By-laws Owners Renovations to lots do you give or accept indemnity?

15/08/2018

Often lot owners wish to change or renovate their units which generally involves some connection and changes to the common property.  Common renovations include:

1.        Renovating a bathroom.

2.        Removing internal walls.

3.        Changing the floor finishes.

The Strata Schemes Management Act 2015 (SSM Act 2015) provides that one can pass a common property rights by-law to confer on the owner(s) exclusive use to enjoyment of the common property which is necessary to enable most renovations to take place.  We have briefly referred to this in our article on rules and management of strata schemes.

A common property by-law must provide for the maintenance of the property by either the Owners Corporation or the owners of the lot.  It is almost universally accepted that the maintenance is to be the responsibility of the owner of the lot that benefits from the by-law.  Most Owners Corporations will require an indemnity from the Lot owner seeking the benefit of the by-law.  This of itself may not be adequate for the lot owner or the Owners Corporation.

A vexed question which has not been considered by most owners involved is whether a lot owner will provide an indemnity in relation to losses or damages as a result of the lot owner undertaking renovations.

Similarly one needs to consider whether it is sufficient for the Owners Corporation to accept an indemnity without consideration of the further aspects of the matter.

Very little consideration is given by purchasers of renovated units as to the liabilities they may accept having regard to the by-law that applies to the works which resulted in the renovations.  One needs to carefully consider this at the time of purchase of a unit.  When we are approached by owner(s) who have acquired a renovated unit the owner(s) is usually not aware as to whether there is a by-law by which the owner has given an indemnity.

One also needs to consider this carefully at the time of a proposal for works to be carried out either by you as the lot owner or by others.

For example if you are on the top floor of a 3 storey building and the owner of the unit on the ground floor undertakes works and has given you an indemnity against all claims is that adequate?  Firstly if there is a catastrophic failure, resulting in serious cracking to many of the units in the building it is unlikely that the Owner of that ground floor unit that has caused the damage has sufficient assets to cover the damage that has occurred.  One should consider the issue of insurance as well as the indemnity.

When we have been asked to advise an owner who is seeking for example, the removal of a wall between a kitchen and dining room most often after receiving our advice, the person reconsiders the extent of the renovation work.  We recommend that great care be given to the construction of the renovation to ensure that there is little risk of failure of the renovations and damage to other lots and common property.

It is more important to carry out the work in a “over engineered” manner in a strata building where the lot owner provides an indemnity for losses to all other lot owners and the common property then you might undertake in a single dwelling.

As a separate means of reducing the risk one should consider the extent of the works and whether a change in the works can reduce the risk.  Often lot owners who initially approach us seek to open up a wall between a kitchen and a dining room and will reduce the size of the opening and many leave a nib wall which will assist in the maintenance of the structure rather than take a greater risk.

One option that is rarely considered by the lot owners or Owners Corporation is to obtain appropriate certification of the works and to obtain additional insurance to cover those additional works.  We recommend that the lot owner and the Owners Corporation together take out the additional insurance with the insurer who is insuring the Owners Corporation’s common property even if the additional premium is to be paid by the lot owner.

If you are proposing to renovate your strata lot and are unsure as to the requirement or extent of indemnity you may be required to provide to the Strata Scheme and other lot owners or you have any concerns in this regard and wish to consider these issues please contact Richard Watson Senior Strata Solicitor or his Personal Assistant Shereen DaGloria to discuss the matter.

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.