Who Pays the Compensation?

When an owners corporation is ordered to compensate an owner, who pays that compensation?  The owners corporation, right?  A recent decision by NCAT’s Appeal Panel produced a surprising answer to that question.

Introduction

An owners corporation has a statutory duty to properly maintain and keep in good repair the common property.  This duty arises under section 106 of the Strata Schemes Management Act 2015.  If an owners corporation does not repair defects in the common property, it will breach that duty.  Where that occurs, a lot owner who suffers monetary loss arising from that breach is able to sue the owners corporation to recover that loss.

Previous Cases

There have been a number of cases where both NCAT and the Supreme Court have ordered owners corporations to pay compensation to owners to cover their losses arising from failures to repair defects in common property that typically allow water to leak into and cause damage to lots. In those cases, owners have been awarded compensation for rental loss, alternate accommodation expenses, cleaning costs, repair costs, experts’ fees and legal costs.  But when an owners corporation is ordered to compensate an owner for those losses, who ends up paying that compensation? The answer to that question should be straightforward, right? Not so.

NCAT Case

On 30 November 2021, NCAT’s Appeal Panel handed down its decision in SP 74698 v Jacinta Investments Pty Ltd [2021] NSWCATAP 387.  In that case, an owner had sued an owners corporation for (among other things) compensation to cover the owner’s losses that arose from an owners corporation’s breach of its duty to repair common property.  The owner was successful and was awarded over $250,000.00 in compensation.  NCAT also ordered that the compensation be paid through a contribution that was levied on all owners except the successful owner who won the case.  The owners corporation appealed against that aspect of NCAT’s decision (and others). NCAT’s Appeal Panel upheld the decision.  The Appeal Panel concluded that it would be unjust for the successful owner to have to contribute towards the payment of the compensation the owners corporation had been ordered to pay the owner.  This meant that the owners corporation was required to levy a contribution on all owners (apart from the successful owner) to raise the funds needed to pay the compensation it was ordered to pay.  The owners corporation was also ordered to pay the owner’s costs of the case and those costs were determined to be payable through a contribution to be levied on all of the other owners.

The Wash Up

The Jacinta Investments case provides an example of one of the rare circumstances in which an owners corporation is able impose a differential levy on some but not all owners.  The case also highlights that individual owners can be made liable to pay compensation that an owners corporation is ordered to pay to another owner to cover any damage or loss the owner suffers where the owners corporation does not fulfill its responsibility to repair common property.

The Future

The Jacinta Investments case has broader implications.  It opens the door for owners to argue in legal proceedings in NCAT that they should not be required to contribute to the payment of costs an owners corporation will incur repairing common property or consequential damage to lot property.  So, for example, where an owner sues an owners corporation in NCAT for an order to force the owners corporation to repair common property defects and water damage to the owner’s lot caused by those defects, the owner may now be able to obtain an order from NCAT excusing the owner from having to contribute to a levy that is raised to pay for those repairs.  Stay tuned because there is likely to be another chapter to this story.

Author I Adrian Mueller, Partner I B.Com LLB FACCAL.

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Relevant for Any Owners Corporation with Combustible Cladding on Their Building.

On 18 October 2021, the NSW Supreme Court delivered a landmark judgment in the case of Taylor Construction Group Pty Ltd v The Owners – Strata Plan No. 92888 [2021] NSWSC 1315, confirming that biowood cladding is combustible cladding that poses a risk of fire spread between levels on the façade of an apartment building. Muellers represented the successful owners corporation in NCAT and also in the Supreme Court – a WIN for all owners corporations.

Senior Lawyer, Faiyaaz Shafiq, JS Mueller & Co Lawyers, said, “The outcome of the case represents a major win for owners corporations strengthening the basis for claims by owners corporations against builders and developers who have installed combustible cladding on their buildings.”

“I have no doubt it will see a marked shift in the way in which builders and developers respond to combustible cladding claims”, said Faiyaaz.

The owners corporation initially commenced proceedings in NCAT against the builder and developer seeking orders that biowood cladding installed on the façade of its building be replaced or compensation be paid to cover the cost to replace the cladding.

The owners corporation claimed that the cladding was combustible or created an undue risk of fire spread in breach of the statutory warranties under the Home Building Act 1989 because it did not comply with the Building Code of Australia and was not fit for its purpose.

NCAT ordered that the defective biowood cladding be rectified by the builder and developer. The builder/developer appealed NCAT’s findings to NCAT’s Appeal Panel which dismissed the appeal.

The builder/developer then appealed to the NSW Supreme Court.

