Monthly Archives: June 2011

Affordable units keep outperforming houses

Over the past 12 months unit values have increased by 0.1% across the combined capital cities compared to a value fall of -2.0% for houses. In fact, unit values have increased at a rate faster than house values for most of the past five years as home buyers search for more affordable housing options.

RP-Data-2011-300x187

According to the RP Data-Rismark Home Value Index, unit values across the combined capital cities have increased at an average annual rate of 6.3% over the past five years compared to growth of 5.7% for houses. More recently, the 12 months to April 2011 have seen unit values increase by 0.1% while house values have fallen by -2.0%.

Thanks to RP Data for this Article.

Application of proportionate liability to the statutory warranties

The proportionate liability provisions in Part 4 of the Civil Liability Act 2002 (“CLA”) apply to claims for breach of statutory warranty under the Home Building Act 1989 (“HBA”), according to the recent decision of the Supreme Court in Owners Corporation SP 72357 v Dasco Constructions Pty Limited & Ors [2010] NSWSC 819 (Unreported, Einstein J, 27 July 2010) (“Dasco”).

The decision has potentially wide-reaching impacts on the rights of owners corporations to sue builders and developers under the HBA, and may affect both new and existing proceedings.

What is proportionate liability?

The proportionate liability regime introduced by the CLA deals with the manner in which liability is apportioned where damage was caused by a number of “concurrent wrongdoers”. The provisions may apply to certain proceedings commenced on or after 1 December 2004 (subject to certain exceptions).

In a claim for breach of statutory warranty, potential “concurrent wrongdoers” include the builder, developer, designers, certifiers, Council, supervisors, sub-contractors and others.

The position before the CLA applied Before the introduction of the proportionate liability regime, where a number of wrongdoers were liable for the same damage, a plaintiff could sue any one of those wrongdoers for the whole amount of its loss (subject to the limits of its cause of action and any defences available). This approach effectively left it to the defendant and any other “wrongdoers” to apportion liability between themselves (for example, by way of bringing cross-claims against each other).

The position under the CLA In contrast, under the proportionate liability regime, the plaintiff is only able to recover from a defendant to the extent that the Court considers “just” having regard to the extent of that defendant’s responsibility for the damage—regardless of whether all the relevant wrongdoers are defendants in the proceedings (or even whether they could be joined to those proceedings at all).

Accordingly, a plaintiff may find itself unable to recover for substantial proportions of its damage, as the “concurrent wrongdoers” with the greatest share of the liability may be unable to be pursued. This could be because they are bankrupt, in liquidation, dead, or disappeared, because a relevant limitation period has expired, or because of limitations on the jurisdiction in which the claim was originally brought.

Alternatively, to maximise its ability to recover, a plaintiff may be forced to run complex and expensive proceedings against multiple defendants on multiple causes of action (and perhaps in multiple jurisdictions).

Key points

Builders and developers may seek to reduce their liability under the statutory warranties by alleging that parties such as designers, certifiers, Council, supervisors, sub-contractors and others were “concurrent wrongdoers”.

Strata schemes may be unable to pursue those “concurrent wrongdoers” due to factors such as insolvency or expiry of time limits. If those other parties can be pursued it may be complex and costly.

Some proceedings may need to be transferred to other forums due to jurisdictional issues (for example, the Consumer, Trader and Tenancy Tribunal may not have jurisdiction to hear certain types of claims against some “concurrent wrongdoers”).

Claims by strata schemes against developers may be particularly affected, as it is expected that Courts will consider the builder or others to have the largest share of liability.

This area of law is still developing and more authorities are expected. We are aware of other proceedings in which the authority of Dasco may be challenged. We note also that the issues may be addressed by legislative change.

Thanks to Mills Oakley Lawyers for supplying this article

Liabilities of lot owners for damage caused by them in a strata scheme

Key points:

An owners corporation’s obligation to repair and maintain common property extends to rectifying damage to common property caused by building works carried out by an owner.

However that owner may be liable to indemnify the owners corporation for the cost of those works, and to compensate other lot owners for damage done to their lots, either under the general law of nuisance or as a breach of a duty in section 117 of the Act.

The owners corporation’s statutory powers under section 63 of the Act to undertake works and recover the costs from an owner do not apply in such circumstances unless adjudicator’s orders or orders of the Consumer, Trader and Tenancy Tribunal have first been obtained under the Act for the owner to do the works.

The compensation that a lot owner is entitled to will ordinarily be based on the cost of repairs to their lot, and not repairs to common property affecting their lot, as that common property damage does not directly affect the value of their lot (due to the owners corporation’s obligations to effect the necessary repairs).

