengthening her relationships with existing clients. Providing excellent legal services to her clients is at the core of everything Sally does; in order to provide those excellent legal services Sally has a strong focus on mentoring, training and developing her team.

We are excited to welcome Sally to the partnership team; please join us in congratulating her on her well-earned promotion.

High Court bowls over NCAT (NSW) powers to make decisions

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The High Court of Australia has recently ruled that the New South Wales Civil and Administrative Tribunal (NCAT) did not have the power to resolve a dispute between residents of different States: Burns v Corbett; Burns v Gaynor [2018] HCA 15.  Australia’s Constitution reserves the power to resolve those disputes with the Courts.

This may have significant repercussions for dispute resolution in Australia’s strata industry and may have catastrophic consequences for the day to day operations of owners corporations and bodies corporate throughout the States and Territories.

The basis of the decision is relatively simple.  Where the dispute involves people who reside in different States or Territories to each other, only the Courts can deal with that dispute and the specialist Tribunal lacks the jurisdiction to deal with it.

What this means is where any party to a dispute resides in another State/Territory outside of NSW, NCAT cannot hear the dispute and it will need to be taken to a Court.  In Strata, NCAT has wide power to hear disputes under the Strata Schemes Management Act 2015 and the Home Building Act 1989.

Owners Corporations now need to consider where the person they are taking action against is located to work out whether they go to NCAT or a Court (in most cases the Supreme Court).

This High Court decision deals with NCAT in NSW but the concept may have widespread consequences not only in NSW.  Each State and Territory will now need to consider their own Tribunal powers.

For example in QLD most strata disputes are resolved by:

  • adjudicators in the Office of the Commissioner for Body Corporate and Community Management; or
  • the Queensland Civil and Administrative Tribunal (QCAT).

However, unlike NCAT, QCAT (which deal with “complex disputes”) has been held to be a court of record so has been treated as a court of the State: Owen v Menzies & Ors; Bruce v Owen; Menzies v Owen  [2012] QCA 170. That means QCAT may be unaffected by this High Court decision. However the Owen case was considered way before this High Court decision.

Further, under the  Body Corporate and Community Management Act 1997 (Qld) ( BCCM Act ), only adjudicators have jurisdiction to resolve “non-complex disputes”, which is the significant majority of disputes that arise in the strata living environment in Queensland and include by-law contraventions, disputes about the reasonableness of a body corporate’s decision; and compliance with the BCCM Act (such as with the conduct of a committee or general meeting).

The question is whether this High Court decision will affect most of these strata disputes or not.  It will probably only affect disputes that involve a resident of another state – for example, an investor owner who resides inter-state. It may mean that only a Court, not an adjudicator, may resolve a strata dispute involving the inter-state owner.

What should Owners Corporations/Bodies Corporate do? 

What owners corporations / bodies corporate should do depend on whether they have already commenced action or intend on commencing action soon.

Where they have commenced action in NSW, they should seek urgent advice about the impact of the High Court decision on their particular case (whether a matter needs to be restarted etc). In all other State/Territories, advice should be sought to see if the High Court Decision would have any implication.

Where the owners corporation/bodies corporate has not commenced action,
It should:

  • obtain advice on the potential impact of the case on the proposed dispute
  • determine which jurisdiction is relevant
  • consider alternate dispute resolution options

What is Grace doing?

Grace is seeking to co-ordinate input from stakeholders in all States/Territories on the impact to their legislative system in association with its role as National Partner of SCA National.  Following this, formal legal advice will be considered and approaches made to the relevant Government Departments to see what action can be taken to alleviate stakeholder impact and to clearly define how matters are to be dealt with.

In the meantime, we recommend that owners corporations and bodies corporate take care to determine whether any parties to a dispute they are involved with reside inter-state.  If the dispute involves an inter-state party, you should encourage the owners corporation/body corporate to take legal advice.

Watch this space…

Needs vs Wants in the realm of hire car claims

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Are you in need of a replacement car? Yes, and I have demonstrated the need for it. So, do I get a BMW or a Camry?

The basic principle is that, once need is established, if the claimant’s vehicle was a non-income producing chattel, irrespective of its value, then the claimant is entitled to a commensurate vehicle such as a Toyota Corolla or Camry.

The rationale goes as far back as 1826, in The Yorkshireman (1826) 2 Hagg Adm 30n, where the cost of hiring a replacement chattel, in this case a ship, was held recoverable. Since 1826, the Courts have allowed the cost of ordinary replacement chattels where need was demonstrated, but since that time, chattels with special features such as prestige luxury vehicles have entered the realm of the hire car industry.

In Droga v Cannon [2015] NSWSC 1910, the Court found that a far less sophisticated vehicle would suffice for the purposes of getting from A to B, and that, in the absence of any evidence as to why a comparable vehicle is required, the cost of hire is not a compensable loss. This needs-based approach was confirmed in Seung Huyn Lee v Leisa Strelnicks [2019] NSWSC 526.

The law assists genuine claimants by providing appropriate compensation to alleviate, as best as possible, the inconvenience of not being able to drive their car (depending on how it was driven or used before the collision). Such compensation can be limited to interest on capital value of the claimant’s car.

The law is not there to allow credit hire companies to provide prestige, luxury, or of equivalent value, vehicles to claimants just because their vehicle was damaged in a collision.

In Nguyen v Cassim [2019] NSWSC 1130, the claimant owned a Mercedes Benz and gave evidence that he needed a vehicle for daily personal use. On its appeal, the claimant received the cost of hiring a Corolla, based on the principles explained above.

