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HUNTER CONNECTION CONNECTS WITH REALITY
The lengthy saga of the mechanical ventilation system for the Hunter Connection finally came to an end last week in a decision of the New South Wales Court of Appeal.
The Hunter Connection is a commercial strata building with a pedestrian tunnel under George Street connecting the basement to Wynyard station pedestrian ramp. The ground floor and basement have a mixture of food outlets and general retail shops.Over the last ten years there have been two Supreme Court actions about access to the mechanical exhaust ventilation system brought by owners of retail shops who wanted to use their shops as food outlets. To do so, the shops must be connected to the exhaust system and the air extracted from each individual shop at the rate of 3,600 litres per second.
As a result of the first Supreme Court case in 2004, an additional exhaust system was constructed to service that particular owner’s lot and about five others.
In February 2006, Dr Chee Min Thoo acquired a shop in the basement of the Hunter Connection and sought to convert it into 3 small food outlets, requiring the Owners Corporation to guarantee that air would be extracted from his lot at 3,600 l/s.
Unfortunately, the exhaust system was then operating at its capacity and any additional connections would result in a reduction in the extraction rate to all other food shops.
Nevertheless, the Supreme Court at first instance found that the Owners Corporation was in breach of its statutory duty under s 62(2) of the Strata Schemes Management Act 1996 in failing to renew or replace the exhaust system so as to provide a reasonable level of exhaust ventilation capacity at 3,600 l/s to Dr Thoo’s lot. It did not matter that the only way that Dr Thoo’s lot could be ventilated at the level required would be to construct a new ventilation duct partially outside the building in Council’s airspace and across other owners’ property. The Court also held that:
- a special resolution by the Owners Corporation under s 62(3) determining not to renew or replace the exhaust system was invalid because the Owners Corporation did not have before it material that provided a rational basis for its determination; and
- the breach of the statutory duty in s 62(2) gave rise to a private right of action for damages on the part of Dr Thoo against the Owners Corporation.
The Owners Corporation appealed the decision and last week the Court of Appeal ruled in favour of the Owners Corporation: The Owners Strata Plan 50276 v Thoo [2013] NSWCA 270 (22 August 2013). The Court of Appeal held that:
- although the owner was entitled to access the exhaust system, the Owners Corporation was not under a duty to renew or replace it because it was otherwise in good repair and operating as intended;
- the Owners Corporation may pass a special resolution under s 62(3) to determine not to repair, maintain, renew or replace particular common property without the necessity for attributing reasons or a basis for that decision; and
- a breach by the Owners Corporation of its statutory duty to maintain, repair, renew or replace common property does not give rise to an action for damages for breach of statutory duty on the part of individual lot owners.
In its decision, the Court of Appeal has enunciated some clear principles about the differences between the duty under s 62(2) to renew or replace any fixtures or fittings comprised in the common property and the requirement in s 65A for a special resolution to approve alterations and additions to common property.
His Honour Barrett JA said that “replacement is a large concept. If a modest single-bulb light fitting is removed and a grand crystal chandelier is installed in its place, the former has obviously been replaced by the latter. There is also replacement if a substantial brick wall is erected on a site previously occupied by a flimsy brushwood fence. Replacement connotes no more than the installation of one thing in the place of another to achieve functional equivalence“ [our emphasis]. On the other hand, “anything amounting to alteration or addition for the purpose of improving or enhancing the common property is beyond the concept of renewal or replacement…” and requires a special resolution under s 65A.
So in summary, it is now settled law that:
- common property that is in good repair and operating as intended is not required to be renewed or replaced;
- the Owners Corporation does not have to put in place equipment to deal with any future eventuality to meet a demand the instant a lot owner might make it;
- a determination by an Owners Corporation not to maintain, repair, renew or replace specified common property merely requires a special resolution without further substantiation; and
- a breach of statutory duty by an Owners Corporation does not give an owner or occupier a right to sue the Owners Corporation for damages.
Written by Beverley Hoskinson-Green, Partner, Makinson d’Apice Lawyers
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There seems to be too much simplification even by the legal people that then makes it open for wrong interpretations and often the difference between a property registered as domestic is confused with one registered for other use.
