STRATA PLANS CANNOT BE LIABLE TO LOT OWNERS FOR FAILURE TO MAINTAIN COMMON PROPERTY – FOR THE MOMENT

Legal Directions

Introduction

Lot owners in NSW strata plans no longer have any right to recover their property damage losses as a result of their owners corporation’s failure to maintain the repair and condition of common property. Two recent NSW Supreme Court judgments have determined that the lot owner cannot bring an action in negligence or nuisance, which was an issue left unresolved by the earlier NSW Court of Appeal authority of Thoo.

Background

An owners corporation has a statutory duty to maintain the repair and condition of common property of strata premises under s62 Strata Schemes Management Act 1996 (NSW).

Following the NSW Court of Appeal’s judgment in Owners Strata Plan 50276 v Thoo [2013] NSWCA 270, the long running controversy as to whether a lot owner could recover damages for losses suffered as a result of an owners corporation’s breach of its statutory duty under s62 to maintain / repair the common property was determined. The Court of Appeal held that a lot owner did not have a private cause of action against the owners corporation for breach of s62, but rather could only avail themselves of the statutory regime under the SSMA under Chapter 5 to compel certain works to be undertaken.

Thoo did not however determine whether a lot owner might have a separate cause of action against an owners corporation either in nuisance (by permitting or adopting an unlawful interference with quiet enjoyment of the lot) or for breach of a common law duty of care which may be owed by the owners corporation to the lot owner. No authorities expressly recognised the existence of these causes of action, although there are potentially analogous circumstances which might support the existence of such actions.

However, the recent Supreme Court of NSW judgments of James v The Owners Strata Plan No. 11478 [2016] NSWSC 1558 and McElwaine v The Owners – Strata Plan No. 75975 [2016] NSWSC 1589 have determined that an owners corporation does not owe an independent common law duty of care to the lot owner to maintain the repair and condition of common property and that a lot owner does not have an action against the owners corporation in nuisance.

James

Ms James was a lot owner in a strata plan and brought a number of claims against the owners corporation and strata manager, including a claim for losses suffered by her allegedly as a result of the negligence of the owners corporation, through its strata manager (compulsory appointed under s162 SSMA), by the steps it had taken for the repair and maintenance of the common property.

Justice Darke observed that there did not appear to be any legal authority supporting the existence of a common law duty of care owed by an owners corporation to a lot owner and that there would need to be sufficient ‘salient features’ if he was to recognise the existence of a novel category of duty of care.

His Honour observed the statutory regime under the SSMA whereby:

  1. the owners corporation was akin to a trustee of the common property, or agent of the lot owners, for the lot owners’ respective several interests in that common property;
  2. Chapter 5 SSMA provided a statutory regime for resolving disputes concerning the functions and duties to be performed by the owners corporation.

Given these features of owners corporations, His Honour considered it to be incongruous to recognise the existence of a common law duty of care owed by the owners corporation to a lot owner. Further, it would be inconsistent with the authority of Thoo to permit an action sounding in damages for breach of common law duty care, but not for the statutory duty under s62. His Honour stated that to recognise such a novel category of duty of care would ‘cut across the statutory regime to an intolerable extent’. As such, His Honour dismissed Ms James’ action in negligence against both the owners corporation and the strata manager.

McElwaine

Mr McElwaine was a lot owner in a strata plan and sustained damage to his unit from water penetration through the common property. His losses included diminution in value of his unit, loss of rent, and expenses incurred in obtaining reports. He alleged that the owners corporation was liable to him under the common law tort of nuisance, as the water ingress constituted unreasonable interference with his use of the unit and that it should have taken reasonable steps to prevent that interference (by undertaking repairs to the common property).

His Honour Acting Justice Young observed the owners corporation’s obligation under s62 SSMA, and the regimes under the SSMA, for both funding of works by the owners corporation and as to disputes about the duties and obligations of the owners corporation. In his view, permitting common law claims by lot owners against an owners corporation would ‘throw out of balance’ of this scheme for undertaking and funding repairs and maintenance to the common property. His Honour therefore held that Mr McElwaire had no remedy against the owners corporation in nuisance.

Comment

The judgments in James and McElwaine helpfully resolve the outstanding issues of whether, independent of the statutory duty under s62, an owners corporation might be liable in negligence and/or nuisance to a lot owner. Based upon these authorities they cannot.

While there is always some prospect that these first instance judgments could be appealed (and the issues re-agitated), it is of greater significance that s106(4) Strata Schemes Management Act 2015 (commencing 30 November 2016) expressly provides a lot owner with a statutory action to recover losses as a result of an owners corporation’s failure to maintain the repair and condition of common property. That section appears to have been introduced to overturn the effect of Thoo and states:

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 [being s106(1) imposing the same repair/maintenance obligation as s62)] by the owners corporation

As such, a statutory right for lot owners to recover damages against an owners corporation is likely to render redundant these judgments in respect of future claims.

Authored by Andrew Toogood, Partner and James McLean, Partner, Sydney.


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