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

5 min read

Investing in a strata property can be a lucrative endeavour, providing owners with a steady rental income. However, when defects arise, resulting in a loss of rent, lot owners may find themselves facing financial hardships. In this comprehensive guide, we will explore the steps lot owners can take to recover the loss of rent from defects suffered in strata properties in New South Wales (NSW). Using the case of The Owners – Strata Plan 94963 and Mono Constructions Pty Ltd which PBL Law Group successfully advised on as an example, we will delve into the legal framework, identifying defects, notifying the owners corporation, engaging professionals, initiating legal proceedings, claiming damages, and mitigating losses through negotiation and mediation. Let’s explore each of these topics in detail.

Table of Contents

Background to the case

PBL Law Group successfully represented a lot owner in an apartment complex where defects were detected, resulting in financial loss, including a loss of rental income. In this case, the damage to the lot property included water ingress, where moisture was penetrating into the apartment lounge room wall. Upon advice from our expert strata lawyers, our client acted promptly and filed proceedings in the tribunal against the Owners Corporation, seeking damages for rental loss arising from the building defect. Since the building was still within the 6-year major defects period, the Owners Corporation cross-claimed against the original builder, holding them responsible for repairing the defects and meeting the damages claim. In such situations, the parties often engage in arguments regarding liability and the extent to which they mitigated the risk or loss under the circumstances. Factors considered include:

  • Whether the lot owner promptly informed the Owners Corporation of the common property defects within their lot.
  • The habitability of the lot.
  • Market rent of the lot.
  • Whether the defects stem from the original builder.

In this particular case, with our legal assistance, our client was equipped with a comprehensive report outlining the necessary measures to repair the defects in the common property. Critically, our lawyers were also able to provide skilful negotiations with the Owners Corporation and the builder to successfully settle the dispute outside of NCAT. Ultimately, the builder and the Owners Corporation had to ensure the water ingress was rectified and, equally importantly, compensate the lot owner for the claimed rental loss arising from the defect.

If you are looking to recover rental income from defects in common property, it is crucial for lot owners to familiarize themselves with the legal framework governing strata properties in NSW. The Strata Schemes Management Act 2015 provides the guidelines for managing strata schemes, including the obligations of the Owners Corporation, strata managers, and strata committees. Furthermore, under this Act, lot owners now have an enhanced legal position when it comes to recovering losses resulting from the neglect or failure of the Owners Corporation to maintain and repair the common property. Specifically, lot owners can hold the Owners Corporation liable for reasonably foreseeable losses suffered by the lot owner due to a breach of the Act by the Owners Corporation. Breaches include the Owners Corporation’s failure to repair and maintain the common property. This means if you are a lot owner, you may recover rental income lost due to defective common property.

However, another critical aspect of the legal framework lot owners must understand is the limitation periods that apply governing if you are able to make a claim for defects from the builder or developer. The limitation period depends on when your building finished completion. If your building finished completion:

  1. Before 1st of February 2012: defects had a limitation period of 7 years from the date of completion.
  2. Between 1st of February 2012 and 15th of January 2015: “Structural defects” had a limitation period of 6 years while “minor defects” had a limitation period of 2 years from the date of completion.
  3. On and after 15th of January 2015: “Major defects” (previously known as “structural defects”) have a limitation period of 6 years while “minor defects” have a limitation period of 2 years from the date of completion.

Identifying and Documenting Defects

The first step in recovering the loss of rent is to identify and document the defects present within the strata scheme. Strata properties consist of both individual lots and common property. Defects can occur in either of these areas, affecting the liveability and rental value of the property. Lot owners should thoroughly inspect their lot and the common property, keeping a detailed record of the identified issues, including photographs and descriptions. Prompt reporting of defects to the Owners Corporation is crucial to ensure a timely resolution.

Notifying the Owners Corporation

The Owners Corporation has a legal obligation to repair and maintain the common property in a reasonable manner. So, once the defects have been identified and documented, lot owners must notify the Owners Corporation of the issues affecting the common property. Lot owners should provide written notification, clearly outlining the specific defects and requesting their rectification. It is important to keep a record of all correspondence and ensure that the notification is delivered within the required timeframe.

If the defect was discovered within the applicable limitation periods, prompt notification to the Owners Corporation becomes even more critical as the Owners Corporation can make a claim to the original builder or developer to rectify these defects under statutory warranties provided under the Home Building Act 1989. This was the case for our client in The Owners – Strata Plan 94963 and Mono Constructions Pty Ltd where the defects were discovered within the 6-year limitation period for a structural defect, allowing our client to not only have the builder rectify the defect but also recover from the Owners Corporation and the builder compensation for lost rental income.

