Recovering Loss of Rent Due to Common Property Defects: A Guide for NSW Strata Lot Owners & the Role of the Owners Corporation

Introduction

For owners of a strata property in New South Wales, defects in common property can lead to significant financial losses, particularly when a unit becomes unrentable. Under the Strata Schemes Management Act 2015 (NSW), the Owners Corporation has a strict legal duty to repair and maintain all common property, and a failure to uphold this responsibility can directly impact a lot owner’s rental income.

Consequently, lot owners have a legal right to recover any reasonably foreseeable loss that results from the Owners Corporation’s breach of its duties. This guide provides essential information on navigating your rights and obligations, outlining the process for building a case and recovering lost rent when common property defects affect your strata investment.

Interactive Tool: See If You Qualify for Strata Rent Loss Compensation

Understanding the Legal Foundation for Your Strata Claim

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

The foundation of any claim for damages in a strata scheme rests on the legal obligations of the Owners Corporation. Under Section 106 of the Strata Schemes Management Act 2015 (NSW), the Owners Corporation has a duty to properly maintain and repair common property, keeping it in a state of good and serviceable repair.

This responsibility is considered a “strict” duty. As a result:

• A lot owner does not need to prove that the Owners Corporation was negligent or at fault to establish a breach.
• The simple failure to maintain the common property is enough to trigger this legal responsibility, so it is crucial to understand what to do when the owners corporation fails to repair common property defects.

A Lot Owner’s Right to Claim for Reasonably Foreseeable Loss

When an Owners Corporation breaches its duty to repair common property, Section 106(5) of the Strata Schemes Management Act 2015 (NSW) grants a lot owner the right to recover damages for any reasonably foreseeable loss they suffer as a result. This allows owners to seek compensation for financial harm directly caused by the disrepair.

A loss is considered reasonably foreseeable if it is a predictable consequence of the failure to maintain the property. Common examples of losses that can be claimed include:

• Other Related Expenses: In some cases, costs for expert reports or property management fees incurred while defending a claim from a tenant may also be included.
• Lost Rental Income: This applies if a tenant is forced to vacate the property, demands a rent reduction, or if the unit becomes unrentable due to the defect.
• Alternative Accommodation Costs: If an owner-occupier must move out because their unit is uninhabitable, the cost of temporary housing may be recoverable.
• Repair and Replacement Costs: This covers damage to personal items within the lot, such as ruined carpets, floorboards, furniture, or kitchen joinery.

The Critical Two-Year Limitation Period for Strata Owners

When Does the Clock Start Ticking on Your Claim

Under section 106(6) of the Strata Schemes Management Act 2015 (NSW), a lot owner has a strict two-year time limit to bring an action for damages, which is one of the key limitation periods to claim damages for common property defects. This two-year period begins from the moment the owner “first becomes aware of the loss.”

It is crucial to understand that:

• The clock starts ticking when you notice the financial loss, not when you discover the underlying cause or the owners corporation’s breach of duty.
• The NSW Civil and Administrative Tribunal clarified this point in the case of Tezel v The Owners – Strata Plan No. 74232 [2021] NSWCATCD 132. The Tribunal determined that the limitation period is tied to the awareness of the loss itself, such as damage to your property or the first day of lost rent.
• It does not matter if it takes longer to connect that loss to a defect in the common property.

How a Continuing Loss is Treated Under the Law

For ongoing damages, such as a weekly loss of rental income, the two-year limitation period does not restart with each missed payment. The law treats subsequent financial losses of the same type as a continuation of the original loss.

Therefore:

• This means you cannot wait and file a claim for later rental losses if the two-year period from the first instance of loss has already expired.
• The clock begins to run when the very first dollar of rent is lost.
• If you become aware of lost rent on a specific date, any further rental payments you miss are considered part of that initial loss.

Building Your Case for Recovering Lost Rent

The First Step: Identifying & Documenting Strata Defects

The initial action in any claim for lost rent is to identify and thoroughly document the strata building defects within your strata property. You should conduct a detailed inspection of both your individual lot and the common property areas.

It is essential to maintain a comprehensive record of all issues you find. This documentation should include:

• Detailed written descriptions of each defect.
• Clear photographs or videos showing the extent of the damage.
• A timeline of when you first noticed the defects and any progression of the damage.

Formally Notifying the Owners Corporation in Writing

After identifying and documenting the defects, you must formally notify the Owners Corporation in writing. This written notice serves as a crucial record that you have officially reported the issues and requested their rectification.