In Rixon v Arsalan [2019] NSWSC 1136, the claimant owned an Audi, and the Court allowed the cost of hiring the good old Corolla, as it met the claimant’s needs in this case.

In Souaid v Nahas [2019] NSWSC 1132, where the claimants hired a Lexus sports car but had no need for it, the Court allowed the cost of hiring the Camry.

It appears that the Courts are sending a message to claimants, that, they should not make claims based on status or desire. It is no longer about which vehicle you desire to hire, rather, it is whether you needed to have hired that replacement vehicle.

CLADDING – REGISTRATION OF BUILDINGS WITH COMBUSTIBLE CLADDING

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The NSW Parliament has recently passed new legislation in relation to combustible cladding, being the Environmental Planning and Assessment Amendment (Identification of Buildings with External Combustible Cladding) Regulation 2018.

The new legislation requires owners of certain buildings with combustible cladding to report the combustible cladding to the Secretary of the Department of Planning and Environment.

Does this apply to my building?

The legislation applies if:

  1. The building is one of the following types of building
    1. A residential apartment building.
    2. A building used for accommodation.
    3. A hospital or nursing home.
    4. Public buildings.
    5. A non-residential building which contains a dwelling.

    AND

  2. The building has 2 or more storeys AND
  3. The building has either of the following types of cladding:
    1. Any metal composite panel cladding or cladding system to the external walls of the building or any other external area of the building.
    2. Any insulated cladding system to the exterior of the building to the external walls of the building or any other external area of the building.

This applies to both new and existing buildings.

The report

The legislation required that the owner of the building must provide a report on the combustible cladding and the building to the Secretary of the Department of Planning and Environment.

What must be included in the report?

The report must include the following details:

  1. The name of the owner. In the case of a strata scheme, this is the owners corporation.
  2. The address for service of the owner. In the case of a strata scheme, this is usually the strata manager’s address.
  3. The address of the building.
  4. The classification of the building under the Building Code of Australia.
  5. The number of storeys of the building (above and below ground).
  6. A description of the combustible cladding to the building, including the type of materials.
  7. A description of the location of the combustible cladding.

Time limits

There are time limits to provide the report to the Secretary of the Department of Planning and Environment.

The time limit depends on the date the building was occupied.

If the building that was occupied before 22 October 2018, the report must be provided by 22 February next year.

If the building was occupied on or after 22 October 2018, the report must be provided within 4 months after the building is occupied.

Penalty

If you fail to provide the report to the Secretary of the Department of Planning and Environment, you may be issued with a penalty.

What should you do?

For existing strata schemes with cladding, the owners corporation will need to engage a building consultant to prepare a report by 22 February next year.

For strata schemes registered on or after 22 October 2018, the owners corporation will need to obtain the report within 4 months of registration.

If you receive advice that your building has combustible cladding, we also recommend consider seeking advice regarding your legal rights against the builder and the developer.

In this regard, the purpose of the legislation is merely to create a register of buildings with combustible cladding. It is the responsibility of the owner of the building to take legal action against the builder and the developer.

If you need advice regarding a defects claim or a potential claim against a building certifier, or have any questions, please contact Colin Grace of Grace Lawyers on 02 9284 2700.

The only strata community in Queensland that has banned short term letting

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Fairway Island: the only strata community in Queensland that has banned short term letting

Six months ago a decision by a Magistrate was released which upheld the validity of a by-law that prohibited lots within its strata community from being let for one month or less.  Our article on that decision is accessible here.

The story caught the attention of every major news source in Queensland.  The industry’s excitement over the possibility of this decision setting a precedent for all strata communities was placated by the realisation that the by-law applied to a body corporate that was not governed by the Body Corporate and Community Management Act 1997 (Qld) (the BCCMA), so it would only be of immediate assistance to a select few strata communities still governed by much older legislation.

It was not necessarily the fact that this decision was made that held everyone’s attention.  It was the feeling of futility most were left with when they realised that a judicial decision-maker saw nothing unreasonable or oppressive in a by-law banning short term letting while the BCCMA did not provide the same sensible power to most bodies corporate in Queensland.

The Magistrate’s decision was appealed by the lot owners.  We suspect most in the industry thought it was an anomaly to an otherwise consistent stream of decisions over the last ten years all holding that a by-law cannot restrict short term letting.

On 27 April 2020, His Honour Judge Barlow QC of the District Court of Queensland delivered his decision dismissing the lot owners’ appeal and upholding the validity of the by-law.  This comes only two weeks after NSW legislation took effect allowing an owners corporation to prohibit most forms of short term letting by special resolution.

When will Queensland catch up?

The by-law

The by-law relevantly provided:

“…each proprietor shall not use or permit his lot to be used other than as a private residence of the proprietor or for accommodation of the proprietor’s guests and visitors. Notwithstanding the foregoing, the proprietor may rent out his lot from time to time provided that in no event shall any individual rental for a period of less than one (1) month.”

The by-law was made by one of those rare bodies corporate, Fairway Island, still governed by the Building Units and Group Titles Act 1980 (Qld) (BUGTA).

Similar to the position under the BCCMA, a BUGTA body corporate has the power to make by-laws to regulate the use and enjoyment of a lot.

The fundamental focus for this body corporate was to impose restrictions on the use of lots in order to protect the special residential amenity of its community.

At first instance, a referee (the BUGTA equivalent of a BCCMA adjudicator) simply found that the by-law offended a provision of BUGTA that provided that a by-law cannot prohibit or restrict a lease or other dealing with a lot.  The referee followed the way that many other referees and adjudicators had applied the same provision in the BCCMA, such as in Washingtonia [2018] QBCCMCmr 256:

“…a by-law that purports to prevent a lot from being rented for a term of less than 6 months, or more than twice in one year to different tenants, would operate to ‘restrict’ a ‘lease’ of that lot.”