The decision in Stolfa v Owners Strata Plan 4366 & ors [2010] NSWSC 1507 (Unreported, Brereton J, 23 December 2010) is the latest in a series of significant judgments in a long-running strata dispute.

In the original Supreme Court judgment of June 2009 (unaffected by an unsuccessful appeal to the Court of Appeal) lot owners John Hempton, Joanna Kalowski and Stephen Hempton (“Hemptons”) were held liable to compensate lot owners Veronica and Raffaele Stolfa (“Stolfas”) for damage done to the Stolfas’ unit by works carried out by or on behalf of the Hemptons to their units. In the present case, the Court sought to determine the extent of that liability, and additionally the impact of the owners corporation’s obligation to repair and maintain the common property.

Lot property damage

The Hemptons were held liable to the Stolfas in respect of damage to the Stolfas’ unit. The Hemptons’ liability in this regard arose from their statutory duty in section 117(1)(a) of the Strata Schemes Management Act 1996 (“Act”) to not use or enjoy their lot, or permit their lot to be used or enjoyed, in such a manner or for such a purpose as to cause a nuisance or hazard to the occupier of another lot (or alternatively under the general law of nuisance).

The Court’s decision in this regard is significant in providing authority that occupiers may have a private cause of action to seek damages or other compensation from lot owners who breach the statutory duty in section 117(1)(a) of the Act.

Common property damage

The Court held that the owners corporation’s obligation to maintain the common property extended to rectifying the damage to common property that was caused by the Hemptons’ works. However, because the damage to the common property was caused by the Hemptons, they were held liable to indemnify the owners corporation in that respect.

Importantly, however, the Court held that the owners corporation’s statutory powers to undertake works and recover compensation from an owner under section 63(4) of the Act did not apply in these circumstances, as on a strict reading of the section, although the Hemptons had a statutory duty under section 117 of the Act, that duty did not require the Hemptons to effect the necessary repairs.

The Court further held that an order of the Supreme Court would not trigger the owners corporation’s power to do the works and recover the costs through section 63(5) (regarding works required to be done by a person under an order), holding that the section related only to an order of a Strata Schemes Adjudicator or the Consumer, Trader and Tenancy Tribunal made under Chapter 5 of the Act.

Instead, the Court held that the Hemptons’ obligation to indemnify the owners corporation arose under the general law of nuisance (the duty in section 117(1)(a) not being relevant as it is owed to occupiers, not the owners corporation).

Damages

The Court awarded the Stolfas compensation based on the cost of repairs to their lot, and additionally alternative accommodation (including parking), removal and storage costs. The Court noted that, if the owners corporation struck a levy to fund the common property repairs, the Stolfas would be liable to contribute according to their unit entitlement. However, as that liability would be incurred due to the Hemptons’ works, the Court held that the Stolfas should be indemnified by the Hemptons in that regard.

However the Court held that the Stolfas were not entitled to direct compensation for the cost of rectifying damage to common property associated with their lot, as the obligation of the owners corporation to effect the necessary repairs meant there was no diminution in the value of the Stolfas’ lot.

Despite this, the Court nevertheless awarded the Stolfas damages for the “risk, vexation, inconvenience and uncertainty” of the enforcement of the obligations of the owners corporation and the Hemptons to respectively do, and pay the costs of, the common property rectification works (in the amount of 10% of the cost of the common property rectification works).

Thanks to Mills Oakley Lawyers for providing this article.

The liability of owners corporations and their managers

In the recent decision of Borg v The Owners – Strata Plan 64425 [2010] NSWDC 203, the District Court of New South Wales found that both the caretaker of an owners corporation, and that owners corporation itself, were liable for an injury suffered by a lawful entrant to property that was effectively under their management and control.

In a significant development for both caretakers and strata managing agents, the Court—when apportioning liability between the caretaker and the relevant owners corporation—held the caretaker liable for 80% of the total damages, and the owners corporation for only 20%.

 The case

Ms Borg, a guest at the Quest Apartments at Cronulla, suffered various injuries when she fell after the heel of her shoe became caught in a broken tile on a flight of stairs at the property. The Court awarded Ms Borg over $517,000.00 for her injuries, apportioned between three owners corporations (who collectively formed the Building Management Committee for the property), the operator of the hotel, and the caretaker (to whom one of the owners corporations had delegated its functions in respect of maintenance of the property).

