When water leaks into a strata unit, the strata scheme is liable to not only to repair the damage but also to compensate the owner for loss suffered. The loss could be physical such as damaged cabinets, floor coverings, and peeling paint, or financial such as loss of rent if the strata unit cannot be occupied until the water leak is repaired, or both.
In a fascinating judgement, Justice Leeming has decided that limits apply to a strata scheme’s liability for compensation for loss of rent if the owner acts unreasonably to delay the repairs or disrupt them.
This is a case note upon The Owners – Strata Plan No 2661 v Selkirk [2024] NSWSC 760 Supreme Court New South Wales (Leeming JA) (21 June 2024).
Background
Ms Selkirk owns lot 5 in strata plan 2661, which is in Darling Point, in the Eastern Suburbs of Sydney. It is a 2-bedroom home unit with one bathroom in an older style art deco block. The strata plan was registered in 1967. The unit was rented.
On 30 November 2020, the owner of lot 2, the home unit immediately below, complained to Ms Selkirk that water was not just leaking, it was cascading through the ceiling of their bathroom, every time the shower was used upstairs in lot 5.
Ms Selkirk complained to the owners corporation (OC). Ms Selkirk permitted access to the OC to investigate. By using two colour dye tests, the cause was identified as water soaking into the shower floor through the tiles, then through the floor into the bathroom below.
On 11 February 2021, the OC provided two quotes to Ms Selkirk, a “minor fix” (removing the grouting and applying a new grout and sealing the shower base) and a “major fix” (removing the existing base tiles and replacing with new tiles). The OC advised it was prepared to proceed with the “major fix”.
Ms Selkirk advised the OC that the “minor fix” was not agreed, and the “major fix” was not “acceptable” because it “will leave my bathroom looking like a patchwork quilt” when it should be left in a “like-for-like pre-loss aesthetic condition”.
She wanted the bathroom to be entirely re-tiled at the OC’s cost because the new tiles would not be identical to the old tiles (the old tiles were not available). The OC did not agree to extend the scope of work to re-tile the entire bathroom.
On 19 March 2021 the OC’s contractor was ready to start the “major fix” work, but Ms Selkirk denied the contractor access to the strata unit.
At the same time, she made a strata insurance claim for the work. The insurer rejected the claim, a rejection which was unchanged on review.
On 9 July 2021 Ms Selkirk commenced legal proceedings, and sought these orders:
- re-tiling of the entire bathroom, and
- loss of rent at $1,750 per week until the bathroom was remediated.
In 2023, Ms Selkirk removed all of the tiles and the whitegoods from her bathroom, leaving it “a shell”. She gave no notice to nor had the consent of the owners corporation to do so. The bathroom remains a “shell”.
The owners corporation’s duty to maintain and repair common property
In the proceedings before Justice Leeming, the OC agreed with Ms Selkirk that it was responsible to repair the bathroom, under its duty to repair in section 106(1) of the Strata Schemes Management Act 2015 (NSW) (Strata Titles Act) which is:
106(1) An owners corporation for a strata scheme must properly maintain and keep in a state of good and serviceable repair the common property and any personal property vested in the owners corporation.
The OC’s duty to maintain and keep in repair is a strict duty. There is no need for an owner to prove that the OC was at fault by not taking reasonable care or steps to maintain and keep the common property in good repair. The common property includes the walls, floor and ceilings of the building, as well as external doors, windows, and pipes and cable to the strata unit.
Section 106(1) applies to the scope of works dispute – Was the OC responsible to re-tile only the shower floor, or re-tile the entire bathroom?
Owners may recover damages from the OC as compensation for breach of the OC’s duty under section 106(1). This is set out in section 106(5) of the Strata Titles Act, which is:
106(5) An owner of a lot in a strata scheme may recover from the owners corporation, as damages for breach of statutory duty, any foreseeable loss suffered by the owner as a result of a contravention of this section by the owners corporation.
To recover damages, the owner must prove that the loss was both reasonably foreseeable and as a result of a breach of section 106(1).
Section 106(5) applies to the loss of rent dispute.
Section 106(5) is relatively new. It was introduced in 2015 to give clear guidance on the damages recoverable from the OC.
For this reason, the Selkirk decision is significant as it examines the limits that apply to the OC’s liability for losses, such as loss of rent.
