Carpet inside an apartment in a strata building is common property.  So too is paint on the walls and ceiling inside an apartment.  Surely that can’t be right!  But according to two Supreme Court Judges, it is.

Introduction

There are some truths that the strata industry has held to be self-evident for many years.  For example, in the strata industry, it has long been held that carpet inside an apartment in a strata building forms part of the lot and is not common property and that the same can be said for paint on the walls and ceiling inside an apartment.

But sometimes in strata living (as in life) not everything is as it seems.  A recent Supreme Court case makes that clear.

Carpet

In 2021, the owners corporation of a townhouse complex in Tweed Heads South sued the builder of the complex in the Supreme Court for damages arising out of construction defects.  The case was heard by the Supreme Court in May 2024 and on 7 June 2024 the Court published its judgment.

During the course of its judgment, the Supreme Court had to consider whether or not the owners corporation was entitled to recover damages from the builder for consequential damage to carpets inside the townhouses that was caused by defects in the common property that had allowed water to leak into and cause damage to those townhouses including the carpets in them. The builder argued that the carpet inside the townhouses was lot property as a result of which the owners corporation could not claim compensation for the damage to the carpet.

The Supreme Court disagreed.  The Court held that the carpet was installed inside the townhouses before the strata plan was registered and, relying on the Seiwa case, held that the lower horizontal boundary of each townhouse was the upper surface of its floor, namely the carpet.  For these reasons, the Court concluded that the carpet in each townhouse was common property meaning the owners corporation could claim damages for the cost to remove all carpet and underlay and supply and install new carpet to match existing carpet as closely as possible: see The Owners – Strata Plan No. 99960 v SPS Building Contractors Pty Ltd [2024] NSWSC 687.

Cosmetic Work

The conclusion that carpet inside a strata lot is common property will not sit comfortably with many within the strata industry.  That begs the question: did the Supreme Court get it right?

There is an indication in the Strata Schemes Management Act 2015 that it did.  Section 109 of that Act allows an owner of a lot in a strata building to carry out cosmetic work to common property in connection with the owner’s lot without the approval of the owners corporation.  Section 109 provides some examples of cosmetic work including laying carpet.  This indicates that the legislature considered that carpet in a lot forms part of the common property.

Again, this conclusion will still not sit well with many in the strata industry.  So is there any other support for it?

Paint

In 2010, the Supreme Court had to consider a claim by lot owners for damages to cover (among other things) the cost to repair water damage to ceilings and peeling paint work on ceilings in their lot.  The Court concluded that the ceilings and the paint on them were not within the cubic space of the lot and therefore formed part of the common property: see Stolfa v Owners Strata Plan 4366 & Ors [2010] NSWSC 1507.

Again, section 109 of the Act provides support for the conclusion that paint inside a strata lot forms part of the common property.  This is because section 109 says that painting a strata lot is cosmetic work to common property in connection with the lot.

Common Property Memorandum

There is further support for these conclusions in the common property memorandum.  Section 107 of the Act permits an owners corporation to make a by-law to adopt a common property memorandum.  The common property memorandum specifies whether an owner or the owners corporation is responsible for the maintenance and repair of certain common property.

The common property memorandum that has been prescribed under the strata regulations covers paintwork inside a lot including on a ceiling and internal carpeting.  Whilst the common property memorandum allocates responsibility for the maintenance and repair of that paintwork and carpeting to owners, the inclusion of those items in the memorandum lends support to the conclusion that they form part of the common property, as strange as that might seem.

Conclusion

The conclusions reached by the Supreme Court will be surprising to many and turn longstanding thinking in the strata industry about some basic concepts on its head.  Those conclusions are not entirely free from doubt and there is at least one case which goes the other way.  Nevertheless, the Supreme Court decisions should give everyone in the strata industry pause for thought.

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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.

There are more than 85,000 strata schemes in NSW with approximately one in seven NSW residents living in strata apartments and it’s estimated by 2040 this will grow by 50 percent in Greater Sydney!

So, it’s no suprise that the number of people living in strata applying to NCAT for orders to resolve strata disputes has significantly increased by 45% over the last 5 years.

Cases related to water leaks, delays in fixing leaks and claims for compensation for rental loss have played a major role in the growth of NCAT cases.

In this article we take a closer look at the responsibility of an owners corporation to repair common property water leak damage.