Fairway Island argued that the referee’s interpretation was wrong because short term letting did not amount to a ‘lease’ that would be protected by that provision.  On 18 October 2019, the appeal tribunal, presided over by his Honour Magistrate Sinclair, agreed.

The District Court’s decision

The lot owners appealed the Magistrate’s decision to the Court of Appeal, who then remitted it for determination by the District Court of Queensland.

On 27 April 2020, His Honour Judge Barlow QC dismissed the appeal and upheld Magistrate Sinclair’s decision: Redman v The Proprietors – Fairway island GTP 107328 [2020] QDC 68.

If there is another appeal, it will be heard by Queensland’s Court of Appeal.

Why can’t BCCMA community titles schemes make the same by-law?

His Honour Judge Barlow QC said:

“I see no reason why, absent any restrictions imposed by other provisions in the Act, it would not entitle a body corporate to make a by-law that regulates a lot owner or occupier in undertaking a wide range of specified activities including, for example, installing a shed or a trampoline in a back yard, smoking or drinking alcohol in or around a lot, or perhaps even leasing or otherwise renting out or allowing the occupation of a lot other than by the owner and the owner’s (or its directors’) immediate family.”

The difficultly for BCCMA schemes is that section 180(3) does not allow a by-law to restrict the type of residential use that can be lawfully made of a lot.  The BUGTA does not have the same restriction.

Judge Barlow QC found that:

“Short-term use of a house by holiday makers or other persons seeking short-term accommodation is different from longer term residential use, even though it may be difficult to draw a clear dividing line. In its ordinary meaning, to use a building for a residential purpose does not include using it for the purpose of letting it out to others (and those others using it) for holidays or other temporary accommodation.”

His Honour could look at the ordinary meaning of those words because they were not defined in the BUGTA or the by-laws.  That is different to the approach taken by the Queensland Civil and Administrative Tribunal (QCAT) in Body Corporate for Hilton Park v Robertson [2018] QCATA 168, where it was held that the legislature had intended that the term ‘residential’ under the BCCMA would include holiday letting and/or short term accommodation.

There is another interesting point of difference between Fairway Island and Hilton Park.

In substantially the same way, section 180(4) of the BCCMA and section 30(6) of the BUGTA provide that a by-law cannot restrict a dealing with a lot.

In the Fairway Island decisions, the appellate tribunal and court found that holiday letting is not a lease (a form of a dealing), and that a by-law does not restrict a lease if it is simply imposing conditions on a lease.

In Hilton Park, QCAT found that holiday letting is a form of a lease, and that imposing a restriction on holiday letting would contravene section 180(4) of the BCCMA.

In Fairway Island, it was successfully argued that a ‘dealing’ is a type of transaction effected by registration under the Land Title Act 1994 (Qld), a short-term letting arrangement is not registrable, and the by-law only imposes conditions on, but does not prevent, possible dealings.  The reasons in Hilton Park do not reveal these same arguments being put to QCAT.

A court and a tribunal can hardly be criticised for not agreeing with an argument not put before it.

But a fresh perspective on whether short term letting is a lease will not overcome whether short term accommodation is a type of residential use that a by-law restricts or prohibits.  That is the challenge for BCCMA schemes.

Where to from here?

When we last wrote about the Fairway Island decision handed down by the appeal tribunal constituted by Magistrate Sinclair (accessible here), it was met by a wave of articles and commentary from other law firms calling it irrelevant to BCCMA schemes and saying it will not have any impact on the wider strata industry in Queensland.

Most would have advised Fairway Island that it would be futile to make a by-law restricting short term letting because a referee would invalidate it, as referees and adjudicators had already done in numerous prior decisions on the belief that it would amount to a restriction on a lease.  In our view, the District Court’s decision in Fairway Island has authoritatively determined at short term letting is not a ‘lease’ or a ‘dealing’ for the purposes of section 30(6) of the BUGTA, and this should be applied by adjudicators interpreting section 180(4) of the BCCMA because the commonalities of these provisions has already been noted and relied upon.

While it may be convenient to dismiss the Fairway Island decisions as being irrelevant because they do not deal with the BCCMA, the same could have been said about O’Connor v Proprietors, Strata Plan No 51 [2018] 4 WLR 22 where the Privy Council upheld the validity of a short-term letting by-law made in the Turks and Caicos Islands as a means of protecting residential use within a condominium development.  The O’Connor decision inspired the arguments led for Fairway Island.

The law is fluid.  Those who practice in the law must also be fluid.  If circumstances do not arise within BCCMA communities to see a challenge to the conventional thinking laid out in Hilton Park, then legislative change is required.

In early April 2020, legislative change occurred in New South Wales that allows an owners corporation to pass a special resolution to restrict forms of short term lettings within their strata community.

Short term letting, Air Bnb, holiday making – however else we wish to describe it – is a serious concern within strata communities that predominately consist of lots used for a long-term residential purpose.  Hitherto, the conventional thinking has been that bodies corporate should simply enforce by-laws to address the nuisance short term letting can cause to the rest of the community when the problems arise, and that it is unreasonable of them to make by-laws based on ‘hypothetical’ concerns.

