Legislative obligations and functions for a strata scheme can be overwhelming in the first few years and it may take time to establish a functioning strata committee.  Obviously, the thought of defects in a strata scheme are not what is on a lot owner's mind having just purchased a new unit.  However, with strict time limitations on strata schemes to bring a claim for building defects, there is little time to sit back and relax.

Beyond the contractual defects liability period which may be available to lot owners under a contract entered into for off the plan sales for lot property, an owners corporation, as a successive owner in title, has a right to bring a claim for a breach of statutory warranties giving rise to common property defects against the original builder and developer of the strata scheme under section 18B of the Home Building Act 1989 (HBA).  These rights are subject to strict statutory time limits which usually run from the date of the first interim occupation certificate issued for the property.

There can sometimes be confusion over what is ‘lot property’ and what is ‘common property’ in a strata scheme.  The registered strata plan may specify certain things as ‘lot property’ and therefore, the responsibility of a lot owner rather than the owners corporation.  However, it is more often than not the case that defects arising in external walls, waterproofing membranes, fire services, hydraulic and mechanical services, etc are common property defects, the responsibility of the owners corporation.

Section 106(1) of the Strata Schemes Management Act 2015 (SSMA) imposes a strict liability on an owners corporation to ‘properly maintain and keep in a state of good and serviceable repair the common property…’ unless the obligation to maintain and repair has been passed on to the lot owner under a common property rights by-law or the owners corporation has decided, that it is ‘inappropriate to maintain, renew, replace or repair the property…and its decision will not affect the safety of any building, structure or common property…or detract from the appearance of any property in the strata scheme…’ (s106(3) SSMA).  Both of these decisions require a special resolution of the owners corporation (ie owners holding not more than 25% unit entitlements voting against the motion).

A breach of section 106 may result in a claim for foreseeable loss being brought by a lot owner against an owners corporation.

What should a strata scheme do to ensure they protect their rights under the HBA?

  • Be pro-active
  • Find out what statutory time limits apply to your strata scheme
  • If made aware of building defects, notify the builder, developer and if applicable, the home owners warranty insurer immediately
  • Arrange for an inspection of the property to be undertaken by an expert building consultant to check for common property building defects within your warranty periods (if appropriate, the builder may be invited to attend these inspections jointly so that prompt action can be taken by the builder to rectify any issues prior to the expiry of the statutory warranty periods) NB. Many defects may not become apparent in the first few years
  • Check the cladding used on the building
  • If the builder is back on site fixing defects and you are approaching the expiry of your two year warranty period – don’t let the warranty period slip by – enter into a Deed with the builder setting down conditions for the continuing repair of the defects
  • Even if in negotiations with the builder, if the builder will not agree to adequate terms and conditions to return to rectify defects, commence proceedings to preserve the scheme’s rights
  • Consider the appropriate jurisdiction within which to commence proceedings (the NSW Civil and Administrative Tribunal has jurisdiction for claims up to $500,000 only

Legislative Reform Update affecting owners corporations

  • If the 2 and 6 year warranty periods have passed, seek advice as to the scheme’s potential rights to bring a claim for economic loss for a breach of duty of care of the builder, designer, engineer, manufacturer and/or supplier.
  • These rights have only come into force on 11 June 2020 and may apply to your scheme if construction work has been undertaken in the past 10 years and not more than 6 years has passed since the scheme became aware of its loss
  • These statutory duty of care provisions exist in addition to a scheme’s rights under the HBA.

If a scheme’s statutory warranty periods have expired or they fail to consider rights to bring a claim for a breach of statutory duty of care, the strict duty to maintain and repair common property still exists and owners corporations may be left with a bill for millions of dollars to effect the repairs!

By Helen Kowal, Partner, Prop­er­ty, Plan­ning & Projects, Stra­ta, Swaab 

I pride myself on listening to the client, thinking outside the square and finding a solution that meets the client’s needs.

I conduct proceedings in the NSW Civil and Administrative Tribunal, Supreme Court of New South Wales, Local Court of New South Wales and in the Land and Environment Court of New South Wales.

With a legal career spanning over 25 years in general practice, for the past decade I have specialised in building, construction, strata and property. I have worked for many owners corporations, developers and builders in all facets of building and construction law in all jurisdictions.

• Acting for owners corporations, owners and builders in building defect claims under the Home Building Act 1989 in NCAT and Supreme Court of NSW
• Acting for developers, owners corporations and lot owners at the forefront of strata renewal legislation introduced in November 2016
• Acting for owners corporations and owners in strata disputes arising under the Strata Schemes Management Act 2015
• Negotiation and drafting of building contracts, project management and superintendent agreements
• Acting in boundary and development matters including easements, crane and ground anchor licence deeds, boundary, tree and fencing disputes and planning issues