Liability of the owners corporation The Building Management Committee for Quest Apartments comprises 3 separate Strata Plans, known as the Investment Apartments, Tourist Apartments and the Residential Apartments. Whilst the broken tile on which Ms Borg fell in fact formed part of an encroachment onto the Council footpath—and accordingly was neither common property in any of the strata schemes, nor a shared facility under the Strata Management Statement—the Court found all 3 Owners Corporations liable due to their effective “occupation” of the set of stairs of which the broken tile formed part. The Court said (at 41):

Because the question of control is a question of fact, attempts to evaluate the question by reference to notions of legal rights are flawed, such as whether the encroachment gave rise to any equitable interest, or whether the effecting of repairs might constitute an unauthorised technical trespass. What matters is the exercise of immediate supervision and control.

And further:

In this case, that exercise is demonstrated by the continuing assumption of possession and the representation of control, by reason of the continuing retention of the encroachment, and the invitation that the configuration of the tiles relative to the footpath represented to users of the stairs to cross that land with a view to accessing or egressing the entranceway.

Whilst this finding does not mean that an owners corporation will necessarily be liable for all injuries sustained outside its premises, it makes clear that the touchstone of liability in these circumstances is not ownership of the land or the legal right to repair it, but the factual issue of exercise of immediate supervision and control.

Liability of the caretaker

The agreement in place between the owners corporation responsible for the Tourist Apartments and the caretaker effected a delegation to the caretaker of the owners corporation’s functions in respect of the maintenance, repair and replacement of the common property, of which the tiled stairs formed a part. Again, in the Court’s view this was sufficient to ground a finding that the caretaker was an “occupier” of the broken tile, despite it actually lying beyond the boundaries of the common property as discussed above.

The owners corporation and the caretaker filed mutual Cross Claims against each other. The Court carefully considered the wording of the caretaker agreement, having particular regard to the obligations on the caretaker to “care take” the common property, to conduct regular inspections and arrange for repairs to the common property, and to immediately report to the owners corporation hazards or dangers in the common property that came to the caretaker’s attention.

The Court concluded that the owners corporation had delegated to the caretaker responsibility for minor handyman repairs, which the Court considered would include temporary repairs to the hole in the cracked tile (such as were later carried out) as well as to inspect and report on more serious defects and arrange for their repair (including replacement of the tile itself).

Thanks to Mills Oakley Lawyers for providing this article

New strata laws on the horizon

On 3 December 2010 Clover Moore introduced a Bill into the NSW Parliament to amend the Strata Schemes Management Act 1996 and other strata legislation.

The Bill follows a discussion paper on proposals for strata law reform released by Clover last year and represents the culmination of several months’ consultation with owners, residents and industry stakeholders.

Overview of the Strata Legislation Amendment Bill 2010

The Bill contains a number of novel ideas. Broadly speaking, the Bill is aimed at reducing the influence developers have over the ongoing management of strata schemes, enhancing the powers of strata adjudicators and the CTTT, and improving the administration of strata schemes, for example, by allowing strata committee meetings to be held by telephone and documents to be served by email.

Reducing the Developer’s Influence Over Strata Managers, Caretakers and Lawyers

Under the Bill it would be illegal for a developer or a person connected to a developer (such as a company that employs the developer) to be appointed as a strata manager or caretaker.

The Bill would require a strata manager to disclose in writing to the owners corporation any connection with the developer or a caretaker.

If an owners corporation becomes aware that its strata manager or caretaker is the developer or is connected with the developer, the owners corporation would be able to terminate the strata manager or caretaker’s appointment.

The Bill would require lawyers to disclose in writing to an owners corporation any connection they have to the developer before providing any legal services to that owners corporation. The owners corporation would have the right to terminate the lawyer’s appointment if there is a connection between the lawyer and the developer.

Strata Committee

Under the Bill it would be an offence for a person to be elected as a member of the strata committee without making a disclosure of any connections held with the developer or caretaker. If a person is elected without making the disclosure, the owners corporation would need to declare the member’s position on the strata committee vacant. The same rules would apply to substitute strata committee members.

By-Laws

The Bill would require an owners corporation, whenever registering a change to its by-laws,  to lodge a copy of the resolution approving the change and a consolidated copy of all by-laws for the strata scheme.

Levies

The Bill would allow owners corporations to raise special levies payable to the sinking fund rather than just the administrative fund as is currently the case.

The Bill also provides that if a quorum is not present at an adjourned annual general meeting, the contributions levied by the owners corporation are taken to be the same amounts as the contributions last determined, increased by the Consumer Price Index.