His Honour Magistrate Sinclair made these helpful comments on the topic in his decision that the District Court upheld on appeal:

“It appears to me that BUGTA intended to allow the BC to pass by-laws to protect lot owners from even a hypothetical nuisance of the occupier of a lot. They need not wait until a marching band starts rehearsals at midnight in one lot to ban such an activity. The requirement to get approval for a pet is a standard by-law. This is based on no evidence whatsoever that any particular animal is a problem but on the potential for one to be….

…Regulation is not just about stopping proven past behaviours from repeating but also about preventing anticipated breaches based on experience elsewhere or common sense. Likewise regulations need not be limited to just preventing certain noise during certain hours but may in principle act to eliminate the source of some potential problems altogether. The response must be appropriate but there is no need to wait until a problem has actually manifested before addressing it.”

The Fairway Island decisions do much more than deal with the validity of a by-law restricting short term letting.  The arguments ventilated within this litigation and the detailed reasoning of Magistrate Sinclair and Judge Barlow QC reveal the core purpose of by-laws: to enable bodies corporate to regulate activities within their strata community to enhance the use and enjoyment of the properties in that community.

If the proper interpretation of the BCCMA is that a strata community that predominately consists of long term residents cannot make a by-law to stop a small handful of lots from being used for short term letting, then the legislation needs to change.

Grace Lawyers is pleased to have acted for Fairway Island throughout the course of this litigation.  You can learn more about our unique approach to strata law here.

WHEN DOES THE CLOCK START TO RUN FOR OWNERS TO CLAIM DAMAGES AGAINST AN OWNERS CORPORATION DUE TO COMMON PROPERTY DEFECTS?

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By Colin Grace, Grace Lawyers

Exploring the NSW Civil and Administrative decision of Tezel v The Owners – Strata Plan No. 74232 [2021] NSWCATCD 132.

In a recent decision, the NSW Civil and Administrative Tribunal confirmed that the two year limitation period for an owner to recover loss from an owners corporation because of a failure to maintain and repair the common property starts when the owner becomes aware of the loss being suffered.

The decision is important for owners, owners corporations and public liability insurers alike when considering how to deal with claims for things such as lost rent and repair costs.

Background

It has been the case in NSW for decades that an owners corporation has a strict duty to maintain, renew, replace and repair the common property. That duty was previously enshrined under section 62 of the old Strata Schemes Management Act 1996 (NSW) (the 1996 Act). It now has its home under section 106 of the Strata Schemes Management Act 2015 (NSW) (the 2015 Act).

However, when the 2015 Act was enacted in 2016, it brought with it a new section allowing owners to recover from an owners corporation any “reasonably foreseeable loss” they might have suffered as a result of that owners corporation failing to comply with section 106. That section is section 106(5).

Section 106(5) was introduced in response to the NSW Court of Appeal’s decision in The Owners Strata Plan 50276 v Thoo [2013] NSWCA 270, in which the Court found that owners were not entitled to recover loss from an owners corporation due to a breach of section 62 of the 1996 Act without what is known as enabling legislation.

“Enabling legislation” is basically what section 106(5) is: a piece of legislation that gives owners a right to recover loss or compensation from an owners corporation when the owners corporation breaches a statutory duty. 

So what’s the catch? Well, the right of owners to recover loss from an owners corporation for a breach of section 106 is limited by section 106(6), which states that an owner may not bring an action for breach of section 106 by an owners corporation “more than 2 years after the owner first becomes aware of the loss.”

Whilst they might sound simple, these words are anything but clear. Important questions include:

  1. Does the word “loss” refer to a type of loss – such as loss of rent – or each individual dollar which is lost?

In other words, does the clock start to run as soon as the first dollar is lost, or does it restart each time an instalment of rent would have fallen due?

  • Are there mitigating factors, such as the time it takes for an owner to connect the dots and realise that the loss of rent is being cause by defective common property? 
  • Does the fact that each day a breach of section 106 goes unremedied is considered a new cause of action mean the clock restarts each and every day? 

Thousands of dollars may hinge on the answers to these questions.

The case in Tezel 

In Tezel, the Tribunal was faced with the question about what the words “first becomes aware of the loss” actually meant.

In summary, the applicant (an owner) had been suffering loss of rent since 2016. The owner had commenced proceedings in the NSW Civil and Administrative Tribunal against the respondent (the owners corporation) on 6 November 2020, in which she claimed loss of rent from 6 November 2018 onwards. The respondents disputed the loss of rent claim and argued the owner was out of time because of the limitation period in section 106(6).

The Applicant argued that because an owners corporation’s responsibility to keep the common property in a stage of good and serviceable repair is what is known as a “continuous” or “ongoing” duty – that is, one that applies each and every day – a fresh cause of action arose each day that a breach of that duty went unremedied. Because of this, the relevant cause of action actually arose on 6 November 2018, meaning the Applicant could recover rent from that point onward.

The Tribunal rejected the Applicant’s argument, instead making the following findings:

  1. The 2 year limitation period attaches to the “loss” and not the “breach”. 

That a new cause of action accrued each day the common property remained in disrepair (which the Tribunal accepted) did not allow the owner to bypass the fact that she had become aware of her loss of rent in 2016.

As a matter of statutory interpretation, the words “first becomes aware of the loss” must be given some work to do. If an owner was found to have become “aware” of the loss over and over again simply because a new cause of action arose each day, then section 106(6) could never truly apply. That is because the two-year limitation period would just re-set every day.

  • It does not matter when an owner realises that the loss is/has been caused by the owners corporation’s failure to repair and maintain common property.

The question of whether the common property is in “disrepair” may be technically complex. For example, the question may involve an assessment of what building standards apply and to what purpose the common property is put to. This is not something that a lay owner may be expected to discern and it should have no bearing on when the 2 year limitation period starts.