The Duty to Repair

Section 106 of the Strata Schemes Management Act 2015 (Act) imposes on an owners corporation a duty to:

(a) properly maintain and keep in a state of good and serviceable repair the common property;

(b) where necessary, renew or replace any fixtures or fittings comprised in the common property.

This duty requires an owners corporation to fix any defects in the common property that are allowing water to leak into a lot.

The Nature of the Duty to Repair

The duty of the owners corporation to maintain and repair common property has been considered in a number of cases.

In those cases, the Supreme Court and NCAT has said that the duty to repair common property:

(a) is compulsory;

(b) is absolute; and

(c) is not a duty to use reasonable care to maintain and repair common property or to take reasonable steps to do so but a strict duty to maintain and keep in repair.

This means that an owners corporation cannot delay any repairs that need to be carried out to fix defects in the common property that are causing water to leak into a lot.  Even if it is impossible to find contractors who are available to repair those defects, that does not provide an owners corporation with a lawful excuse for delaying any necessary repairs to common property.

Other Aspects of The Duty to Repair

There are other aspects of the duty to repair common property that are often overlooked particularly in the case of new buildings or where a tenant damages common property.

The Supreme Court and NCAT have held that the duty to repair common property:

(a) extends to require the remediation of defects in the original construction of the building;

(b) must still be fulfilled even if the owners corporation did not cause the damage to the common property which needs to be repaired.

This means that, in general, an owners corporation cannot blame an original builder or developer for defects in the common property and refuse to fix them.  However, if the owners corporation takes legal action against a builder or developer in respect of defects in the original construction of the common property, then the owners corporation can put on hold its obligation to repair common property defects.

Further, the cases say that even if a person damages the common property, in general, the owners corporation must still repair that damage, even though it may have a right to recover the cost of that repair from the offender.  Alternatively, under section 132 of the Act, the owners corporation can apply to NCAT for an order to require an owner or occupier to repair damage to the common property caused by them.  It appears that if the owners corporation takes legal action against an owner or occupier in NCAT to obtain that order, that allows the owners corporation to put on hold its duty to repair the damage.

Anything Else?

The duty to repair the common property also requires the owners corporation to carry out repairs which are not for the benefit of the majority of owners.  Indeed, the owners corporation is obliged to carry out repairs to the common property that only benefit a single owner.  This means that an owners corporation cannot refuse to repair a leaking window on common property on the basis that the leak only affects one lot.

Is there an Escape Route?

There are generally two ways for an owners corporation to relieve itself from its duty to repair common property (apart from the ways we have discussed above).

First, an owners corporation can pass a special resolution at a general meeting to determine that it is inappropriate to repair a particular item of common property.  This can be done under section 106(3) of the Act but only if the decision will not affect the safety of the building or detract from the building’s appearance.

Second, an owners corporation can make a common property rights by-law that transfers its responsibility for the repair of a particular item of common property to one or more owners.  The by-law needs to be approved by a special resolution at a general meeting.  However, the by-law also needs to be approved by the owners who will be responsible for repairing the item of common property under the by-law.  Often it proves difficult to obtain the consent of those owners.

What about Compensation?

Inclement weather can cause a substantial increase in claims for compensation being made by owners against owners corporations who have failed to repair defects that have allowed water to leak into and cause damage to lot property.  Typically, those claims are made by investor owners for rental loss when the damage to their lots become so severe that the lots are uninhabitable.  But compensation claims can also cover alternate accommodation expenses if an owner occupier is forced to move out of a lot due to damage caused by water ingress, the costs an owner incurs cleaning and repairing lot property (e.g. replacing saturated carpet), experts’ fees and legal costs.  The liability of an owners corporation to pay compensation to an owner is a strict one.

This can make it difficult for owners corporations to defend compensation claims that are made by owners as a result of common property defects that allow water to leak into and damage lot property. Indeed, one Court has remarked that this puts an owners corporation into the position of an insurer.

Conclusion

Even though it may be difficult to find contractors who are able to repair common property defects, that does not provide an owners corporation with a lawful excuse for delaying essential repairs and maintenance.  The duty to repair is a strict one and there are limited exceptions to that rule.  This emphasizes the importance of proactive and ongoing building maintenance to help avoid the problems that many owners corporations are now encountering.

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.