The Bill would clarify that a person who pays levies by cheque would not become financial for a meeting unless the cheque was received at least 5 clear working days before the meeting and a dishonour notice had not been received by the time of the meeting.

Insurance Cover

Under the Bill, owners corporations would need to increase the amount of public liability insurance cover they hold from $10,000,000.00 to $20,000,000.00.

Strata Roll

The Bill would require additional recordings to be made in the strata roll including details of each special resolution passed by an owners corporation under section 65A of the Strata Schemes Management Act 1996, details of any loan made to the owners corporation, a copy of any licence granted by the owners corporation for the use of the common property and plans and approvals for all building work that has been carried out to the common property.

Damage to Common Property

A novel provision in the Bill would make owners and occupiers jointly and severally liable for any damage caused to the common property by the occupier and give the owner a right to claim an indemnity from the occupier for any amount of damage caused to the common property by the occupier for which the owner is liable.

Apartment Occupancy Rates

An equally novel provision in the Bill would impose a statutory duty on owners and occupiers not to allow more than 2 adults per bedroom to occupy their lots.

CTTT

The Bill would give strata adjudicators the power to resolve disputes concerning Strata Management Statements. The Bill would also allow strata adjudicators to terminate the compulsory appointment of a strata manager under section 162 of the Strata Schemes Management Act 1996.

Under the Bill, the penalties that apply for contempt of the CTTT in strata matters would increase from 5 penalty units (currently $550.00) to 50 penalty units (currently $5,500.00). The Bill would also make it an offence for a person who is the subject of an order made by a strata adjudicator or the CTTT to contravene the order and render the offender liable for a penalty of up to 200 penalty units (currently $22,000.00) if prosecuted for the offence.

Supreme Court

The Bill would require the Supreme Court to hear and decide strata disputes even if the disputes could be heard and decided by a strata adjudicator or the CTTT. However the Court would be required to order the applicant to pay the respondent’s costs if the court action should have been dealt with by a strata adjudicator or the CTTT.

Service of Documents

The Bill would allow court documents to be served on an owners corporation by being left with the chairperson or strata manager whose address has been recorded as the owners corporation’s address for service of notices and by posting it to the owners corporation at that address and at the address of the building.

The Bill would also allow owners corporations and strata committees to serve documents by email on those who have given an email address for service of notices.

The Bill would further allow an owners corporation to have recorded on the common property title the address of the chairperson for the service of notices.

Office Bearers

The Bill would allow regulations to be made to set out the procedures to be observed by the chairperson and secretary in relation to meetings of the owners corporation and a code of conduct for the office bearers of the owners corporation.

Meetings

The Bill would clarify that a request for a poll vote would need to be made before the next item on the meeting agenda has been dealt with.

In a welcome provision, the Bill would allow an owners corporation to vary the time at which it will hold its annual general meeting, without having to apply to a strata adjudicator for permission to do so.

The Bill would also require the notice of a general meeting at which a change of by-laws will be considered to be accompanied by a report prepared by the strata committee explaining the effect of the proposed change.

The Bill would allow strata committee meetings to be held by telephone, closed-circuit television or by other means.

Comments on the Bill

Many of the strata law reforms that are proposed by the Bill will be welcomed by the strata industry.

The parts of the Bill which propose to beef up the powers of strata adjudicators and improve compliance with orders made by adjudicators and the CTTT are welcome reforms. So are the reforms that would allow service of notices by email, and permit strata committee meetings to be held by teleconference. Further, many will welcome the reforms to make owners liable for any damage to the common property caused by their tenants and which place limits on the number of persons that can reside in apartments to help stamp out overcrowding in some schemes.

However, some of the amendments are unnecessary, have been poorly drafted and will impose additional administrative burdens on owners corporations and strata managers with little associated benefits. For example, the reforms which would make it illegal for developers or persons connected to developers to be appointed as strata managers or caretakers, and require various disclosures, do not go far enough to achieve their objective and in practice will have little impact on the appointment of strata managers and caretakers by developers or the degree to which developers will be able to control the affairs of an owners corporation in its early stages. The reforms that would require consolidated sets of by-laws to be lodged and additional recordings to be made on the strata roll are well intended, but will add to the administrative costs incurred by owners corporations who decide to follow them and are likely to be ignored by many schemes without penalty.

Conclusion

The Bill has only just been introduced into Parliament and it is unlikely to be made law in the near future. Clover Moore has indicated that she intends to consult further during the Christmas and New Year holiday period and reintroduce the Bill with amendments next year.  This is likely to be followed by further proposals for strata law reform that are likely to deal with other important issues such as proxy voting rights and illegal parking.