  • A continuation of the same type of loss does not restart the clock.

If, for example, an owner becomes aware he/she is losing rent on 1 January 2020, the fact than a rental instalment would have fallen due on 8 January 2020 does not restart the two year limitation period from that point on. Further rental instalments are merely a continuation of the type of loss the owner became aware he/she was suffering on 1 January 2020.

As a result, the Tribunal found the 2 year limitation period for the Applicant to recover her loss had expired before the proceedings were commenced.

So what does this mean for me?

There are a number of important takeaways from the decision in Tezel:

  1. It is crucial for owners corporations and public liability insures to determine the date an owner first becomes aware of loss. This means not accepting an owner’s assertions about when they first became aware of loss without investigation.

It may be necessary to consider things such as summons or subpoenas to rental agents or third party contractors to determine when the owner truly became aware of loss.

  • To protect their ability to bring a claim within time, owners should be vigilant about investigating common property issues if they suspect it is causing them loss.

Whilst an owners corporation has the right to investigate common property issues independently including by engaging its own expert consultants, an owner should not necessarily wait for the owners corporation to do so. Ultimately, it is in an owners corporation’s best interests to see the limitation period expire so it can avoid any claim for compensation.

Therefore, owners hitching their wagon to the owners corporation to get to the bottom of whether an issue is defective common property or not could regret that decision in the long run.

  • The decision in Tezel does not necessarily mean that claims for reasonably foreseeable loss are limited to two years from the date the owner becomes aware of them.

For example, if legal proceedings are commenced on 1 January 2022, it may be open to the owner to continue claiming for loss of rent from 1 January 2022 onwards as unliquidated damages (assuming the loss of rent is ongoing).

If facing a claim for ongoing loss of rent, it is crucial for owners corporation to get legal advice and lodge claims with their public liability insurers as soon as possible.

A NEW DAWN FOR NON-RESIDENTIAL STRATA SCHEMES IN DEFECTS CASES

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A New Dawn: Owners in non-residential strata schemes have right to recover their share of the cost of common property defects from developers

In a landmark judgment handed down last month, the NSW Court of Appeal has confirmed that owners of lots in non-residential strata schemes can, under certain circumstances, recover from developers their share of the cost to rectify defects in the common property.

The judgment is the biggest development in building defect law since the decision of the High Court of Australia in Brookfield Multiplex Ltd v. Owners Corporation Strata Plan 61288 & Anor (Brookfield), which confirmed that Owners Corporations for non-residential strata schemes could not sue builders to recover the cost of common property defects.

Background

Up until October 2014, the ability of owners to recover the costs of common property defects was set in stone.

For residential strata schemes, an owners corporation had the benefit of statutory warranties under section 18B of the Home Building Act 1989 (NSW) (the HBA). The HBA is a unique part of the law which holds that a number of warranties are “implied” into all contracts for residential building work. Those warranties – which include, for example, a warranty that the work was conducted with due care and skill – were enforceable by owners corporations against a builder and developer.

For non-residential strata schemes, it was generally accepted that an owners corporation could sue a builder under the common law duty of negligence. The process of proving a case in negligence is a bit different to a case for breach of statutory warranties under the HBA, however the net result was the same. That is, an owners corporation could recover the cost of rectifying defects in the common property caused by bad workmanship.

That all changed on 8 October 2014, when the High Court of Australia handed down its judgment in Brookfield.

In Brookfield, the Court made two key findings which meant owners and owners corporations in non-residential strata schemes were seemingly left with no way to recover the cost of rectifying defective common property. Those findings were:

  1. That when defects exist in the common property which the Owners Corporation must rectify, it is the owners, not the Owners Corporation, who suffer a loss.
  2. That builders do not owe a common law duty of care to Owners Corporations, because Owners Corporations are not sufficiently ‘vulnerable’.

Since then, the industry position on this has been bleak, with nearly all non-residential strata schemes choosing to swallow the cost of rectifying defects in the common property.

Until now.

The case in Rialto Sports Pty Limited v Cancer Care Associates Pty Limited; CCA Estates Pty Limited; Davjul Holdings Pty Limited; Armmam Pty Limited [2022] NSWCA 146

In 2018, four lot owners in a commercial strata scheme sued the developer for their share of the cost of rectifying defects in the common property. The cases were the first of their kind in Australia.

Grace Lawyers acted for each lot owner from day one.

The facts of each case were very similar:

  1. Two of the four plaintiffs had bought their lots “off the plan”. Another plaintiff was the assignee of a cause of action to sue (the original suit having been brought by another “off the plan” buyer).eme had been registered. The last plaintiff had bought its lot after the strata scheme had been registered.
  2. The terms of the development consent for the strata scheme included a condition that the development must be carried out in accordance with the provisions of the Building Code of Australia;
  3. Three of the four contracts contained clauses requiring the developer to “cause the construction and completion of the Building in a proper and workmanlike manner in accordance with the Development Consent.” The remaining contract provided for ten specific items of work to carried out by Rialto and its builder prior to completion of the contract.
  4. Various defects existed in the common property which the Owners Corporation was required to rectify. The defects had been valued at several million. However, the Owners Corporation had only raised one special levy – of $660,000.00 – to cover the cost of replacing combustible cladding;
  5. Each owner sued to recover the amount of their contributions toward the entire cost of the defects (not merely the cladding). Those contributions were based on each owner’s respective unit entitlements.

It was common ground that the word “Building” meant the entire building, not merely the lots.

