Can an owners corporation make a by-law that permits it to recover from owners and occupiers of lots costs it incurs as a result of their conduct including breaches of by-laws committed by them?

Since 2022 there have been a series of cases in which NCAT has held that cost recovery by-laws are not enforceable. However, a recent decision of NCAT’s Appeal Panel has breathed life back into cost recovery by-laws.

What is a cost recovery by-law?

A cost recovery by-law is typically a by-law which allows an owners corporation to recover from owners and occupiers costs it incurs as a result of their conduct including breaches of by-laws committed by them.  Under most cost recovery by-laws, an owners corporation is permitted to recover from owners and occupiers costs it incurs repairing damage to common property or cleaning common property as a result of the conduct of owners and occupiers, costs payable to NSW Fire and Rescue for false fire alarm call out fees, insurance excesses, legal costs and other expenses such as costs for a contractor re-attending the building to conduct an annual fire safety inspection where access to lots is initially declined.

Are cost recovery by-laws valid?

Since 2022, NCAT has handed down at least 6 decisions in cases in which it has held that cost recovery by-laws are not enforceable. In those cases, NCAT generally concluded that costs recovery by-laws are not valid because they:

(a) are inconsistent with the regime in the Strata Schemes Management Act 2015 under which any costs and expenses incurred by an owners corporation are payable by all owners (rather than some owners) in shares proportional to the unit entitlements of their lots;

(b) they are harsh and unenforceable because they do not require the costs that are recoverable by the owners corporation to be reasonably incurred or reasonable in amount;

(c) they do not allow owners and occupiers to challenge the costs claimed by owners corporations under them.

There were some cases in which NCAT upheld cost recovery by-laws or aspects of them but those cases were in the minority.  Consequently, it has generally been accepted that cost recovery by-laws either are not valid or are of dubious validity.

What has changed?

On 15 May 2025, the Appeal Panel of NCAT handed down its decision in Gokani-Robins Pty Ltd v The Owners – Strata Plan No. 77109 [2025] NSWCATAP 107.  In that case, a lot owner appealed against NCAT’s decision to dismiss their application to have a cost recovery by-law declared invalid.  Relevantly, the cost recovery by-law in that case permitted the owners corporation to recover from owners and occupiers costs it incurred arising from false fire alarms, work required to repair or upgrade a component of a fire safety system inside any lots, a failure by an owner or occupier to give access to their lot when required by the owners corporation or a breach of a by-law by them.  The by-law also permitted the owners corporation to record costs recoverable from owners on section 109 (now section 184) certificates.

The owners corporation amended the cost recovery by-law in November 2023 to remove the part of the by-law that rendered an owner who owed money under the by-law unfinancial and unable to vote at a general meeting and, importantly, to make clear that any costs claimed by the owners corporation under the by-law could only be recovered from owners and occupiers in accordance with a determination of a Court or Tribunal of competent jurisdiction on the reasonableness of those costs.

Are cost recovery by-laws now valid?

NCAT dismissed the owner’s application to declare the by-law invalid and the Appeal Panel dismissed the owner’s appeal against that decision.  NCAT concluded that the cost recovery aspects of the by-law were not harsh, unconscionable or oppressive or otherwise invalid. The Appeal Panel agreed.  Essentially the Appeal Panel agreed with NCAT that the by-law was not harsh or otherwise invalid because:

(a) the by-law simply required an owner or occupier to indemnify the owners corporation in respect of costs incurred by the owners corporation because of the act, negligence or omission of the owner or occupier or his or her failure to give access to their lot;

(b) any costs claimed by the owners corporation under the by-law could only be recovered in a Court or Tribunal of competent jurisdiction which would give an affected owner or occupier the right to dispute his or her liability to pay those costs and the reasonableness of those costs;

(c) any determination by the owners corporation about the costs an owner or occupier was liable to pay under the by-law was not conclusive and could be overturned by a Court or Tribunal of competent jurisdiction;

(d) the power given to the owners corporation to make by-laws under the Strata Schemes Management Act 2015 is broad and extends beyond the model by-laws which only deal with a handful of topics;

(e) the by-law dealt with an important topic, namely fire safety in a strata building, and the owners corporation has a broad power to make by-laws including by-laws that deal with fire safety and, implicitly, the recovery of costs from owners and occupiers in relation to fire safety matters.

The Appeal Panel did not explicitly consider the previous decisions by NCAT which had invalidated cost recovery by-laws.

Conclusion

The Appeal Panel’s decision in Gokani-Robins breathes life back into cost recovery by-laws and demonstrates that, in some circumstances, it is possible for an owners corporation to have in place valid and enforceable cost recovery by-laws.  The case also provides some guidance on the way in which cost recovery by-laws should be drafted to maximise their enforceability.

DO YOU REQUIRE A COST RECOVERY BY-LAW? CLICK HERE NOW!

Adrian Mueller I BCOM LLB FACCAL I Partner

Since 2002 Adrian has specialised almost exclusively in the area of strata law. His knowledge of, and experience in strata law is second to none. He is the youngest person to have been admitted as a Fellow of the ACSL, the peak body for strata lawyers in Australia. Profile I Linked

Contact Us

For all strata law advice including by-laws, building defects and levy collections contact our specialist NSW and Sydney strata lawyers here or call 02 9562 1266, we’re happy to assist.

Fire Orders and Cost Recovery By-laws

An owners corporation is only responsible for the common property in its strata scheme.  So how does an owners corporation deal with a fire order that requires it to do work to lot property?  Can a Council issue a fire order against an owners corporation to do work to lot property? If so, can the owners corporation make a by-law to recover from owners the costs it incurs doing fire safety work in their lots? The answers might surprise you.

