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Owner Succeeds on Claim for Damages as a Consequence of the Owners Corporation Failing to Properly Maintain Common Property

31/07/2021

Watson & Watson acted for the Lot Owner of a commercial Lot (shop) on the ground floor of a high rise building.

The building consists of two separate Strata Schemes one containing the commercial Lots on the ground floor (“the Commercial Strata”) and the other for the residential tower above the commercial Lots (“the Residential Strata”).

Brief Facts

1.       Our client after purchasing the commercial Lot leased it to an independent tenant for 5 years. 

2.       Shortly after the tenant occupied the shop the shop was inundated with water from above which caused water damage to the Lot.  Water came through the ceiling, windows and flooded the floor on many occasions.

3.       For in excess of a year our client attempted to have the Owners Corporation of the Commercial Strata rectify the situation so there was no water ingress into our client’s commercial Lot.  The Owners Corporation attempted to rectify the water ingress however the action taken by the Owners Corporation did not provide any solution to the water ingress problem.

4.       This caused significant difficulties for the tenant.  The tenant refused to pay rent, and sought rent reduction which was granted.  Notwithstanding the willingness of the Lot Owner to accommodate the tenant’s wishes for rent reduction, eventually the tenant terminated the lease and left the premises.

5.       After the tenant left the premises our client made submissions and pleaded with the Owners Corporation to rectify the building however that was not achieved.  The shop could not be re-let. 

6.       The Lot Owner approached us and we advised as to the obligations of the Owners Corporation to maintain the common property and possible court action to achieve the appropriate orders. 

7,       The obligation to maintain the common property primarily is pursuant to Sections 106(1) and (2) of the Strata Schemes Management Act 2015 (“the 2015 Act”).  Section 106 of the Act provides in part:

“(1)    An owners corporation for a strata scheme must properly maintain and keep in a state of good and serviceable repair the common property and any personal property vested in the owners corporation.

(2)     An owners corporation must renew or replace any fixtures or fittings comprised in the common property and any personal property vested in the owners corporation

(3)     ………

(4)     If an owners corporation has taken action against an owner or other person in respect of damage to the common property, it may defer compliance with subsection (1) and (2) in relation to the damage to the property until the completion of the action if the failure to comply will not affect the safety of any building, structure or common property in the strata scheme.

(5)     An owner of a lot in a strata scheme may recover from the owners corporation, as damages for breach of statutory duty, any reasonably foreseeable loss suffered by the owner as a result of a contravention of this section by the owners corporation.

(6)     ….

(7)     ….

(8)     ….

8.       The Owners Corporation resisted the claim asserting there was a defence pursuant to Section 106(4) of the 2015 Act as the Owners Corporation had commenced proceedings against the Developer for appropriate Court orders seeking rectification of the works and damages.

9.       The matter was delayed and our client continued to suffer losses as it could not let the Shop until the work was undertaken to stop the water ingress.  Accordingly our client sold the Lot which was at a discount.  Our client advised the purchaser of the issues relating to the water ingress. 

Lot Owners Claim

Our client sought to recover its losses including loss of rent, loss of value of the Lot and its legal costs and expenses.  Originally the claim included a request for an order that the Owners Corporation rectify the common property causing or allowing the water ingress.  However once the Owner sold that particular Lot the claim related solely to claim losses including loss of rent, loss of value of the Lot and it’s legal costs.

The Owners Corporation indicated that they would defend the claim on a number of basis one of which was that the Owners Corporation was seeking to pursue the Developer and had commenced legal proceedings against the Developer and accordingly pursuant to Section 106(4) of the Strata Schemes Management Act 2015 the Owners Corporation claimed that they could defer maintaining the common property (which was allowing water ingress to our client’s Lot).

After the sale of the Shop, we had on behalf of the Lot Owner amended the claim and did not claim an order that the Owners Corporation undertake works to prevent water ingress to our client’s Lot.

Issues arose as to the effect of Section 106(4) in particular having regard to the basis of the claim then made by our client against the Owners Corporation. 

The basis of the Lot Owner’s claim was:

(a)      Primarily a claim for damages for breach of the duty set out in Sections 106(1) and 106(2) and under Section 106(5) of the 2015 Act.

(b)      Secondly a claim in nuisance and/or negligence.

We submitted to the Lawyers for the Owners Corporation that Section 106(4) did not apply in those circumstances.  Also we raised the issue as to whether the Owners Corporation could rely upon Section 106(4) as there may have been a risk to safety of the building, structure or common property.

As is usual where a building is divided between more than one Strata Scheme there was a Strata Management Statement which dealt with the provision of common services, the maintenance of areas utilised to some extent by the Lot Owners of each of the two separate Strata Schemes.  The Strata Management Statement provided for such undertakings including responsibility and payment of costs of the services to be provided as to be allocated between the Commercial Strata and the Residential Strata. 

We briefed an expert building consultant who provided evidence and indicated that the defects could have been rectified for approximately $60,000.  In our view this is not the measure of loss as there were other difficulties that arise in particular, our client as a Lot Owner does not have any power to rectify the defects directly.  The Lot Owner’s right is to request or to commence proceedings to obtain appropriate orders against the Owners Corporation requiring the Owners Corporation to rectify the defective works.  Such action is expensive. 

We also briefed a Valuer to consider the matter and following discussions with us the Valuer agreed that the loss of value of the particular strata Lot would be such that it would take into account not only the cost of rectification of defective work but also the cost of obtaining an order that the Owners Corporation undertakes those works.  The costs in this particular case were greater than in some cases having regard to the circumstances where there were two separate Strata Schemes in the same building.

We prepared and served the evidence on behalf of our client who was the Plaintiff bringing the claim to establish its claim which eivdence included:

1.       A statement by the Owner setting out the factual matters giving a history including in particular the history relating to the water ingress to the building over a long period and the effect of that.

2.       Evidence from the Building Consultant as to the cause of the defects and the cost of rectification.

3.       Evidence of the Valuer concerning the value of the loss of rent and loss of value of the Shop.

Following the service of the evidence on behalf of our client we sought a conference with the Lawyers acting on behalf of the Owners Corporation so as to attempt to settle the matter.  Often settlement conferences occur after the Plaintiff files his or her evidence and also after the reply evidence from the Owners Corporation.  However we sought to attempt to settle at that stage.  This reduced the overall costs of our client and of the Owners Corporation.

At the settlement conference the matter was resolved and the Owners Corporation agreed to pay our client a sum to cover:

(a)        The loss of rent.

(b)      The loss of value of the property which was sold; and

(c)        Our client’s costs including legal costs and disbursements.

Our client was happy to be successfully out of the building and having recovered significant losses and has moved on. 

As it happened, the Owners Corporation at the time of settling the matter with our client had not rectified the water ingress into the commercial Lot.  As far as we are aware the Owners Corporation still has not resolved the water ingress issues and one may expect that the current Owner may suffer losses due to the water ingress into the property. 

The factual matters were difficult to ascertain and we have set out a brief summary of those fact above.  The matter required significant investigations as to the causes of the leaks, the means of rectification, the boundaries between the Commercial Strata and Residential Strata and the legal consequences relating thereto and remedies available.

If you have any difficulties in relation to either building works or strata issues or both contact Watson & Watson experienced building and construction, and Strata Lawyers and obtain advice as to how to resolve the issues.  Please contact Richard Watson, Senior Strata Lawyer or his Personal Assistant Shereen Da Gloria to obtain advice in relation to possible avenues available to you to resolve your issues.

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

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