The NSW Supreme Court on 18 October 2021 gave a comprehensive judgment dismissing the appeal. In doing so, the Court accepted the owners corporation’s arguments that:

1. biowood cladding is combustible;
2. there is a risk that fire will spread beyond the floor of origin because the material from which the biowood is made will support fire spread between the levels of the building;
3. there was evidence from the fire safety engineer of the owners corporation that there is an undue risk of fire spreading due to the biowood;
4. there was no evidence to support the contention of the builder/developer that a slower rate of fire spread does not present an undue risk in comparison with a higher rate of spread; and
5. there was evidence that sprinklers or any other fire safety measure would have no relevance to external fire spread.

Furthermore, the Court also agreed with the owners corporation’s submission that combustible cladding is not fit for purpose which is one of the categories of the statutory warranties under the Home Building Act 1989.

The Court has reaffirmed the view that the fundamental fire safety requirement for a class 2 apartment building requires external walls to be non-combustible, and cladding installed in a multi-storey apartment building which does not comply with the BCA is not suitable for the purpose for which it is used.

The Court’s judgment confirms the view the owners corporation always held that biowood poses an unacceptable fire safety risk.

The Court’s judgment is a landmark ruling that is relevant to any owners corporation that has combustible cladding on its building.

The ruling strengthens the basis for claims by owners corporations against builders and developers who have installed combustible cladding on their buildings and should see a marked shift in the way in which builder and developers respond to those claims.

Note: Faiyaaz Shafiq of JS Mueller & Co Lawyers acted for the successful owners corporation and was assisted by barristers Tom Davie and Anita Power of Queen’s Square Chambers.

If you or your owners corporation require advice about combustible cladding, please contact our expert team now.

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 last week’s newsletter article, we reported on a recent NCAT case in which an owners corporation was ordered to repair damage to lot property caused by a common property roof leak.

Our article generated considerable interest. The NCAT decision begs the question: Is an owners corporation responsible for repairing lot property?

In this article, we take a closer look at that issue and consider whether the NCAT case we reported on last week (Mastellone v The Owners – Strata Plan No. 87110 [2021] NSWCATAP 188) was correctly decided.

Read the full article Is an Owners Corporation Responsible for Repairing Lot Property?

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.

The NSW Government has recently established a Cladding Taskforce known as ‘Project Remediate’.

This Taskforce will:

• Identify residential buildings with potential combustible cladding issues
• Address the use of non-compliant cladding materials with local councils

As of February 2021, 185,000 building records have been audited by the Taskforce with 4,127 buildings inspected.

It is important to note that not all cladding is dangerous. Fire + Rescue NSW (FRNSW) have been engaged to assist the Taskforce in determining building risk. Those buildings considered a higher risk will be further referred to consent authorities such as their Local Council or the Department of Planning, Industry and Environment (DPIE) for further investigation.

Register your interest in ‘Project Remediate’ here.

What is ‘Project Remediate’?

‘Project Remediate’ is a 3 year program designed to help remove combustible cladding from eligible residential buildings who will receive:

• Interest free loans over a 10 year period with loan payments commencing after the completion of work
• Assurance and project management services offering technical, risk and practical support to owners corporations and strata managers
• A free 2-hour course on Project Remediate (free until 30 September 2021, following a fee of $140.00 will apply). This course is designed for strata managers and committee members of affected buildings to help them explain ‘Project Remediate’ to lot owners, to enable lot owners to make informed decisions.

Who is Eligible for ‘Project Remediate’?

To be eligible for ‘Project Remediate’ support, the building must be either:

• A residential apartment building (Class 2) located in NSW approved by the Taskforce to have a high-risk combustible cladding façade which requires remediation
• A multi-use building which has part commercial/residential located in NSW approved by the Taskforce to have a high-risk combustible cladding façade which requires remediation

Do you need More Information on ‘Project Remediate’?

For more specific information please visit:

• Strata, Building, Property and Maintenance Managers
• Lot Owners and Landlords
• Real Estate and Property Managers
• Register your interest in ‘Project Remediate’ here.

Do You Need Further Assistance with Combustible Cladding Issues?

Combustible cladding (and building defects) is a complex area of the law.

The team at JS Mueller & Co Lawyers has unparalleled knowledge and experience dealing with many cases in this complex area of the law.

