Can an owners corporation deliberately decide not to repair an item of common property? If so, what criteria must be satisfied before the owners corporation can validly make that decision? In a relatively recent case, NCAT’s Appeal Panel provided guidance on that issue.

Duty to Repair Common Property

An owners corporation has a duty to repair all of the common property in its strata scheme under section 106(1) of the Strata Schemes Management Act 2015 (Act).  This duty is compulsory, not optional.  The duty is also a strict one.  This means that the owners corporation must immediately fix any defects in the common property, not take reasonable steps to do so.

Consequences of a breach of duty

The consequences for an owners corporation breaching its duty to repair common property can be serious. Any owner who is affected by the breach of duty can apply to NCAT for orders to force the owners corporation to carry out repairs to the common property and pay compensation to the owner to cover any reasonably foreseeable loss the owner suffers because of the breach of duty. There have been numerous cases in which NCAT has awarded owners substantial amounts of compensation as a result of an owners corporation’s failure to repair defects in common property. The compensation awarded by NCAT to owners has included rental loss, alternate accommodation expenses, cleaning costs, costs to repair damaged lot property, experts’ fees and legal costs. Those amounts can be awarded to an owner as damages under section 106(5) of the Act.

Exemption from the Duty to Repair Common Property

Given the serious consequences for an owners corporation that fails to repair common property, the question that arises is whether an owners corporation can legally, deliberately decide not to repair an item of common property. The answer to that question is “yes”.

Section 106(3) of the Act allows an owners corporation to pass a special resolution at a general meeting to deliberately decide that it will not maintain or repair a particular item of common property.  But there are some criteria that must be met in order for the owners corporation’s decision to be a valid one. First, the owners corporation must determine, when making its decision, that the decision will not affect the safety of, or detract from the appearance of, any property in the strata scheme. Second, there must not be any by-law in place that makes the owners corporation responsible for the maintenance or repair of the particular item of common property.

Where the owners corporation makes a decision, by special resolution, not to maintain or repair a particular item of common property, in compliance with those criteria, section 106(3) of the Act operates to exempt the owners corporation from its strict duty to repair the item of common property.

Can a Decision Not to Repair Common Property be Challenged?

A decision made by an owners corporation not to repair a particular item of common property can be challenged by an aggrieved owner.  However, the grounds for that challenge are limited. An owner can apply to NCAT for an order to set aside or overturn the decision where, for example, the owners corporation did not consider, when making its decision, whether the decision would affect the safety of the building or detract from its appearance or where the decision is unreasonable or is made for an improper purpose (e.g. a fraud on the minority) or where the owners corporation fails to take into account a relevant consideration or takes into account irrelevant considerations when making the decision.

The Case

Morrison v Neighbourhood Association DP No. 285032 [2024] NSWCATAP 18 concerned a decision by a Neighbourhood Association to decide, by special resolution, that it would not maintain and repair a trotting track on neighbourhood property. That decision was made under the equivalent provision in the community schemes legislation to section 106(3) of the Act. Mr and Mrs Morrison were lot owners in the neighbourhood scheme and they were aggrieved by the Neighbourhood Association’s decision. They applied to NCAT for orders to force the Neighbourhood Association to do work to maintain and repair the trotting track.

Mr and Mrs Morison were unsuccessful and they appealed against NCAT’s decision.  Their appeal was dismissed. The Appeal Panel observed that once the Neighbourhood Association had made the decision, by special resolution, not to maintain or repair the trotting track, and that decision was made in accordance with the requirements of the equivalent provision to section 106(3) of the Act, that relieved the Neighbourhood Association from its duty to maintain and repair the trotting track.

Importantly, the Appeal Panel held that because Mr and Mrs Morrison did not seek to challenge or set aside the special resolution the Neighbourhood Association had passed to determine not to maintain or repair the trotting track, there was no basis for NCAT to order the Neighbourhood Association to do so.

What is also important is the Appeal Panel’s decision that in order to satisfy the criteria in the equivalent to section 106(3) of the Act that the decision not to maintain or repair an item of common property will not affect the safety or detract from the appearance of the scheme, all the Association needed to do was consider those issues and determine, by special resolution, when making its decision, that the decision would not affect the safety or detract from the appearance of the scheme. The Appeal Panel said that there was no basis for NCAT to embark on an inquiry to determine whether or not, as a matter of fact, it was correct for the Association to determine that its decision would not affect safety or appearance of the scheme. This means that the grounds for an owner to challenge a decision by an owners corporation or association not to maintain or repair an item of common property are extremely limited.

Conclusion

The Morrison case confirms that an owners corporation or association has a broad power to decide not to maintain and repair an item of common property and when it validly exercises that power, the duty to maintain or repair that item of property no longer applies, and it is difficult for an aggrieved owner to successfully challenge that decision. In practice, owners corporations rarely make determinations, by special resolution, not to maintain or repair specific items of common property. This is surprising given the strict nature of the duty to repair common property that is imposed on every owners corporation in New South Wales and the serious consequences that can arise for an owners corporation when that duty is breached.