Recovering Strata Damages When Your Owners Corporation Fails to Repair Common Property in NSW

Introduction

Strata owners in New South Wales rely on their owners corporation to maintain and repair common property, as required by the Strata Schemes Management Act 2015 (NSW). When this duty is neglected, lot owners can face significant financial losses, including property damage and lost rental income.

This guide explains the legal rights of strata owners to recover damages when the owners corporation fails to meet its obligations. Understanding these rights is essential for anyone living in or managing a strata scheme, as timely action can make a critical difference in protecting your interests.

Interactive Tool: Are You Eligible for Damages?

The Owners Corporation’s Strict Duty to Repair & Maintain Strata Common Property

Understanding Section 106 of the Strata Schemes Management Act 2015 (NSW)

Under section 106 of the Strata Schemes Management Act 2015 (NSW), an Owners Corporation has a strict and absolute statutory duty to manage the common property within its strata scheme. This legal obligation requires the Owners Corporation to:

• Properly maintain and keep all common property, as well as any personal property vested in the corporation, in a state of good and serviceable repair.
• Renew or replace any fixtures or fittings that are part of the common property, as the duty is comprehensive and ongoing.

The absolute nature of this obligation was confirmed in the case of Seiwa Pty Limited v Owners Corporation Strata Plan 35042 [2006] NSWSC 1157. Furthermore, as established in Ridis v Strata Plan 10308 [2005] NSWCA 246, this duty is proactive. The Owners Corporation must also inspect the common property to ensure it remains in good condition.

When a Breach of Duty Occurs

A breach of this statutory duty occurs the moment any part of the common property is no longer in a state of good and serviceable repair. This means that as soon as an item or area stops functioning effectively or falls into disrepair, the Owners Corporation is considered to be in breach of its obligations.

This established legal position serves as a protective measure for strata lot owners. The absolute nature of the duty ensures that the Owners Corporation is held accountable for the condition of the common property, providing a clear basis for lot owners to seek remedies when failures occur.

Your Right as a Strata Owner to Recover Damages for Reasonably Foreseeable Losses

What Constitutes a Reasonably Foreseeable Loss in a Strata Context

Under Section 106(5) of the Strata Schemes Management Act 2015 (NSW), a strata lot owner can recover damages for any reasonably foreseeable loss that results from the owners corporation’s breach of its duty to repair and maintain common property. The key test is whether the loss was a predictable consequence of the failure to act.

Common examples of damages that are generally considered reasonably foreseeable in a strata context include:

• Damage to the Lot: This covers the costs to repair physical damage to the interior of your property, such as ruined carpets, damaged floorboards, or spoiled joinery caused by water ingress from faulty common property.
• Damage to Personal Property: You may be compensated for personal belongings that were damaged or destroyed, including furniture, electronics, or other items located within your lot.
• Loss of Rental Income: If the property becomes uninhabitable or tenants demand a rent reduction due to the damage, the resulting loss of rent is often recoverable.
• Cost of Alternate Accommodation: Should the damage be so severe that you are forced to move out, the reasonable costs of temporary housing can be claimed.

Crucially, for a loss to be recoverable, the type of damage must have been foreseeable, even if the precise extent of the damage was not. If the kind of harm suffered could be anticipated as a result of the strata corporation’s breach, a claim for damages is likely to be valid.

What Losses Are Not Recoverable

There are specific circumstances where damages cannot be recovered from the owners corporation. A claim may be denied if the loss was not a reasonably foreseeable outcome of the breach or if it resulted from an owner’s own unreasonable actions.

For instance, in the case of Smith v Owners – Strata Plan No. 3004 [2022] NSWSC 1599, the lot owners chose not to rent out their unit for 3.5 years while waiting for repairs. The court found that while some loss of rent was foreseeable, the extended vacancy was not. The decision to keep the property empty for such a long period, without evidence of it being unsafe, was deemed a “commercial choice” for which the owners corporation was not responsible.

This illustrates that an owner’s actions can limit the extent of recoverable damages, even when the strata corporation is in breach of its duty.

The Critical Role of Mitigating Your Losses in a Strata Claim

Your Obligation to Minimise Financial Harm

A lot owner’s right to recover damages is not absolute; you are expected to take reasonable steps to minimise or reduce your losses. This legal duty is known as mitigation. For example, if you are claiming a loss of rental income, you should make reasonable efforts to re-let the property to reduce the financial impact.

When a strata damages claim is made, the burden of proof is not on the owner to show they attempted to mitigate their losses. Instead, the onus is on the Owners Corporation to demonstrate that the lot owner failed to take reasonable steps to minimise the financial harm they suffered.

