Pursuant to section 106(1) of the Strata Schemes Management Act 2015 (NSW) (Management Act), the owners corporation have a duty to “properly maintain” common property and ensure it remains in a state of “good and serviceable repair”.
The scope of this duty extends not only to rectifying damage caused by normal wear and tear but also to remedying major structural defects resulting from bad workmanship and faulty materials at the time the building was constructed.
The duty is a strict and ongoing responsibility; there is no defence that the owners corporation acted reasonably in the circumstances. As such, section 106(5) provides that any contravention of this responsibility by an owners corporation entitles a lot owner to damages for “any reasonably foreseeable loss”.
Nevertheless, there are circumstances in which an owners corporation will not be required to exercise its duty to repair and maintain common property. These include:
- where, by special resolution, the owners corporation has deemed it inappropriate to maintain, renew or replace the property, and its decision will not impact the safety or detract from the appearance of any property in the strata scheme;
- where, by special resolution, a common property rights by-law ascribes responsibility of repair and maintenance of a specific item or items of common property to a lot owner.
Smith v Owners – Strata Plan No. 3004 [2022] NSWSC 1599
On 28 November 2022, the Supreme Court delivered its judgment in Smith v Owners – Strata Plan No. 3004 [2022] NSWSC 1599.
Background
In 2003, the plaintiffs, Jennifer Ann Smith and Ross Harold Smith (the Smiths) purchased an investment unit in Mona Vale (the Unit) as tenants in common. The Unit was leased until August 2017.
Before re-letting the Unit, Mr Smith decided to replace the existing carpet and upon removing it, discovered damage to the magnesite flooring. Following this discovery, Mr Smith removed a substantial part of the magnesite flooring.
The Smiths commenced proceedings in the Local Court against The Owners – Strata Plan No. 3004 (Owners Corporation), seeking damages for loss of rent from 16 August 2017 to 31 January 2021 pursuant to section 106(5) of the Management Act. The Owners Corporation argued that any loss incurred by the Smiths was the consequence of their unauthorised works to the lot and to the common property.
First instance
At first instance, Magistrate Farnan held that damages for loss of rent were reasonably foreseeable, however, reduced the loss of rent recoverable from the Owners Corporation to a period of three months.
Magistrate Farnan reasoned that although it was reasonably foreseeable that the Smiths would be deprived of some rent due to the failure of the Owners Corporation to maintain the common property, it was not reasonably foreseeable that the Unit would remain vacant for the entirety of the period during which repairs remained outstanding.
Appeal
The Smiths appealed the first instance decision to the Supreme Court in accordance with s 39(1) of the Local Court Act 2007 (NSW) on “an identified question of law”.
The principal issue that was decided on appeal was whether the Magistrate properly construed the words “reasonably foreseeable loss” under s 106(5) of the Management Act.
The Smiths advanced two grounds on which the Magistrate is said to have erred:
- That her Honour erred in construing the words “reasonably foreseeable loss” in s 106(5) of the Management Act as meaning whether or not it was actually unreasonable as a matter of fact for the Owners Corporation not to have foreseen the relevant loss.
- That her Honour erred in finding there was nothing in the evidence to prove on the balance of probabilities that it was reasonably foreseeable that they would not put tenants in the Unit.
Her Honour held that the Magistrate did not misconstrue s 106(5) of the Management Act. The language in the provision is consistent with the method of measuring damages in tort. In reaching the determination, her Honour considered the legislative history and affirmed that there is absent
The Court agreed with the Magistrate that there was nothing hazardous which rendered the Unit unlettable and that the Smiths made a “commercial decision” to leave it empty while the remedial works to the floor were undertaken.
Conclusion
This decision highlights the importance of the duty of owners corporations to repair and maintain common property. However, such a duty is only applicable to a certain extent – lot owners should notify the owners corporation of any defects in the common property as soon as they become aware of them and take reasonable steps to mitigate of such defects.