The developer opposed the claims, arguing (among other things) that:

  • the lot owners had no standing to sue the developer, because the owners corporation was the proper plaintiff to bring any claim for damage to common property. This is what is known as the “proper plaintiff rule” in litigation.
  • the claims circumvented the scheme of the Strata Schemes Management Act 2015 (NSW) (the Act), in particular section 106, which confers responsibility upon the owners corporation to maintain and repair the common property, thereby giving a statutory cause of action to lot owners against the owners corporation to compel it to adhere to that duty;
  • the lot owners’ share of the cost to rectify the common property, reflected in statutory levies imposed by the owners corporation under the Act, is not a form of “damages” recoverable by the lot owners. That was because the remedial works had not been done, and the lot owners could never do the works themselves.
  • lot owners may not recover a “reflected” form of loss, being their proportionate share of the loss suffered by the owners corporation for damage to common property, nor is a statutory levy a form of damages recoverable by lot owners.

The lot owners were wholly successful at first instance. The developer appealed to the NSW Court of Appeal.

The NSW Court of Appeal’s Decision

Although the appeal was allowed in part (due to the District Court failing to give sufficient reasons for its decision, the Court of Appeal rejected each of the arguments above, finding as follows:

  • Because the lot owners claim was for breach of contract, the “proper plaintiff’ rule did not apply. Furthermore, because of the High Court’s decision in Brookfield, it could not be suggested that the owners corporation also had a claim against the developer in negligence;
  • It does not matter that the Act confers responsibility on the owners corporation to maintain and repair common property, and gives lot owners the right to compel the owners corporation to adhere to that duty. These things do not negate any personal rights a lot owner may have against a third party for breach of contract, even if that breach involves damage to the common property;
  • Damage to the common property is an infringement of the owner’s proprietary interest in the common property as an equitable tenant in common with other lot owners. The consequence of any such damage is a diminution in the value of the lot owner’s interest in the common property;
  • The lot owners had standing to claim damage for their share of the cost of rectifying damage to common property, because they were ultimately the ones who suffered the loss. That is consistent with what the High Court said in Brookfield;
  • Provided that the remedial work is necessary and reasonable, it does not matter that the owners corporation may never do the works (for the amount claimed by the lot owners or otherwise).

The question is whether a loss is suffered by reason of the breach of contract by the developer.

What this means going forward

For owners of lots in non-residential strata schemes, the decision is a massive boost for consumer protection, finally plugging the gap left by the Brookfield decision in 2014.

For lot owners (particularly “off the plan” buyers) seeking to make similar claims, set out below are a number of vital considerations:

1. What do the contracts say?

This is the starting point in any claim for breach of contract. If the contract for sale does not promise that the common property will be defect free (or something similar), then there can be no claim. That is because the cost of rectifying the defective common property (i.e. the damages) must be characterisable as a breach of the contract.
Other considerations include:

  • Do the contracts say the clauses requiring the delivery of a defect free building merge on completion?
  • Do the contracts have a mandatory dispute resolution clause?
  • Do the contracts limit the vendor’s liability?

2. How do I ensure commerciality?

Speak with your fellow lot owners and band together. Engaging one lawyer to act for all lot owners will be much less expensive.

Consolidating the legal proceedings will also ensure there are not multiple sets of legal proceedings happening at one time.

3. Are their other claims available, other than breach of contract?

Potentially.

It is arguable that the NSW Court of Appeal’s findings could be extrapolated to a claim for misleading and deceptive conduct under the Australian Consumer Law.

Unfortunately the same cannot be said for claims made under the Design and Building Practitioners Act 2020 (NSW), because this act is solely concerned with places where people live (such as serviced apartments).

However, this has yet to be tested.

Grace Lawyers acted for the owners corporation in Brookfield and the successful lot owners in Rialto Sports and are the leaders in strata building & construction disputes.

If you require advice about your particular circumstances or claim, please contact any of our building and construction team Jessica Bates, Daniel Radman or Paul Berrill .

Minor Renovation or Not – That is the Question

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Now and again we get involved in a significant case on interpretation – as we all know nothing in strata is simple or small. In a current case where we successfully defended the Owners Corporation, the nuance of minor vs non minor (we call it major) works in a renovation has been highlighted.

 

Facts: a lot owner wanted to renovate their windows and doors by installing double glazing. They approached the Owners Corporation and were advised that the work was not minor works under the SSMA (Section 108) but required a by-law. Curiously the lot owner didn’t agree and said they didn’t want to pay for a by-law or a meeting as the work was minor works and the Committee should approve (which they didn’t).  So off we go to NCAT.

 

Issues:  NCAT had to consider differing expert reports on the work to be conducted and its method of installation. The issues that arose were whether the works were minor or non-minor works. If they were minor works, had the Owners Corporation been unreasonable in refusing the works or if they were not minor work, where to next?

 

Experts:  The experts agreed on a few issues and not on others:

  • They agreed that the works were not structural in nature mainly as the new windows and doors were going into the same spaces.
  • They didn’t agree totally on the appearance of the proposed new doors and windows.
  • They mainly agreed that the waterproofing for the windows was actually weatherproofing which was different.

 

NCAT:  NCAT found:

  1. That the legislation did cover that the installation of double-glazed windows was defined as minor works, however there were other criteria that also needed to be adhered too.
  2. That the legislation did not specifically cover double glazed doors as minor works.
  3. That the evidence from the experts and submissions by us was that the new windows and doors did alter the appearance of the building and as such both the windows and doors were not minor works on this exception.
  4. That there was no waterproofing (as contemplated) by the SSMA for the windows, but that the work was only “weatherproofing” and as such did not come under the exception to minor works.