The OC argued that Ms Selkirk was not entitled to loss of rent beyond 21 March 2021, when Ms Selkirk denied access to the bathroom unreasonably, given the OC had a right of access under section 122 of the Strata Titles Act, which is:
122(1) An owners corporation for a strata scheme may … enter on any part of the scheme for the purpose of carrying out the following work –
-
- work required or authorised to be carried out by the owners corporation in accordance with this Act …
The Supreme Court determination
As to the scope of work dispute – was re-tiling the shower floor enough or was re-tiling the entire bathroom required, the Court said that the dispute could have and should have been dealt with by the OC making an application to NCAT under section 242 of the Strata Titles Act. The OC did not make an application until recently.
The Court decided on the loss of rent dispute by considering whether the loss was reasonably foreseeable and as a result of the breach of duty.
The parties accepted that the loss of rent was “a reasonably foreseeable loss suffered by the owner”, as the home unit was rented property, and the inability to use the sole bathroom made the property no longer fit for habitation by a tenant for the purposes of section 52 of the Residential Tenancies Act 2010 (NSW), and that it was in breach of the duty under s 106(1).
The Court turned to whether the loss was as a result of the owners corporation’s breach of section 106(1). The Court said that the right to damages under section 106(1) was:
“qualified in cases where the claimed loss is too remote, or where the plaintiff [the owner] has behaved so unreasonably that part or all of the claimed loss is properly characterised as caused by the plaintiff rather than by the owners corporation’s breach.” [paragraph 140]
Without coming to a final conclusion because the case was remitted to the Appeal Panel of NCAT for final orders, the Court outlined these conclusions:
- Ms Selkirk is entitled to damages for the lost rent in the immediate aftermath of the leak, in accordance with the owners corporation’s concession;
- The owners corporation is not precluded from contending that Ms Selkirk’s conduct was, at some stage after early March 2021, such that her claim for lost rent does not answer the description of damages as a result of the owners corporation’s breach. That may be because of her purpose, or because her conduct was unreasonable, or because of her unilateral work on her bathroom which I have been told took place in September 2023.
[paragraph 175]
As a result, Ms Selkirk’s claim for loss of rent is limited to the period from 2 December 2020 (when the tenants vacated) to mid March 2021 (when she denied the OC access to carry out the work).
The Court’s guidance on dealing with water leaks
The Court provided this general guidance to owners corporations of the procedure to be adopted when notified of the need to repair the common property:
“At least in most ordinary cases, owners corporations should proceed on the basis that they should investigate and take steps to rectify defects in the common property, even if they cannot obtain the lot owner’s consent.
At least in most ordinary cases, the existence of an ongoing breach of the owners corporation’s duties under ss 106(1) and (2) will warrant the making of an order under s 232 to investigate (if necessary) and rectify the defect in the common property.” [paragraph 108]
Note: section 232 is the section that empowers NCAT to make orders to settle disputes.
The Court provided this specific guidance on how to deal with a scope of works dispute:
“In the very large majority of cases, where there is an ongoing breach of s 106(1) or (2), and the lot owner and the owners corporation dispute what should be done, it may be expected that each side will identify the orders pursuant to s 232 which are sought, and save in exceptional circumstances it will be appropriate of NCAT to make some order so as to rectify the breach.” [paragraph 108]
Comments
Legal proceedings between the OC and Ms Selkirk have been ongoing for 3 years in both NCAT and the Supreme Court of New South Wales. The legal fees would likely exceed $100,000 for each.
What could the OC have done differently?
In March 2021, once the OC knew of the denial of access, it could have applied to NCAT under section 232 for an order for access under section 122 to carry out the work. The OC could have asked NCAT to determine the extent of the re-tiling at the same time.
The OC could have offered to contribute the amount of its quote to the more extensive re-tiling that Ms Selkirk wanted.
Was Ms Selkirk the author of her loss?
Ms Selkirk made several wrong assumptions:
- The first is that the strata insurance would pay for the re-tiling of the bathroom.
- The second is that the loss of rent claim would continue until the work was done.
- The third is that by unilaterally removing all tiles, it would improve her position.
- The fourth is that by denying access to the OC to carry out the work, she would persuade the OC to fund the replacement of the entirety of the tiles in the bathroom.
The Court considered the third, the removal of the tiles, “disrupted” the carrying out of the repairs; and the fourth, the denial of access, was unreasonable conduct; which disentitled her to claim loss of rent after each, the ongoing loss was not recoverable as it was no longer as a result of the owners corporation’s breach of section 106(1).