The obligation on an owners corporation (OC) to maintain and repair its common property is one of the most fundamental ones. But what happens if there is common property in disrepair, such as leaks causing serious water ingress, and an owner in the scheme suffers loss as a result? Can the owner claim those losses from the OC?

Before the current 2015 version of the Strata Schemes Management Act (SSMA), the answer to that question depended on the prevailing case law, which moved back and forth. However, in the 2015 version of the SSMA, it is now stated in the SSMA (in s106(5)) that:

1. Yes, owners can claim damages from an OC for failing to maintain common property
2. The loss has to be reasonably foreseeable (eg loss of rent, alternative accommodation, damage to lot property like carpet)
3. Any action has to be brought within 2 years of the owner first becoming aware of a loss (s106(6) of the SSMA), shorter than the usual 6-year rule in general law.

Whilst that might seem straightforward enough, the meaning of that 2-year rule in s106(6) was, earlier in 2023, the subject of proceedings that ended in the Court of Appeal.

The question was how to interpret it. Was it interpretation A or B where?

1. The owner can only sue for the last 2 years of losses that accrued before the proceedings commenced. So if a claim was filed on 31 December 2023, the owner could only sue for losses during 2022 and 2023.  This interpretation argued that it is a rolling 2-year loss, whereby each month’s loss of rent is a new loss, which the owner becomes aware of each month.
2. The point at which an owner first becomes aware they may or will suffer that type of loss is a fixed date, and the proceedings must commence within 2 years of that fixed date. This would operate the same way to defect claims, which have to commence within 2 or 6 years of the date of the occupation certificate (a fixed date).  In both the s106(5) and the defect cases, losses can continue to accrue after the proceedings commence.

Surprisingly, the NCAT Appeal Panel found interpretation A is preferred. However, the Court of Appeal corrected that to interpretation B.

The main concern here is in fact for owners. Many owners may delay commencing proceedings, thinking they have more time up their sleeve than they do, or trying to negotiate with an OC.

The 3 other relevant matters to remember are:

1. These actions should commence in the Tribunal, which has unlimited monetary jurisdiction to hear them (the Vickery Court of Appeal case from 2020).

2. Owners need to mitigate their loss, which means they cannot sit back and allow the losses to accrue, but should take steps to reduce their loss, for example renting their unit at a lower rate. Strictly speaking, there is no obligation to mitigate, the rule is that owners cannot claim losses to the extent it is proven they could have mitigated them.

3. If the 2-year period has expired, it may still be possible for an owner to claim against an OC in nuisance and negligence. In this scenario, the owner would have to prove the OC was aware of the need for repair and failed to take reasonable steps, or acted too slowly, which gives an added layer of proof.

If you would like any assistance with making or defending such a damages claim, please click here.