 

The takeaways…

As we can see, such a technical argument can be raised even for something that may appear to one as a simple renovation. This case highlights two issues, first that double glazed doors cannot be considered the same as double glazed windows (which are minor works by definition).

Secondly, when considering a minor works application, the Owners Corporation needs to consider ALL of the legislative clauses and not just one part, because this case highlights that even though the legislation allows double glazed windows it also requires that those windows are in keeping with the appearance of the building as a whole.

And in passing, waterproofing sometimes isn’t waterproofing…

Same Manager for Complex – Court Says No!

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The NSW Court of Appeal has held that a clause in a Strata Management Statement (“SMS”) requiring subsidiary owners corporations as members of the building management committee to engage the same strata managing agent was inconsistent with the Strata Scheme Management Act 2015 (“SSMA”) and, subsequently, contrary to section 105(5) of the Strata Scheme Development Act 2015 (“SSDA”).

The effect is that any SMS with these types of clauses may no longer be valid to require the subsidiary schemes (usually strata schemes) to have the same strata manager.

Background

The development is a “stratum development” or as we call them Building Management Committees (“BMC’s”), with a number of subsidiary schemes (mainly strata schemes) within it.  Clauses within the SMS required that the entire development use one strata manager to manage not only the BMC but also every subsidiary scheme (strata scheme).

A lot owner, Walker Corporation Pty Ltd (original developer and lot owner) and the Respondents (being three strata schemes within the BMC) were in dispute following three strata schemes passing resolutions that terminated the appointment of the strata manager and appointed a different strata manager (not being the one managing the BMC).

The application said to the Supreme Court that the owners corporations of three strata schemes had breached clause 8.11 of the SMS in terminating the appointment of the strata manager and appointing someone else. The Applicant also contended that by this conduct, two of the strata schemes breached a provision of their respective by-laws, which were in similar terms to clause 8.11.

Clause 8.11 of the SMS required the owners corporations as members to appoint and retain the same strata managing agent the BMC appointed as the managing agent.

The issue then becomes whether clause 8.11 was valid.

Decision

The Supreme Court found that Clause 8.11 of the SMS was invalid due to its inconsistency with the SSMA and SSDA and also that the by-laws for the strata schemes were also invalid.

The applicants appealed to the Court of Appeal.  The Court of Appeal dismissed the application and found that the Judge at first instance was correct. The Court (in confirming the earlier decision) considered the following issues:

1.Inconsistency

The Court found that the lot owners were charged with the responsibility of approving strata manager appointments (SSMA), and it was the primary responsibility of the owners corporation to manage the strata scheme with all of the obligations to exercise the functions and powers including the power of delegation, for the benefit of lot owners. The Court said:

“Clause 8.11 (SMS) extinguished the right of the owners corporation, in general meeting, to appoint a strata managing agent of its choosing, and to terminate that agent’s services if that was considered necessary.”

Further, clause 8.11 was inconsistent with the jurisdiction that section 72 of the SSMA which confers on NCAT Tribunal power to review the performance of strata managing agents. As a result of these inconsistencies clause 8.11 and the relevant strata by-laws were held to be invalid.

2. Beyond the scope of power to make by-laws

The Court also said that Clause 8.11 was invalid on the basis that it was not authorised by the provisions of the SSDA. The Court found that:

  • Section 99 of the SSDA describes a strata management statement as a “management statement for the building and its site”. This management function of the building and the site does not extend to the “complete takeover of management of all of the function[s] which may be delegated by an [owners corporation] to a strata managing agent” under the Management Act”.
  • The Court also found that clauses 4(1) and 4(2) in Schedule 4 to the SSDA do not support a strata management statement effectively prescribing the management arrangements for individual strata schemes forming part of the building.
  • As clause 8.11 of the SMS was inconsistent with the provisions of the SSMA, it was invalid by reason of section 105(5) of the SSDA.

Now all of this sounds very legalistic, but the net result is that where provisions of an SMS dictate that all subsidiary schemes must use the same strata manager then based on this case, they are invalid.

What should an owners corporation/strata manager do?

  1. Review your SMS to see if there is a clause requiring the same strata manager for the development.
  2. If so, consider having it either deleted or at least reviewed for compliance. To do this will require amendments to the SMS and strata scheme by-laws.
  3. Despite the SMS and by-laws being legally “invalid” in some cases, there may be no need to change the strata manager if they are providing adequate services, that is a matter for the owners corporation to consider. Depending on the appointment of the strata manager there may be the need to confirm their appointment at a future meeting.

Should you wish to discuss this decision further or obtain advice, please do not hesitate to contact us. Prepared by Ann Zheng and Colin Grace.

Walker Corporation Pty Ltd v The Owners – Strata Plan No 61618 [2023] NSWCA 125.

Industry Update – No Finger Pointing Allowed! NSW Court of Appeal finds that proportionate liability DOES NOT apply to claims under the Design and Building Practitioners Act 2020

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In a massive win for consumer rights in NSW, the Court of Appeal on Wednesday handed down its decision in The Owners – Strata Plan No 84674 v Pafburn Pty Ltd [2023] NSWCA 301, finding that defendants claims for breach of the statutory duty under section 37 of the Design and Building Practitioners Act 2020 cannot reduce their liability to a plaintiff by deflecting blame to other parties.

In this case, Grace Lawyers on behalf of the Owners Corporation successfully argued that the proportionate liability scheme under Part 4 of the Civil Liability Act 2002 (CLA) did not apply whatsoever to claims for breach of the statutory duty.

