Time Limits for Building Defect Claims in NSW Strata Schemes: A Guide for Lot Owners

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Navigating the intricacies of strata schemes can be challenging, particularly when it comes to understanding the rights and obligations set out in the Strata Schemes Management Act 2015 (SSM Act). Section 106 of the SSM Act clearly outlines the owners corporation’s duty to repair and maintain common property and personal property under its control.

When the owners corporation fails to meet this obligation, lot owners have the right to seek damages. However, this right is not unlimited. There are specific timeframes within which claims must be made. This raises important questions:

1. Is there a deadline for lot owners to file damage claims?
2. How is the moment of loss awareness determined for lot owners?
3. What are the legal ramifications of this awareness?

A recent New South Wales Court of Appeal decision has set a crucial precedent, affecting lot owners, strata insurers, and owners corporations alike. This article aims to:

1. Clarify key aspects of the SSM Act
2. Examine the landmark Tezel case
3. Explore the implications for all parties involved in strata schemes

By understanding these elements, stakeholders can better navigate their rights and responsibilities within the strata scheme framework.

Interpreting the Strata Schemes Management Act: Time Limits for Building Defect Claims

The Strata Schemes Management Act (SSM Act) Section 106 clearly outlines the owners corporation’s responsibility to maintain common and personal property in good condition. But what happens when this duty is neglected?

In cases of breach, lot owners can claim damages for foreseeable losses caused by the corporation’s negligence. However, this right is not indefinite. Section 106(5) imposes a two-year limitation period for damage claims, starting from when lot owners first become aware of the loss.

This timeframe raises several important legal questions:

1. What constitutes ‘awareness of loss’ for lot owners?
2. Does ‘loss’ refer to the nature of the damage or its exact financial impact?
3. Does the two-year period reset daily for ongoing losses, potentially creating new grounds for action each day the breach continues?

The New South Wales Court of Appeals (NSWCA) recently addressed these crucial issues in its landmark decision, The Owners – Strata Plan No. 74232 v Tezel [2023] NSWCA 35. This ruling provides vital guidance on interpreting and applying the SSM Act’s time limitation provisions.

Understanding this decision is essential for lot owners, owners corporations, and legal professionals navigating strata scheme disputes. It clarifies the balance between the right to seek damages and the need for timely resolution of claims.

Decoding The Owners – Strata Plan No. 74232 v Tezel [2023]: Case Details

In Bondi Beach, Ms Tezel, a strata unit owner, faced persistent water leakage in her apartment during heavy rains. This significant defect began in 2013 and led to her vacating the unit in 2016. Despite attempts to rent out the property that year, it remained unoccupied.

On November 6, 2020, Ms Tezel initiated legal proceedings against the owners corporation in the New South Wales Civil and Administrative Tribunal (NSWCAT). Her complaint had two main objectives:

1. Obtain orders for repair work to address the water damage
2. Recover lost rental income from November 6, 2018 onwards

Notably, Ms Tezel’s claim for lost rent only extended back to 2018, not 2016 when she initially left the unit due to the defect.

The owners corporation challenged Ms Tezel’s claim, arguing it fell outside the time limits set by Section 106(6) of the SSM Act. The NSWCAT agreed, approving repair works but rejecting the lost rent claim. They reasoned that Ms Tezel became aware of the rental income loss in 2016, making her 2020 claim untimely under the law.

Ms Tezel appealed this decision. The Appeal Panel overturned the NSWCAT’s ruling on lost rent, siding with Ms Tezel. This reversal prompted the owners corporation to contest the Appeal Panel’s interpretation of Section 106(6) of the SSM Act.

The core dispute centered on the precise meaning of “the loss” and determining the exact moment that would trigger the SSM Act’s two-year time limit for claiming damages from the owners corporation for foreseeable losses.

This case highlights the complexities in interpreting strata laws and the importance of timely action in building defect claims.

Legal Principle #1: Interpreting Section 106(6) of the SSM Act

The NSWCA’s analysis centered on a thorough examination of Section 106(6) of the SSM Act. The court emphasized the importance of understanding this section within its broader context, ensuring alignment with its primary objectives and specific issues concerning claims against owners corporations.

