Introduction

In New South Wales, strata schemes operate under the governance of owners corporations, entities comprising all owners of lots within a strata title property. The owners corporation is responsible for the administration, control, and maintenance of common property, ensuring the effective management of the strata scheme for all owners and occupiers. For harmonious strata living, understanding the distinct roles and responsibilities of both the owners corporation and each individual lot owner is important.

This guide offers key information regarding the obligations of owners corporations and lot owners as outlined in the Strata Schemes Management Act 2015 (SSMA). It clarifies the definitions of an owners corporation and a lot owner, details their respective duties concerning common property and lot property, and examines the practical implications of the Supreme Court case The Owners – Strata Plan No 2661 v Selkirk [2024] NSWSC 760 in clarifying these obligations.

Defining Owners Corporation and Lot Owners

Who is a Lot Owner?

Lot owners are individuals who have purchased and own a specific part of a strata property, often referred to as a lot or unit. This ownership is within a larger complex or building that is part of a strata scheme. A lot can be an apartment, town house, or any individually owned unit within a shared building. Upon purchasing a lot, the lot owner automatically becomes a member of the owners corporation. Lot owners are responsible for managing their private units.

Who is an Owners Corporation?

An owners corporation, sometimes referred to as a body corporate, is the collective entity made up of all the lot owners in a strata scheme. It is the administrative body responsible for the management, administration, and maintenance of common property within the strata scheme.

The owners corporation acts on behalf of all lot owners to manage these shared resources. The owners corporation is responsible for managing finances, keeping records, ensuring legislative compliance, and handling insurance for the entire strata scheme. The owners corporation makes decisions regarding the common property, often through elected strata committees or appointed strata managers.

Responsibilities of the Owners Corporation

Maintaining and Repairing Common Property

Under section 106(1) of the SSMA, owners corporations are strictly obligated to maintain and keep the common property in good repair. This duty is considered “strict” because failing to properly maintain common property cannot be excused by taking reasonable care. Furthermore, section 106(2) extends this responsibility to include renewing or replacing fixtures and fittings that are part of the common property. To understand the scope of this duty, it is essential to define common property. Common property generally includes any part of the strata scheme parcel not contained within a lot. Examples typically encompass:

• Boundary structures such as walls,
• Lobbies and elevators,
• Building exteriors,
• And any other common infrastructure not part of an individual lot.

For strata schemes registered after 30 November 2016, section 6 of the Strata Schemes Development Act 2015 (NSW) provides further clarity, generally defining lot boundaries as the inner surface of walls. Owners corporations must uphold this maintenance duty even in challenging circumstances, such as when accessing a lot is difficult. Their responsibilities include:

• Assessing the scope of necessary repairs,
• Determining the appropriate methods for these repairs, and
• Carrying out the required work.

If an owners corporation breaches this obligation, it must prove what repairs are necessary. In such cases, the NSW Civil and Administrative Tribunal (NCAT) can order investigations into proper repair methods and compel the owners corporation to perform those repairs.

Financial and Administrative Duties

Owners corporations have substantial financial and administrative responsibilities critical to the efficient management of a strata scheme. While these tasks can be delegated to a strata manager, the ultimate accountability always rests with the owners corporation. These key duties include:

• Managing finances:
  • Establishing budgets, setting levies, and managing funds (both administrative and capital works).
  • Collecting levies from lot owners to cover common property maintenance and strata administration costs.
• Maintaining records:
  • Keeping accurate and up-to-date financial records, correspondence, and accounts.
  • Managing the strata roll, which contains details of all lot owners.
• Arranging insurance:
  • Handling strata insurance, which typically covers common property damage and public liability risks.
• Ensuring compliance:
  • Adhering to legislative requirements, including fire safety compliance, work health and safety (WHS) standards, and by-law enforcement.
  • Managing building defects and interpreting applicable legislation.
• Managing the strata roll:
  • Ensuring the strata roll remains updated with accurate information about all lot owners.

By effectively managing these financial and administrative duties, owners corporations can operate efficiently and legally, ensuring the strata scheme benefits all lot owners.

Responsibilities of Lot Owners

Maintaining Lot Property and Avoiding Nuisance

Lot owners are responsible for maintaining their individual property within a strata scheme. While the owners corporation handles the maintenance of common property, lot owners must ensure the upkeep of everything within their lot’s boundaries. Generally, this applies to anything from the inner surface of boundary walls inward, unless otherwise specified in the strata plan.

In addition to maintenance, lot owners must ensure that their use of the property does not cause nuisance or hazards to other residents. Under section 153(1) of the SSMA, lot owners are required to act thoughtfully and avoid negatively impacting their neighbours within the strata community. Examples of this include:

• Avoiding excessive noise, and
• Ensuring conditions within the lot do not pose health or safety risks to others.

Cooperation with Repairs and Access to Lots

Lot owners are also expected to cooperate with the owners corporation for the maintenance and repair of common property. Section 106(1) of the SSMA places a strict duty on the owners corporation to maintain and repair common property. To meet this obligation, access to individual lots is sometimes required to inspect or address common property issues, and lot owners must provide reasonable access when needed.