Strata Law

An owners corporation is the owner of the common property it is strata scheme.  The owners corporation is responsible for managing and controlling the use of the common property and maintaining and repairing the common property.  Those obligations arise under the Strata Schemes Management Act 2015 (Strata Act).

An owners corporation does not own the lots in its strata scheme, and under that Act, the owners corporation has virtually no responsibility in relation to any of the lots.  This is because the lots are privately owned and the owners and occupiers of the lots are generally responsible for managing and maintaining them.  So, under the Strata Act, the owners corporation is generally not responsible for maintaining and repairing lot property.  Further, in general, the owners corporation is only able to adopt budgets and raise levies to cover expenses associated with the common property, not lot property

Fire Orders

But what happens when a Local Council issues a fire order that requires an owners corporation to carry out work to both common property and lot property.  Does the Council have power to issue that order? And does the owners corporation have power to comply with the order and do work that affects lot property?

Planning Laws

The Environmental Planning and Assessment Act 1979 (EPA Act) gives a Local Council power to order the owner of premises to do things that are specified in the order in order the promote adequate fire safety in a building when provisions for fire safety in the building are inadequate to prevent, suppress or prevent the spread of fire.  The EPA Act says that premises include a building and that an owner includes, in the case of land that is the subject of a strata scheme, an owners corporation.  Therefore, the EPA Act gives a Local Council power to order an owners corporation to carry out work to improve fire safety to both common property and lot property.

Case Law

This was confirmed by the NSW Court of Appeal as long ago as 1985.  In 1985, the Court decided the case of Proprietors of Strata Plan 159 v Parramatta City Council.  In that case, the Council had issued a fire safety order to the owners corporation of a strata building which required the owners corporation to carry out fire safety upgrades principally in two lots which were to be used as a restaurant.  The owners corporation challenged the order and argued that the order unfairly burdened other owners with the costs of carrying out fire safety upgrades predominately to those two lots.  However, the Court concluded that the statutory language was clear in permitting a Council to issue a fire order against an owners corporation that required work to be done to lot property.  The Court acknowledged that this meant that sometimes the costs of complying with a fire order would be shared by all of the owners even when the need for fire safety upgrades was confined exclusively to the lots of some of the owners which may seem inequitable.

But the Court considered that there were two answers to this problem.  First, if the legislation clearly allowed a fire order to require an owners corporation to do work to lot property the mere fact that might produce a sense of injustice between owners was not a reason for the Court frustrating the clearly expressed intention of the legislature and it was a matter for the Parliament to change the legislation to overcome any unfairness if it saw fit to do so.  Second, fire is a phenomenon which endangers all owners and occupiers of lots meaning all owners have a common interest in fire prevention and fire safety.  This meant that it made sense for the legislation to allow the Council to issue one fire order against the owners corporation rather than have to issue and monitor compliance with multiple fire orders against numerous parties.  Ultimately, the Court considered that it was in the common interest of all owners for the Council to have the power to issue the fire order against the owners corporation.  The Court’s decision has recently been referred to with approval by NCAT.

Recovery of Costs

If a Council can require an owners corporation to carry out fire safety upgrades to lot property, can the owners corporation recover the cost of performing those upgrades from the relevant owners?  There is no clear answer to that question.  Many owners corporations have introduced cost recovery type by-laws that purport to allow them to recover costs from owners in a variety of circumstances.  There have been several recent cases in which NCAT has invalidated cost recovery type by-laws.  But there are also cases where NCAT has upheld cost recovery type by-laws. Ultimately, if an owners corporation wants to seek to recover from certain owners the costs it incurs carrying out fire safety upgrades in their lots, a cost recovery type by-law will need to be put in place but there may be difficulty enforcing the by-law.

Conclusion

A Council is entitled to issue a fire order against an owners corporation that requires fire safety upgrades to be carried out to lot property.  Where that occurs, the Strata Act gives the owners corporation the right to enter the lots in order the do the work required by the fire order.  If an owners corporation wants to recover the costs it incurs carrying out fire safety upgrades in a particular lot, a cost recovery type by-law will need to be put in place for that purpose.  However, NCAT has recently raised question marks over the validity of cost recovery type by-laws so the recovery of those costs cannot be guaranteed.

Adrian Mueller I BCOM LLB FACCAL I Partner

Since 2002 Adrian has specialised almost exclusively in the area of strata law. His knowledge of, and experience in strata law is second to none. He is the youngest person to have been admitted as a Fellow of the ACSL, the peak body for strata lawyers in Australia. Profile I Linked

Contact Us

For all strata law advice including by-laws, building defects and levy collections contact our specialist NSW and Sydney strata lawyers here or call 02 9562 1266, we’re happy to assist.

A recent decision of the Appeal Panel of the NSW Civil & Administrative Tribunal (NCAT) has highlighted the potential risks for owners corporations seeking to impose penalties and other sanctions on lot owners in connection with non-compliance with by-laws.

Careful attention will need to be paid by owners corporations to “cost recovery” aspects of their by-laws to ensure that an otherwise well constructed by-law is not rendered completely invalid.

Here we share a recent case where NCAT Tightens the Screws on Strata By-laws.

Owners corporations who have these by-laws should give consideration to having them reviewed.

For all NSW strata legal advice including by-laws, building defects and levy collections contact us here or call 02 9562 1266, we’re happy to assist.

In this article, we take a look at The Top 5 By-laws for 2021 and discuss the trends with respect to changes to the by-laws.

For all NSW strata legal advice including by-laws, building defects and levy collections contact us here or call 02 9562 1266, we’re happy to assist.