Strata Lease of Property – Defective Work Claims by Owners Corporation

20/01/2018

When one buys a unit, townhouse or villa in New South Wales, one usually acquires an interest in a Strata Scheme.

Strata Scheme lots are covered by Strata Scheme Management legislation such as the Strata Schemes Management Act, 2015 (SSM Act 2015) in New South Wales.

This legislation provides that an owner of a strata unit holds title in a lot within the strata.  All the lot owners together comprise a Body Corporate entitled “The Owners Strata Plan number X” (X being the registered number of the Strata Scheme).  The building and land the subject of the Strata Plan consists of the lots and other property, namely the common property.  The legislation sets out which parts of the building are owned by the lot owners.  All other parts of the Building forms part of the common property.  The Body Corporate owns the common property.

There is however a variation to the type of ownership of Strata Scheme property, which is “strata leasehold”.  The difference between the usual type of strata ownership and strata leasehold is that a person does not own a lot freehold but instead owns the lot on a leasehold basis.  The lease is for a limited term, for example for 99 years.

The strata leasehold ownership exists where for example, the owner of a unit block causes a strata plan to be created over the units and then only sells a leasehold interest in the units to purchasers.  This means that the owner retains the freehold interest in the unit.

Alternatively the owner of freehold land may lease a part of the land and approve the construction of units to be subject to strata by way of subleases.

Strata leasehold ownership is common for example in retirement villages.  There are other strata leasehold ownership which is less common for example where a proprietor either the Government or usually a large institution such as a Church is the owner of the freehold of the property and leases sections or part of the land upon which the buildings are constructed.  For example at Thredbo or Perisher in the snowfields or at Manly where some freehold land is owned by the Catholic Church.  The buildings often include “a strata unit complex”.  The individual lot owners are leasehold owners of those lots, the Body Corporate is a leasehold owner of the common property.

There are many different Acts that apply in relation to buildings and the construction of buildings including for example, the Home Building Act which applies to residential buildings constructed for example in New South Wales.

The Home Building Act contains within it many sections to protect the person or entity for whom the building is being constructed.  One example is the statutory warranties which are incorporated into all relevant Construction Contracts.   The subsequent owner from the original entity for whom the building was constructed receives the benefit of the Statutory Warranties in certain circumstances where there is a failure to construct in accordance with the Statutory Warranties.

Builders and Developers may be liable for breaches of Statutory Warranties.

One issue that arises is who falls within the definition of the Developer who may be liable under the Home Building Act.  This arises in circumstances for example leasehold at the snowfields, leasehold areas for example at Manly which land is owned by the Catholic Church and other similar leasehold properties.

The entity liable for breach of the Statutory Warranties for example as the Developer is not necessarily the entity who is referred to as the “Developer” of the property.

Usually in such developments there is documentation which sets out the relationship between the parties and their contractual obligations.  We have reviewed contractual documentation on various occasions and can indicate that a reference in a Contract to an entity being a Developer is not a guarantee that that entity named as a Developer will be responsible for breach of the Statutory Warranties, as a “Developer” under the Home Building Act.  Care needs to be taken to ascertain which of the entities are liable and in which capacity pursuant to the provisions of the Home Building Act and any contractual basis.

There are many other circumstances in which one needs to be careful and properly consider the legal implications having regard to the “leasehold” strata as distinct from the “common” strata where buildings are constructed and the Owners Corporation is the registered Proprietor of the freehold common property rather than the leasehold common property.

If you are the Owners Corporation or the Strata Committee or an Owner of a lot within a leasehold strata or you are involved in any such development there may be issues relating to the rights against you or by a third party.  Please contact Watson & Watson Building and Construction and Strata Lawyers by telephoning Richard Watson or his Personal Assistant Shereen Da Gloria to discuss the matter and the rights of the various parties.

This is only a preliminary view and is not to be taken as legal advice without first contacting Watson & Watson Solicitors on 02 9221 6011.

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