JS Mueller & Co Lawyers published flammable cladding cases:

• Muellers Win First Cladding Case in NSW
• Apartment Owners Win Legal Victory Over Combustible Cladding
• Faiyaaz Shafiq, Wins Landmark Ruling On Apartment Building Risk
• Builder Loses Lawsuit and Must Replace Flammable Laminates on the Exterior Walls of Residential Building
• Apartment Owners Face Millions of Dollars in Re-cladding Bills in Landmark Ruling
• Undue Fire Risk: Wood Cladding Used on Hundreds Of Buildings Including McDonalds Ruled ‘Combustible’
• NCAT Confirms Biowood is Combustible
• NCAT Rules Biowood Cladding is Combustible
• The Combustible Cladding – You Don’t Know About

If you would like assistance with flammable cladding (and/or building defect) issues, please contact us now, we are here to help you.

Did you know there are 81,717 strata schemes registered in NSW and every year this number grows by more than 1,000 across Sydney and regional NSW?

That’s why the NSW government has recently recognised the importance of strata living laws and the need to ensure that they stay relevant and address some fundamental issues that have arisen since the laws were re-written in 2015.

An online survey has been developed and the NSW Government is asking you to ‘have your say’ here now.

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

NSW government launches new building defects guide.

The ‘Strata Defects Rectification Guide’ has been developed as a first point of call for current and future lot owners and stakeholders such as strata managers concerned about defects.

The online tool provides vital information helping to navigate the process of identifying, documenting, reporting and rectifying building defects in strata schemes.

Access to the guide is available here Strata Defects Rectification Guide

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

There have been a number of important key changes made to strata laws over the last 6 months.

This includes changes to legislation and recent court and NCAT decisions.

In this article we provide an overview of those key changes to help you get across them and make recommendations as to what you should do get the most out of them and to ensure you comply with them.

The article covers the following strata law key changes:

• Building Defects – duty of care
• Removing abandoned goods and illegally parked cars – the new rules
• Developer and common property rights by-laws
• No pets by-laws
• NCAT – can now award damages
• COVID-19 – strata regulations extended
• Short term rental accommodation – mandatory code of conduct

The full article and recommendations are available here An Overview of Recent Key Changes to Strata Law

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

New building defects laws which commenced in June 2020 received considerable media attention.

Those laws are contained in the Design and Building Practitioners Act 2020 and impose on builders and others involved in the construction of apartment buildings a statutory duty of care to avoid loss caused by defects.

The new laws give owners corporations greater powers to make defects claims against builders and others.

However, a recent case which dealt with another statutory duty of care highlights some of the issues that will confront an owners corporation which makes a defects claim under the new laws.

In this article we take a look at that case and explain what relevance it has to defects claims that will be brought by owners corporations under the Design and Building Practitioners Act 2020.

The full case can be read here Building Defects Claim Duty of Care

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

On 10 June 2020, the New South Wales Government made new laws regulating the construction of apartment buildings.

Those new building defect laws commenced on 1 September 2020 and will have a significant impact on all owners corporations and the strata industry.

In this paper we discuss the new laws and how they will impact the strata industry including:

• Occupation Certificates
• Stop Work Orders
• Rectification Orders
• Delegation of Powers
• Retrospectivity

Read the full paper here: New Laws that will have a significant impact on the Strata Industry.

For all NSW strata legal, by-law, building defect and levy collection advice contact us here or call 02 9562 1266, we’re happy to assist.

The NSW Building Commissioner, David Chandler, is asking for people to come forward with legitimate complaints about building defects – inclusive of waterproofing and structural issues.

His aim is to clean up the building and construction industry getting rid of dodgy builders. The more people that file legitimate building defect complaints the quicker this will be addressed.

Common Apartment Building Defects

•  Internal Water Leaks
• Cracking to Internal Structures
• Cracking to External structures
• Water Penetration from Outside
• Guttering Faults
• Tiling Problems
• Defective Plumbing
• Inappropriately Installed Materials
• Combustible Cladding

To lodge your building defect complaint please click here Building Commissioner

Take Your Building Defect Stress Away

Our strata lawyers have extensive experience resolving strata building defect disputes relating to work within strata and community schemes.

We firmly believe that timely and effective advice takes the stress out of strata building defect claims and will achieve the best possible result for you.

If you need assistance with any of the following please contact us now.

• Submitting Building Defect Complaints and/or Claims
• Resolving and Managing Building Defect Complaints and/or Claims
• Security of Payment Claims
• Building and Construction Litigation
• Advice on Statutory Warranty Periods
• Home Building Compensation Fund Insurance Claims
• 10-year Retrospective Building Defects Law Advice
• Assistance with Alternative Dispute Resolution
• Expert Determination
• Drafting Building and Remedial Works Contracts
• Building Bond Advice
• Cladding Defect Advice
• Home Building Act 1989 Advice

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