If the Owners Corporation can prove this, the amount of damages awarded may be reduced.

Examples of Failing to Mitigate Your Strata Losses

A failure to mitigate your losses means not taking reasonable action to reduce the damages resulting from the Owners Corporation’s breach of duty. Such actions can significantly weaken your strata claim.

Examples of conduct that may be considered a failure to mitigate include:

• Delaying notification: Waiting an unreasonable amount of time before informing the Owners Corporation about the defective or damaged common property.
• Not attempting temporary repairs: Making no effort to carry out temporary fixes that could make the property habitable and allow it to be re-let.
• Worsening the damage: Taking unreasonable actions that aggravate the initial problem, such as carrying out unauthorised work that breaches strata by-laws or altering common property, which causes further damage.
• Making a “commercial choice”: Deciding not to rent out a property for commercial reasons when there is no genuine safety concern making it uninhabitable, as seen in the case of Smith v Owners – Strata Plan No. 3004 [2022] NSWSC 1599. In that matter, the owners’ decision to keep the unit vacant and remove flooring was deemed an unreasonable failure to mitigate their loss.

Navigating the Legal Process for Your Strata Damages Claim

Where to File Your Claim: NCAT vs State Courts

Understanding the correct venue for your strata claim is crucial, as different legal bodies handle different types of remedies.

• The NSW Civil and Administrative Tribunal (NCAT) has the power to order an Owners Corporation to carry out repairs to common property. However, it cannot award monetary damages for losses suffered due to a breach of this duty.
• Any claim for financial compensation under Section 106(5) of the Strata Schemes Management Act 2015 (NSW) must be filed in an appropriate court. Depending on the amount of damages being claimed, this will be the Local, District, or Supreme Court of New South Wales.

This jurisdictional split means lot owners may need to manage simultaneous proceedings:

• One in NCAT to compel the strata scheme to perform repairs
• Another in court to recover financial losses

The Two-Year Time Limit for Filing a Claim

Lot owners must act promptly when seeking damages, as a strict two-year limitation period applies.

As clarified in the Court of Appeal case of The Owners – Strata Plan No 74232 v Tezel [2023] NSWCA 35, an action for damages cannot be brought more than two years after the owner “first becomes aware of the loss.”

This means the two-year clock starts running from the moment you become aware of the type or kind of loss you have suffered, such as:

• Damage to your property
• Loss of rental income

The limitation period does not operate on a “rolling basis” for ongoing issues. If you continue to suffer the same type of loss over time, the two-year period does not restart.

Key Strata Legal Cases & Their Outcomes

Smith v Owners – Strata Plan No 3004: A Lesson in Foreseeability & Mitigation

The case of Smith v Owners – Strata Plan No. 3004 [2022] NSWSC 1599 provides a crucial lesson on the limits of recoverable damages. In this matter, the lot owners discovered water damage to their investment unit’s flooring and chose not to rent it out for 3.5 years while awaiting common property repairs. They subsequently claimed damages from the Owners Corporation for the entire period of lost rent.

The court determined that:

• Some loss of rent was a reasonably foreseeable result of the Owners Corporation’s failure to repair.
• However, the extended vacancy was not considered foreseeable.

The owners were awarded only three months’ rent because their decision to keep the property empty for such a long period, without proving it was unsafe, was considered an unreasonable “commercial choice.” This outcome underscores that an owner’s actions can significantly impact a strata damages claim, particularly when they fail to mitigate their losses.

The Owners – Strata Plan No 74232 v Tezel: The Two-Year Limitation Period Explained

The Court of Appeal’s decision in The Owners – Strata Plan No 74232 v Tezel [2023] NSWCA 35 clarified the strict two-year time limit for filing a strata damages claim. The court ruled that the limitation period under the Strata Schemes Management Act 2015 (NSW) begins when the owner “first becomes aware of the loss.”

This was interpreted to mean:

• The moment the owner becomes aware of the kind or type of loss suffered, such as loss of rental income, is when the limitation period starts.
• The time limit does not operate on a “rolling basis,” meaning a continuation of the same type of loss does not restart the two-year clock.

This case establishes that lot owners must act promptly once they identify a loss, as the limitation period is fixed from that initial point of awareness.

Conclusion

In New South Wales, strata owners can recover damages for reasonably foreseeable losses when an owners corporation breaches its strict duty to repair and maintain common property. This right is subject to the owner’s obligation to mitigate their losses and a strict two-year time limit for filing a claim in the appropriate court.

If you are facing a dispute over common property repairs and recoverable damages, seeking timely legal advice is crucial. Contact the expert strata lawyers at PBL Law Group today for trusted guidance on protecting your rights and navigating your claim effectively.

Frequently Asked Questions