In view of the impact the Bill would have on the management of strata schemes, and the improvements that could be made to it, strata managers and other stakeholders in the strata industry should be encouraged to make representations in relation to the Bill to Clover Moore and the Minister for Fair Trading.

Many thanks to J.S Mueller and Co Solicitors for providing this article.

Owners beware of noisy tenants

A recent decision of the Local Court in Jean Whittlam v Sara Hannah & John Hannah [2011] Downing Centre Local Court 63913/11 has received significant press attention suggesting the case represents a panacea for lot owners affected by offensive noise from short term tenants.

FACTS

Mrs Whittlam lived in a unit in Double Bay.   Mr and Mrs Hannah owned the unit directly above Mrs Whittlam’s unit. They did not live in the unit but let it out as furnished rental property. There were numerous different tenants changing regularly. There was a consistent problem with the noise created by those tenants.   Mrs Whittlam took proceedings against the owners of the unit for orders pursuant to section 268(4) of the Protection of the Environment Operations Act 1997. That Act permits the Local Court to make an order in favour of an occupier of premises affected by offensive noise against the person alleged to be making or contributing to that noise or the occupier of the premises from which the noise is emanating.   The Court may make an order directing the offender to abate the offensive noise within a time specified in the order or an order directing the offender to prevent a recurrence of the offensive noise.

The Magistrate found in the circumstances of this case that the landlord was a person contributing to the noise of the occupier.   She did so because they were able to control who they leased to and for how long and because they could terminate the lease if breaches occurred.

Having found that the application was properly brought against the owners and having found that offensive noise did exist, Her Honour considered the remedies which were sought by Mrs Whittlam.   Those remedies orders that the owners must:

  • Install new floor coverings with an appropriate acoustic rating.
  • Install hydraulic door closers on all doors in or to the lot.
  • Install rubber feet on all of the legs of the furniture within the lot.
  • Not cause or permit any musical instruments or electrically amplified sound equipment to be used in such a manner that emits noise that can be heard within a habitable room in Mrs Whittlam’s lot whether or not a door or window was open and during specified hours.

The Magistrate made the second and fourth orders.

It is worth noting that the claim was made by Mrs Whittlam that the short term tenancies were illegal, presumably as they breached an instrument issued pursuant to the Environmental Planning and Assessment Act 1979.   Where that is the case powerful prohibitive orders preventing, for example, short term leasing in breach of the Act, can be obtained from the Land & Environment Court pursuant to section 123 of that Act. Appropriate by-laws may also render a breach of the Act a breach of the by-laws thereby permitting the matter to be dealt by the Consumer Trader and Tenancy Tribunal.

Whittlam’s case now extends the range of options that may be considered by aggrieved owners corporations or lot owners.

Many thanks to J.S Mueller and Co Solicitors for providing this article.

Security of payment act disputes- how do I get help?

Almost every contract for building work on common property is subject to the provisions of the Building and Construction Industry Security of Payment Act 1999 (“SOPA”).

Amongst other things, this Act provides:-

  • Payment of a claim can only be disputed if a payment schedule is served on the builder within 10 business days of receiving the claim.
  • A payment schedule must set out the amount which the owners corporation is prepared to pay, why that amount is less than the claimed amount and the reasons for withholding payment.
  • Failure to serve a payment schedule within 10 business days of receiving the claim will mean that the owners corporation becomes liable to pay the claimed amount and cannot raise any cross claim or defence arising under the contract.
  • If a payment schedule is served within time the builder may still take the matter to adjudication.
  • The owners corporation cannot raise any defence in the adjudication which was not raised in the payment schedule.
  • The owners corporation will have five business days from the date of service of the adjudication application to lodge its response.

The Problem

SOPA time limits are short and can not be extended.

The owners corporation may need legal assistance to prepare a payment schedule or an adjudication response. That assistance may be estimated to cost more than the amount set out in Regulation 15 of the Strata Schemes Management Regulation 2010. In such a case the SOPA time limits will expire before an owners corporation can authorize the provision of legal advice and its legal rights will be lost.

The Solution

Whenever an owners corporation enters into a construction contract for the common property it should pass, at a general meeting, a resolution authorising the obtaining of legal advice in relation to the contract and SOPA matters based on a fee estimate provided by a solicitor.  For matters where the building contract is approved by the executive committee, it is often the case that a general meeting will be scheduled during the contract negotiations or shortly after.   In such a case a motion should be placed on the meeting agenda.

Many thanks to J.S Mueller and Co Solicitors for providing this article.