Section 106(5) grants lot owners the right to claim damages for foreseeable losses resulting from the owners corporation’s failure to maintain common property. This provision offers broader protection than Section 106(4), which is limited to physical damage to common properties.

Upon closer inspection, Section 106(5) emerges as a robust safeguard for lot owners. It allows them to seek compensation for financial losses stemming from the owners corporation’s breach of Section 106(1). Notably, the language in Section 106(5) uses the term “loss” rather than the narrower “damage” found elsewhere, suggesting a more comprehensive scope of compensation beyond physical damage.

However, the rights granted under Section 106(5) are not unlimited. Section 106(6) outlines these limitations, stipulating that damage claims under Section 106(5) must be made within two years of the lot owner becoming aware of the loss.

Crucially, this provision distinguishes between the moment a lot owner first notices the loss and when the legal claim arises. This distinction is intentional, benefiting lot owners, particularly in cases involving hidden building defects. While Section 106(6) supports individual lot owners’ rights, it also establishes a clear two-year limit, considering the collective responsibilities of the owners corporation to address potential losses.

A key point emphasized by the court was that the two-year limit in Section 106(6) commences when the lot owner first becomes aware of the loss, not when they later comprehend its implications. This interpretation provides clarity on the timing of claims while balancing the interests of individual lot owners and the collective owners corporation.

Legal Principle #2: Continuous Breach Does Not Reset Limitation Period

The court established that an ongoing breach under Section 106(1) does not equate to a continuous new awareness of the associated “loss”. The persistence of a breach does not reset the limitation period daily. Instead, the moment when the lot owner first becomes aware of the loss remains fixed, regardless of the duration or severity of the breach.

This principle means that a lot owner cannot extend their limitation period or make new claims under Section 106(5) for each additional day the breach continues and results in loss. The court’s interpretation prevents the potential for indefinite claim periods in cases of ongoing breaches.

In the context of the current case:

1. The respondent (Ms Tezel) identified her loss in 2016.
2. This loss was viewed as missed rental income due to the owners corporation’s failure to fulfill its duty under Section 106(1).
3. Consequently, the two-year limitation period began from this initial recognition in 2016.

This interpretation provides clarity and finality to the claims process, balancing the rights of lot owners to seek compensation with the need for timely resolution of disputes. It prevents scenarios where claims could be indefinitely extended in cases of long-term building defects or maintenance issues.

The court’s ruling emphasizes the importance of prompt action by lot owners upon becoming aware of a loss, even if the underlying issue persists. This approach encourages timely reporting and resolution of strata property issues, benefiting both individual lot owners and the owners corporation as a whole.

Implications and Action Steps for Strata Stakeholders

The court’s interpretation in this case has significant implications for all parties involved in strata schemes. Here’s what stakeholders need to know:

For Lot Owners:

1. Be vigilant: Carefully monitor any losses resulting from the owners corporation’s failure to maintain and repair common property.
2. Act promptly: The two-year limitation period set by Section 106(6) of the SSM Act provides a narrow window for action.
3. Take timely, strategic steps: Focus on addressing issues within the two-year period, starting from the day you first become aware of the loss.

For Owners Corporations:

1. Maintain clear records: Document all maintenance and repair activities to demonstrate compliance with Section 106(1).
2. Respond swiftly to complaints: Address lot owners’ concerns promptly to minimize potential losses.
3. Understand liability: Be aware that your responsibility for a breach doesn’t diminish over time, even if the limitation period for claims has expired.

For Strata Insurers:

1. Assess risks carefully: Consider the potential for delayed claims when evaluating strata insurance policies.
2. Educate clients: Inform owners corporations about the importance of timely maintenance and repairs.
3. Review policies: Ensure your policies align with the court’s interpretation of the SSM Act.

For all parties navigating strata disputes or dealing with common property defects, seeking expert legal advice is crucial. Experienced strata law professionals can provide valuable guidance on interpreting the SSM Act and developing appropriate strategies.

By understanding these implications and taking proactive steps, stakeholders can better protect their interests and contribute to the smooth operation of strata schemes.