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Background

The proceedings concerned a strata title property at Point Piper NSW where lot owners were in dispute concerning the extent of works that should be carried out on the common property. 

For more than a decade, the majority lot owners wished to have the property refurbished at a cost of several million dollars. This was opposed by the minority lot owners who considered that the works proposed by the majority lot owners were too extensive (although they acknowledged that some repair works were required).

In 2016 a series of resolutions were passed as ordinary resolutions. The resolutions purported to authorise the owners corporation to undertake extensive building works.

The building works included:

• Replacing the existing lift. 
• Replacing the existing timber stairway. The majority lot owners wanted to replace the existing stairway with a concrete staircase. Replacement of the lift shift necessitated the replacement of the existing stairway.
• Upgrading the foyer and lobbies to allow the new glass lift to bring light into the lobbies.

A lot owner challenged the resolutions on the grounds that they were improperly passed. The lot owner argued that as the building works were “improvements to the common property”, they should have been passed by a special resolution under 65A of the Strata Schemes Management Act 1996 (the now equivalent provision being section 108 of the Strata Schemes Management Act 2015). However, the Adjudicator held that the lift and the staircase were unsafe and therefore required immediate rectification. The Adjudicator categorised the building work as repair and maintenance and therefore governed by section 62 of the 1996 Act (equivalent of section 106 of the Strata Schemes Management Act 2015). Section 62 of the 1996 Act provided that repairs to, and replacement and renewal of, the common property does not require a special resolution.

The decision went on appeal with the Tribunal finding that the replacement of the lift shaft and the staircase required a special resolution as per section 65A of the 1996 Act as they should have been properly categorised as “improving or enhancing the common property”.

The Tribunal also ordered the owners corporation to carry out certain repairs to the common property on the basis that the owners corporation had failed to perform its duty in this respect. However, the Tribunal did not impose a method of rectification instead leaving it up to the strata manager to “explore the competing options and undertake the work within the scope of the Owners Corporations obligations”.

The majority lot owners then appealed against this decision to the Supreme Court of NSW.

The Decision

A relevant fixture or fitting needs to have deteriorated, to have been damaged or to be operating inadequately in order for the owners corporation to be required to renew or replace it under s 62(2): Ridis v Strata Plan 10308 [2005] NSWCA 246 and The Owners Strata Plan 50276 v Thoo [2013] NSWCA 270.

“77. …it would be impossible to continue to maintain the existing lift and that it can be expected to operate for many years into the future. There is nothing in the evidence which establishes that a new lift car is required, much less a new lift shaft.

78. On the facts, the lift is operating in accordance with its design requirements and can be kept operating into the future. It has not reached the point where it “can no longer be kept in a state of good and serviceable repair” to use the language of Tobias AJA in Thoo. In the language of Barrett JA, the existing functionality of the lift can be maintained without renewing or replacing it. Installing a new glass lift would be an improvement, not the maintenance or reinstatement of the functionality of the existing lift.”

The replacement of the lift shaft and the staircase should have been properly categorised as “improving or enhancing the common property”. 

“104. As Senior Member Ross acknowledged, the orders did not specify the works in question. Orders in this form gives rise to two particular problems. The first is that the orders leave it unclear what it is that the Strata Corporation is being ordered to do. The second is that the order are not necessarily confined to complying with the Strata Corporation’s obligations under SSMA s 62.

105. Both of these problems are illustrated by the replacement of the lift. The relevant order requires the Strata Corporation “to replace the lift in the existing shaft and associated works”. No doubt the reference to replacement in the existing shaft was included in Ms Hegyesi’s application because, whatever else she wanted the Strata Corporation to do, she did not want it to adopt the approach which had been put forward by the majority owners of replacing the whole lift shaft as well as the lift car. But there is no concrete proposal for the replacement of the lift in the shaft, in the sense of a defined scope of works. All sorts of technical difficulties might arise. The order gives no guidance as to how such difficulties would be overcome. It simply commands the Strata Corporation to achieve a specified result by a specified date. And the “associated works” are completely unspecified. The Strata Corporation is left to guess what it is required to do.”

