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.