For example, where defects in common property affect a lot, owners must allow access for inspections and necessary repairs. Denying or obstructing access can delay repairs and impair the owners corporation’s ability to meet its obligations. The case of The Owners – Strata Plan No 2661 v Selkirk [2024] NSWSC 760 underscores this point: while the owners corporation holds a strict duty to maintain common property, a lot owner’s unreasonable actions that prolong repairs may undermine their ability to claim damages.

Ultimately, cooperation from lot owners is vital for maintaining the efficient management of strata schemes. Allowing reasonable access and supporting repair efforts fosters a harmonious living environment and helps resolve issues promptly.

Case Study: Clarifying Obligations through The Owners – Strata Plan No 2661 v Selkirk [2024] NSWSC 760

Background and Initial NCAT Proceedings in Selkirk

The case of The Owners – Strata Plan No 2661 v Selkirk [2024] NSWSC 760 provides key insights into the obligations of owners corporations and the conduct of lot owners in strata schemes. In this case, Ms. Selkirk, a lot owner, claimed that a leak originating from common property in her bathroom rendered her apartment uninhabitable, leading to lost rental income. The owners corporation admitted to breaching its duty under section 106(1) of the SSMA to maintain and repair common property.

Ms. Selkirk sought substantial damages for lost rent over an extended period, arguing that the prolonged issue was caused by the owners corporation’s failure to repair the leak. Initially, the New South Wales Civil and Administrative Tribunal (NCAT) recognised the owners corporation’s breach of duty. However, the NCAT Senior Member found that the extended loss of rent was primarily due to Ms. Selkirk’s own unreasonable conduct.

Specifically, she insisted on extensive bathroom renovations via insurance processes instead of allowing the owners corporation to promptly undertake the necessary leak repairs. As a result, the Tribunal concluded that her actions, rather than the owners corporation’s breach, were the main cause of her losses. Consequently, NCAT dismissed her claim for damages.

Supreme Court’s View on Owners Corporation’s Duty and Lot Owner Conduct

The owners corporation appealed this decision to the NSW Supreme Court, which provided important clarifications about legal obligations. It reiterated that section 106(1) of the SSMA imposes a strict duty on owners corporations to maintain and repair common property. This duty is absolute, meaning a breach occurs if common property is not properly maintained, even if reasonable care was taken.

However, the Supreme Court elaborated that proving a breach of this duty is insufficient for a lot owner to automatically recover damages. Under section 106(5) of the SSMA, a lot owner must show that their losses occurred “as a result of” the owners corporation’s breach. To determine this, the Court applied common law principles of causation and mitigation:

• If a lot owner unreasonably delays repairs or increases their losses through their conduct, extended damages may not be considered a direct result of the owners corporation’s breach.
• The Supreme Court rejected the NCAT Appeal Panel’s position that a lot owner’s obstruction of repair efforts is irrelevant. Instead, the lot owner’s behaviour plays a key role in assessing damages.

While section 122 of the SSMA empowers owners corporations to request access to lots for repairs, the Court emphasised that lot owner cooperation is essential. If lot owners act unreasonably and prolong repair timelines, their claims for damages may be diminished.

Practical Implications of Selkirk for Strata Schemes

The Selkirk decision sheds light on the interpretation of section 106(5) of the SSMA and sets key precedents for strata schemes. It clarified responsibilities for both owners corporations and lot owners. Some of the practical takeaways include:

• Strict maintenance obligations of owners corporations:
  Owners corporations must take proactive steps to investigate and repair defects in common property under section 106(1) of the SSMA. They must fulfil this duty even without lot owner cooperation.
• Lot owner responsibilities to facilitate repairs:
  Lot owners are expected to act reasonably and cooperate with owners corporations in addressing defects in common property. If a lot owner’s unreasonable actions delay repairs, it can negatively impact their ability to claim damages for related losses.
• Dispute resolution through NCAT:
  Disagreements over the scope of necessary repairs or maintenance can be brought before NCAT under section 232 of the SSMA. This mechanism ensures disputes are resolved, and repairs are completed efficiently.
• Impact on strata insurance claims:
  Strata insurers may consider a lot owner’s conduct when evaluating claims for loss of rent under liability policies. Unreasonable behaviour that breaks the chain of causation between an owners corporation’s breach and the claimed loss may reduce or negate entitlement to damages.

The Selkirk case highlights the critical roles both owners corporations and lot owners play in maintaining effective and fair strata schemes. Owners corporations must diligently fulfil their repair and maintenance duties, while lot owners must facilitate repairs through cooperation and avoid behaviours that exacerbate losses.

Conclusion

In summary, owners corporations have a strict obligation to maintain common property, as highlighted in the Selkirk case. Lot owners, conversely, have a responsibility to cooperate with the owners corporation, especially regarding repairs and access to their lots. The Selkirk case underscores that while owners corporations must diligently maintain common property, lot owners also need to act reasonably and avoid conduct that prolongs necessary repairs.

Understanding the obligations of both owners corporations and lot owners is crucial for harmonious strata living and effective strata management. For tailored guidance on your specific situation and to ensure compliance with strata law, reach out to our expert strata lawyers at PBL Legal today. Our team possesses unparalleled expertise in owners corporation and lot owner responsibilities and can provide you with the advice and support you need to navigate strata schemes effectively.

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