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

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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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Raea Khan Circle
Director Lawyer
Raea Khan

Raea is Managing Director and Principal Lawyer for PBl Law Group. Raea assists clients with major projects, property developments, construction and strata law.

He has worked in Western Australia and Queensland assisting with expansion projects in the energy and resource sector and now predominately advises clients in Strata and Community Association matters.

He is a member of the Australian College of Strata Lawyers where majority of his work is advising developers and owners corporations with dispute related minor and major defects, strata governance and common property litigation. He is proficient at leading negotiations and meetings.

Raea has a particular interest in the commercial aspect of any dispute and always tries to weigh up the risk, reward and benefit of legal proceedings at each different stage.

Raea enjoys all forms of competitive sport, including Crossfit and actively participates in Triathlons, representing Australia as an age group athlete. He was a member of Red Head Surf Lifesaving club.

  • Strata Law
  • Construction & Major Projects
  • Commercial and Business Law
  • Planning & Environment Law