Your notification should clearly outline the specific defects affecting the common property. It is also important to alert the Owners Corporation to the possibility of a future claim for any reasonably foreseeable loss, such as lost rent, that may result from their failure to act.

Keeping a copy of all correspondence is vital for your records.

Engaging Professionals to Strengthen Your Strata Claim

To build a robust case, it is highly beneficial to engage professionals with expertise in strata matters. Engaging experts can provide the necessary evidence and guidance to support your claim for damages and lost rent.

Consider assembling a team of professionals, which may include:

• Building inspectors or engineers who can assess the defects and provide comprehensive reports detailing the necessary repairs.
• Strata lawyers who can offer accurate legal advice, represent you effectively, and navigate the complexities of strata law.

A Case Study in Proving Lost Rent: The Byrne v Strata Plan Decision

Proving a claim for lost rent requires strong, specific evidence. A powerful example of building a successful claim can be seen in the case of Byrne v Strata Plan [2021] NSWSC 342, where PBL Law Group’s strata lawyers successfully represented a lot owner.

The Supreme Court accepted the owner’s claim for lost rent based on two critical pieces of evidence:

• A sworn, unchallenged affidavit from the owner that detailed his concrete intention and financial arrangements to lease the property.
• An unopposed rental valuation report from an expert witness, which the court used to calculate the total amount of damages owed.

The Lot Owner’s Responsibilities & How They Can Affect a Claim

Your Duty to Mitigate Losses

When pursuing a claim for damages against the Owners Corporation, lot owners have a legal duty to take reasonable steps to minimise their losses. This principle, known as the duty to mitigate, means you cannot allow damages to accumulate unnecessarily and expect full compensation.

A court or tribunal may reduce the amount of compensation awarded if a lot owner’s conduct is found to have delayed or increased the cost of repairs. For example, in the case of The Owners – Strata Plan No 2661 v Selkirk [2024] NSWSC 760:

• The owner’s claim for extended rental loss was partly limited because her unreasonable actions disrupted the repair process.
• Her conduct contributed to the ongoing damages, which led the court to reduce her compensation.

The Importance of Providing Reasonable Access for Repairs

As a lot owner, you have a legal obligation to provide the Owners Corporation with reasonable access to your lot, which often raises the question of can the owners corporation enter your lot property without consent. This access is necessary to allow them to inspect damage and carry out required rectification works on the common property.

Unreasonably refusing access can significantly impact your claim for lost rent or other damages. If an owner’s refusal prevents or delays necessary repairs:

• A court may limit compensation to the period before access was denied.
• In the Selkirk case, the court limited the owner’s compensation for rental loss to the period before she refused to allow the Owners Corporation to proceed with its proposed repair methodology.

Navigating the Strata Dispute Resolution Process

From Internal Resolution to NSW Fair Trading Mediation

If you are unsatisfied with the Owners Corporation’s response to your repair request, the first step is to initiate a formal dispute. Many strata schemes have their own internal dispute resolution processes outlined in their by-laws, which should be consulted first.

If the internal process fails to resolve the issue, you can escalate the dispute to NSW Fair Trading. This government body can:

• Investigate the complaint, and
• Facilitate a formal mediation session between you and the Owners Corporation, a process that requires preparing for strata dispute mediation in NSW to help reach a mutually agreeable solution.

Initiating Legal Proceedings in NCAT or Court

When mediation through NSW Fair Trading does not lead to a resolution, the final step is to commence formal legal proceedings. A lot owner may file a claim in the NSW Civil and Administrative Tribunal (NCAT) or a relevant court.

These legal actions serve to:

• Seek binding orders compelling the Owners Corporation to carry out the necessary repairs, and
• Claim damages for any reasonably foreseeable loss suffered, such as lost rental income.

Conclusion

When an Owners Corporation in NSW fails its strict duty to repair common property, lot owners can suffer significant financial harm, including lost rental income. By understanding the two-year limitation period and following the correct procedures for documenting defects and notifying the corporation, owners can build a strong case to recover their losses.

If you are dealing with lost rent due to common property defects, contact our strata lawyers at PBL Law Group today for trusted expertise. Our team of specialised strata dispute lawyers in Sydney offers the legal advice needed to navigate the complexities of your claim and secure the compensation you deserve.

Frequently Asked Questions