Engaging professionals to prepare for claiming damage and lost rent

To strengthen your case as a lot owner, you should engage professionals such as building inspectors, engineers, and strata lawyers who will assess and document the defects, providing comprehensive reports that outline the necessary rectification measures. Building a strong team of professionals with expertise in strata properties is essential for accurate evaluations and effective legal representation. As was the case with our client, they were able to successfully sue the Owners Corporation to have repairs done and recover lost rental income.

If the Owners Corporation fails to address the defects adequately, lot owners may need to initiate legal proceedings to recover their loss of rent. Seeking legal advice from a specialized strata lawyer is crucial to understand the legal process and the available remedies. A good lawyer will guide lot owners through filing a claim in the relevant tribunal, such as the NSW Civil and Administrative Tribunal (NCAT), or court, ensuring that all necessary documentation is prepared and deadlines are met.

Recovering the loss of rent involves making claims for compensation from the Owners Corporation. Lot owners may claim the actual loss of rent suffered due to the defects, additional expenses incurred, and compensation for any inconvenience caused. With that said, determining the amount of damages can be complex, taking into account factors such as market rent, vacancy periods, and repair costs. Seeking the guidance of an expert strata lawyer, such as Alex Ilkin of PBL Law Group, will help ensure a fair and accurate calculation of damages, aligning with the Strata Schemes Management Act and relevant case precedents.

In conclusion

Recovering the loss of rent from defects in strata properties within a strata scheme requires a proactive and strategic approach. By understanding the legal framework, identifying and documenting defects, notifying the Owners Corporation, engaging professionals, initiating legal proceedings, and claiming damages, lot owners can pursue compensation for their reasonably foreseeable loss of rent. Remember, seeking expert legal advice is essential to navigate through the complex strata law landscape effectively. At PBL Law Group, we specialize in strata law and have a successful track record of helping lot owners recover their losses. Contact us today to discuss your case and protect your rights as a lot owner.

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Picture of Authored By<br>Raea Khan

Authored By
Raea Khan

Director Lawyer, PBL Law Group

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For almost 18 months I have been a client of Alex Ilkin. Alex is very knowledgeable and professional and has consistently provided me with thorough, honest and well set out advice, including steering my case through appeal proceedings. He always worked for my best interests with integrity and compassion. I recommend Alex and his team at PBL.

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Jye Hall
Anita Bradley has been an absolute dream to deal with. Anita's conveyancing skills and knowledge knows absolutely no boundaries along with her effective communication skills which has made selling and buying a completely stress free exchange for us. We recommend PBL Law to everyone looking for outstanding service. We will definitely be returning clients.
Kushlan Aluwihare
PBL Law Group were fantastic. Anita from PBL worked with us closely during our property search and made the exchange and settlement process smooth and stress free. Highly recommended.
Gail Whitford
PBL handled my late mothers estate, they were very obliging and patient with any and all questions that we had, thank you to David , Sharon and the other staff that we dealt with, everyone was so easy to talk to and friendly .David came to the home where my Mother was living and helped her to get her will in order, Sharon helped us through the process of executing her wishes when the time came even doing a house call which was so much easier, thank you all so much
S M
I have experienced an excellent service from PBL (especially from Anita) during the sale of my recent property on Central Coast, and during the purchase of our current property in Sydney. Throughout many challengers, especially with the sale, Anita presented her very professional and knowledgeable conveyancer, positively solving all obstacles. "Above and Beyond" Award going to Anita!!! :-)
Amanda Reitzin
The five-star reviews are well-deserved. I needed a motion and a bylaw drawn up for urgent repairs of my strata unit and the AGM was in two weeks' time. My solicitor was friendly, efficient, knew what documents to ask for, and had all the paperwork prepared well within the timeframe. She also took the time to run through all the legalese and the different possible scenarios with me to make sure I understood. I am so glad to have found this firm and I will not hesitate to use their services again in future if the need arises.
Ricky Cooper
Anita is amazing! So attentive, approachable and communicates everything every step of the way. I have now bought and sold property with Anita and I cannot recommend her highly enough.
Ron Thomsen
Our Commercial Property conveyancing was handled very professionally. Anita’s experience and responsiveness was an asset in this transaction.
Trace M
I am so grateful for Anita Bradley from PBL Law Group helped me with this property settlement, she has went above beyond to ensure I understand everything because of our deafness. I will recommended Anita or their team. Thank you so much for all the hard work you have done for us.
Tricia Wheatstone
For almost 18 months I have been a client of Alex Ilkin. Alex is very knowledgeable and professional and has consistently provided me with thorough, honest and well set out advice, including steering my case through appeal proceedings. He always worked for my best interests with integrity and compassion. I recommend Alex and his team at PBL.