The decision is a welcome relief for Owners Corporation’s across NSW – mirroring the protections already afforded to homeowners and owners corporations under the Home Building Act 1989.

 

Why is the decision so significant?

The Pafburn decision is significant because its shuts down what was, until now, believed to be one of the biggest weapons in a defendant’s arsenal in defending claims under the DBP Act – being the proportionate liability scheme under Part 4 of the CLA. That was notwithstanding that s 39 of the DBP Act stated that the duty of care is “non-delegable”.

The proportionate liability regime, in effect, allows a builder/developer to a claim that it was somebody else involved in the construction that is responsible for the damage etc.  What they are doing by naming these other parties – known as “concurrent wrongdoers” – is asking the Court to reduce the amount of damages payable by them to reflect the number of parties who caused that loss, and their degree of culpability. In other words, the defendant is saying “if it’s my fault, it’s not only my fault” and asking the award of damages to reflect that.

For example, in a claim brought by an owners corporation against a builder for $1 million in damages arising from defective waterproofing, the builder might name any of the following parties as concurrent wrongdoers:

  • The waterproofer who performed the work;
  • More arguably, the principal certifying authority who issued an occupation certificate despite the defective work; or
  • Even more arguably, the engineer who prepared the hydraulic blueprint for the building.

This could lead to a situation where the Court, accepting all four parties are responsible to some extent, “apportions” the damages amongst them accordingly.

In a perfect world, the builder, the waterproofer, the certifier and the engineer parties would all be parties to the claim, resulting in the Owners Corporation recovering its $1 million from four different parties (in proportions determined by the Court). Unfortunately, apportionable claims are rarely that simple.

The difficulties created by the proportionate liability regime for plaintiffs (particularly owners corporations) include the following:

  1. The possibility of some parties being insolvent. This is particularly prevalent in modern developments where companies are set up as special purpose vehicles for the duration of a development, before being put into liquidation afterwards
  2. The fact that the plaintiff ‘bears the risk’ of not joining a party to the claim once they have been nominated as a wrongdoer. If the Court finds that a non-party is liable for a portion of the loss claimed, the plaintiff is simply disentitled to that amount. This means that an Owners Corporation, when faced with a proportionate liability defence, is required to make an independent assessment of whether the party can or even should be joined to the claim. This is particularly onerous in the case of owners corporations, who are not privy to the contractual arrangements between parties involved in the building work before its time. As a result, these assessments are often conducted on nothing but the strength of the defendant’s pleading.
  3. Commerciality concerns. Circling back to our example of the owners corporation with the defective waterproofing, let’s say the owners corporation is successful in obtaining $1 million in damages against the defendant waterproofer (who is found 100% liable). The builder, certifier and engineer are found not to be liable to any extent.

That would probably result in the Owners Corporation being hit with costs orders in favour of those successful defendants. Those costs orders, depending on how complex the claim is, could very quickly swallow up the $1 million in damages.

With these issues in mind, it is easy to see why owners have been wary of making of claims under the DBP Act. These risks, coupled with the eye-watering costs of multi-party litigation, can make these claims unattractive and expensive to pursue.

 

The Pafburn Appeal

In the Pafburn matter, the Owners Corporation sued the builder (Pafburn) and the developer (Madarina) alleging breach of the duty of care under s 37 of the DBP Act.

The builder and developer (together, the Defendants) defended the claim by trying to apportion the blame on others (they named 9 others including various subcontractors, the certifier, the architect and the project manager. Many of those parties were companies that had been deregistered. Others could not be joined due to the effluxion of limitation periods.

The Owners Corporation’s claim was simple in theory (but complex in legal terms).  We argued that the duty owed by the builder and developer was “non-delegable”, and hence, the proportionate liability regime did not apply.

The primary judge found that the proportionate liability regime did apply, and allowed the builder and developer to run those defences.

The Owners Corporation appealed the decision.

 

The Appeal

The Court of Appeal allowed the appeal, finding as follows:

  • Section 37 of the DBP Act both extends the scope of the common law duty of care to owners and subsequent owners of land and creates a new cause of action deriving from statute which is to be treated as if it were a cause of action in tort;
  • Section 5Q of the CLA should not be read down to exclude claims under the DBP Act, because doing so would undermine the statutory purpose of the provision. Section 5Q was intended to address the full scope of non-delegable duties. As such, liability for breach of the duty of care under section 37 of the DBP Act was characterisable as “liability in tort” for the purpose of section 5Q of the CLA;
  • The proportionate liability regime under Part 4 of the CLA does not apply to claims for breach of the duty of care under section 37 of the DBP Act. The legislative intention was clear by s 39 of the DBP Act, which makes the duty “non-delegable”. The builder was thus vicariously liable for breaches by concurrent wrongdoers.

As a result of these the Court of Appeal’s findings:

  • A defendant who has breached a non-delegable duty causing loss is liable for the entirety of the loss suffered by the plaintiff flowing from that breach. It cannot ‘offload’ liability onto others at the plaintiff’s expense;
  • Whilst a defendant is entitled to file cross-claim against an alleged concurrent wrongdoer for a contribution, it cannot reduce its own liability to a plaintiff for the whole of the loss suffered. That is an important distinction because it shifts the risk of joining the wrongdoer (or an insolvent party) onto the defendant.

The decision is welcome one – paving the way for owners corporations to continue making claims under the DBP without the uncertainty and cost of the proportionate liability regime involved.

More importantly this decision also marks another win for the 19 lot Owners Corporation who were strong enough to fight for their rights.

Daniel Radman and Sean Turner of Grace Lawyers acted for the successful owners corporation in this appeal, and in the court below.