Introduction

Understanding strata schemes can be complex, especially when trying to comprehend the various rights and obligations outlined in the Strata Schemes Management Act 2015 (SSM Act). Section 106 of the SSM Act provides clear guidance on the responsibility of the owners corporation to maintain and repair common property and any personal property vested in it. If the owners corporation does not fulfill its duty, the lot owners can claim damages. However, are lot owners free to claim damages at any time, or is there a specific time frame? Additionally, how can we determine when a lot owner becomes aware of losses and its associated legal consequences?

These important questions were recently addressed in the New South Wales Court of Appeals, establishing a significant precedent that impacts lot owners, strata insurers, and owners corporations. In this article, we will provide clarity on the SSM Act, discuss the notable Tezel case, and highlight the implications for all involved parties.

Decoding the Strata Schemes Management Act: What does it say about the limitation period to claim damages for building defects?

Section 106 of the SSM Act clearly states the duty of the owners corporation to maintain the common property and any personal property vested in it in a good and serviceable condition. What are the consequences if this duty is not met? If there’s a breach, lot owners have the right to claim damages for any foreseeable losses resulting from the corporation’s negligence. However, this right to claim damages has a time limit. As specified by Section 106(5), lot owners must make any damage claims within two years from when they first notice the loss.

This leads to questions about legal interpretation: when do lot owners truly recognise their loss? Does ‘loss’ refer to the type of loss or the exact monetary value? And does the two-year time frame restart with each day of ongoing loss, potentially creating a new reason for action every day the breach persists? The New South Wales Court of Appeals (NSWCA) provided answers in its recent decision, The Owners – Strata Plan No. 74232 v Tezel [2023] NSWCA 35, offering clear direction on these important issues.

Unraveling The Owners – Strata Plan No. 74232 v Tezel [2023]: Factual Background of the Case

At Bondi Beach, Ms Tezel, an owner of a strata unit, experienced water leakage in her apartment during heavy rainfall, a significant defect that began in 2013. Due to the ongoing water damage and the resulting issues, Ms Tezel chose to leave her unit in 2016. Although she tried to rent out the property that year, she was unsuccessful, and the unit remained vacant.

On 6 November 2020, Ms Tezel pursued legal action, filing a complaint against the owners corporation with the New South Wales Civil and Administrative Tribunal (NSWCA). Her complaint had two main points: she wanted orders for repair work to fix her water-damaged unit, and she aimed to recover the rental income she lost after 6 November 2018. It’s important to note that her claim for lost rent only went back to 2018, not 2016 when she first left the unit due to the defect.

The owners corporation argued that Ms Tezel’s claim for lost rental income was outside the time limits set by Section 106(6) of the SSM Act. The NSWCAT agreed with the owners corporation. They approved the repair works but denied Ms Tezel’s request for lost rent. The Tribunal believed that Ms Tezel knew about the rental income loss in 2016, making her 2020 claim too late according to the law.

Unhappy with the decision, Ms Tezel appealed. The Appeal Panel reviewed the case and sided with Ms Tezel, reversing the NSWCAT’s original decision on the lost rent. This new decision led the owners corporation to challenge the Appeal Panel’s interpretation of Section 106(6) of the SSM Act. Their main point of contention was the exact meaning of “the loss”. The central issue was determining the specific moment that would start the two-year time limit set by the SSM Act for claiming damages from the owners corporation for foreseeable losses.

Legal Principle #1: The time limit in Section 106(6) of the SSM Act commences from the point that the owner “first becomes aware of the loss”.

The NSWCA’s analysis focused on a detailed review of Section 106(6) of the SSM Act. The court emphasised the importance of understanding the section in its broader context, ensuring it aligns with its main goals and the specific issues it addresses regarding claims against owners corporations.

Essentially, Section 106(5) gives lot owners the legal right to claim damages for foreseeable losses due to the owners corporation’s neglect in maintaining common property. This right is broader than Section 106(4), which only relates to physical damage to common properties.

Upon examining the statute, Section 106(5) stands out as a strong protection for lot owners. It allows them to seek compensation for financial losses resulting from the owners corporation’s breach of Section 106(1). Notably, the wording of Section 106(5) uses the term “loss” instead of the narrower term “damage” found in other sections. This choice of wording suggests a broader scope of compensation that extends beyond just physical damage.

However, the rights granted to lot owners under Section 106(5) have limitations. These are outlined in Section 106(6). According to this section, damage claims under Section 106(5) must be made within two years of the lot owner becoming aware of the loss.

Importantly, this provision distinguishes between when the lot owner first notices the loss and when the legal claim arises. This distinction isn’t just about wording; it’s intentionally made to benefit the lot owner, especially in cases of hidden building defects. While Section 106(6) supports the rights of individual lot owners, it also establishes a clear two-year limit, considering the collective responsibilities of the owners corporation to address potential losses. A key point from the court was that the two-year limit in Section 106(6) starts when the lot owner first discovers the loss, not when they later understand its implications.

Legal Principle #2: Knowledge of loss does not reset for each day the breach continues.

A continuous breach under Section 106(1) doesn’t mean that there’s a continuous new awareness of the related “loss”. A breach that persists doesn’t restart the limitation period each day. The moment when the lot owner first recognises the loss remains fixed, regardless of how long or severe the breach is. Simply put, a lot owner can’t reset their limitation period and claim under Section 106(5) for every additional day the breach continues and results in a loss. In relation to the current case: the respondent identified her loss (viewed as missed rent due to the owners corporation’s failure to fulfill its duty under s 106(1)) in 2016. As a result, the two-year limitation period began from that initial recognition.

Implications and Action Steps: Legal Advice for Stakeholders

The court’s interpretation in this case has significant implications for strata insurers, lot owners, and owners corporations. For lot owners, it emphasises the importance of being attentive. It’s crucial to track any losses resulting from an owners corporation’s failure to maintain and repair common property. Given the clear two-year limitation set out in Section 106(6) of the SSM Act, the timeframe to take action is limited.

Lot owners should act promptly and strategically. Efforts should focus on taking corrective steps within the two-year period, starting from the day the loss is first noticed.

For those navigating strata disputes or dealing with issues related to common property defects, PBL Law Group’s experienced strata professionals are here to help. Offering expert legal guidance, our team is prepared to clarify any aspects of the SSM Act. Reach out to us to begin.