Accordingly, the order for the owners corporation to carry out certain repairs to the common property did not specify the works in question, leaving it unclear as to what it was that the owners corporation was being ordered to do. The order simply commanded the owners corporation to achieve a specified result by a specified date.

The Court also added:

“106. Furthermore, despite the “finding” by the Tribunal that the lift should be replaced, the Pitfield report shows that there is in fact no actual need to do so. The lift can be kept functioning without any replacement of the lift car, whether in the existing shaft or otherwise. The order thus goes beyond what I consider to be the Strata Corporation’s obligations under s 62.”

108. An adjudicator has a general power to make orders to settle disputes or rectify complaints (s 138). This extends to disputes or complaints arising under s 62. The adjudicator’s decision may then, under s 207, be included in an order which takes effect as a resolution of the owners’ corporation which is binding and enforceable by the courts: see Thoo at [211].

109. The power under s 138 may be exercised where there is a dispute or complaint about, among other things, “a failure to exercise” a function conferred or imposed by or under the Act, or the operation, administration or management of a strata scheme under the Act. But sub-section (2) provides that for the purposes of sub-section (1) the owners’ corporation is taken to have failed to exercise a function if it decides not to exercise the function where application is made to it to exercise the function and it fails for two months after the making of the application to exercise the function. This suggests that the proposal must be put before the owners’ corporation in some sort of formal and concrete way.

110. Although in a general sense the minority owners had been pressing for repairs to be done, the orders made do not reflect any specific proposals. It is thus doubtful whether there was a “failure” sufficient to enliven the power under sub-section (1). But this is not the only problem.”

111. … But on any view the Tribunal is not entitled to order an owners’ corporation to do things just because the Tribunal considers it desirable to do so. If, as seems to have been assumed, the justification for the order was that the Strata Corporation had not complied with its obligations under s 62, then the Tribunal’s order could go no further than the minimum necessary to comply with that obligation.

112. In the present case, the Tribunal did not ask itself what needed to be done so as to order to achieve a minimal compliance with s 62(1) and then frame orders accordingly. In my view this means that there was no proper statutory foundation for the orders.

113. Furthermore, the orders are in the nature of mandatory injunctions. Such orders can be enforced (indirectly, under NCAT: Civil and Administrative Tribunal Act, s 73) by way of contempt. It is unacceptable that the recipient of the order should be in any doubt as to what is required. In my view, for the Tribunal to make an order giving rise to such a doubt is itself an error of law.

114. An adjudicator, and on appeal, the Tribunal, may have power to make an order that an owners’ corporation carry out a defined repair in order to comply with its obligation under SSMA s 62. But the orders made in this case have been made in a form which takes them outside the limits of any such power. In truth, the orders are nothing more than a vague “wish list” from Ms Hegyesi. They should not have been made and must be set aside.”

Accordingly, the Tribunal is not entitled to order an owners corporation to do things just because the Tribunal considers it desirable to do so. If, as seems to have been assumed, the justification for the order was that the owners corporation had not complied with its obligations under section 62, then the Tribunal’s order could go no further than the minimum necessary to comply with that obligation.

The Supreme Court concluded that:

  • the majority owners’ challenge to the Tribunal’s decision that the disputed works required a special resolution because of SSMA, s 65A, fails;
  • the majority owners’ challenge to the order directing the Strata Corporation to repair certain parts of the common property succeeds.

The take home point

Whether proposed works are to be properly categorised as repairs to or replacement/renewal of common property in which case no special resolution is required as per section 106 of the Strata Schemes Management Act 2015 (“SSMA”) or whether the proposed works amount to enhancement/improvements in which case a special resolution is required as per section 108 of the SSMA is not always easy to determine. 

Disclaimer: Please note that the information contained in this article is not legal advice and should not be relied upon. You should obtain legal advice specific to your circumstances before you take any action or otherwise rely upon the contents of this article.