I did believe: The domestic property is registered as a strata plan and all features are then referred to that day and have to be maintained without delay.
At the same time the property had each lot valued based on the dollar value of the lot, this may be totally independent of size and location but often has some relation but does not need to have.
From this lot value the unit entitlement is calculated. The unit entitlement is then used to calculate the lots share in all common costs.
But equally the unit entitlement is also used for the lots value in any vote (if requested by the owner). Often forgotten is the lot entitlement is also used to calculate any dividend distributed back to the lots.
The lot entitlement is also the base for the lots rights.
When a property with ten lots has a single power supply of 200 amperes it is normally divided by ten and each lot is assumed to have 20 amperes each but as normally not all lots use the power at the same time and the individual lot fuse is larger at say 40 amperes.
When calculating the lots share of power it should not be divided by ten but by the unit entitlement.
When some unit’s upgrades including installing air conditioner(s) they may exceed their share of power and the problem does not become noticeable until the total power requirement exceeds the 200 amperes available and the central circuit breaker blows.
This is clearly not a maintenance issue as the power available to each lot was known from the day the property was registered as a strata plan.
This is an issue of change of the building features to allow more power to each lot, this type of positive enhancement would most likely be through an owner’s special resolution.
The opposite of removing power say from 300 amperes down to 200 amperes would be classified as a loss of value to a lot and require an owners unanimous resolution.
But neither cae is a maintenance issue as it is a change to building features.
Not being able to fit air conditioning was a feature you purchased into and if not acceptable you should have purchased a lot with this feature and cannot demand maintenance but can request a feature upgrade.
Not only air conditioning but other feature enhancement that these days are seen as normal includes building security by adding entrance door locks but neither is maintenance but an owner’s decision for feature change that cannot be demanded but only requested.
In our property the power was downgraded from 360 amperes to 200 amperes and all entrance doors locks where removed or made in operational all under maintenance and never minuted or told to the owners.
I must be wrong as I thought in NSW this is theft a criminal act in which property belonging to another is taken without that person’s consent.
With the locks removed we already have people sleeping in the stairwells, and with easy access we may build a swimming pool on the roof for the general public under maintenance.
NEXT?
@leif said:
There seems to be too much simplification even by the legal people that then makes it open for wrong interpretations and often the difference between a property registered as domestic is confused with one registered for other use.There seems to be a consensus among strata lawyers with, for instance, Teys Lawyers also issuing a press release that says, in summary:
The Section 62 (2) duty to renew or replace fixtures or fittings connotes no more than the installation of one thing in the place of another to achieve functional equivalence;
Anything amounting to improved or enhanced functionality to lot owners requires a special resolution under Section 65 A;
A Section 62 (3) resolution not to renew or replace a particular item cannot be impugned on the basis that those who voted in favour did not in fact subscribe to the view that it was inappropriate to maintain, renew, replace or repair property and that the decision would not affect safety;
The proprietary rights of owners in common property does not impose positive duties on the owners corporation that modify the statutory duties;
Section 62 resolutions leave very little room for the operation of the doctrine of fraud on the minority because Section 62 (3) contemplates a loss rights by a minority in relation to common property;
A breach of Section 62 by an owners corporation does not give rise to an action for damages for breach of statutory duty.
There’s an awful lot in that and there will be more. For instance, will the rich and powerful no longer be able to skip CTTT adjudications by taking their cases to the Supreme Court on the grounds that it can award damages and the CTTT can’t? If the Supreme Court now also can’t award damages in these cases, then it’s back to the Tribunal for the heavy hitters.
The opinions offered in these Forum posts and replies are not intended to be taken as legal advice. Readers with serious issues should consult experienced strata lawyers.
While I confess to not having a head for detail I have read all this and fail to see what a decision made about the Hunter Connection and it’s shops and restaurants has to do with, or can set a legal precedent affecting, us humble, down-trodden resident owners trying to get lazy, self-interested Executive Committee members and a Strata Manager who’s the same, to fix-up our building and it’s surroundings the way they are supposed to.
(With any number of OH&S issues round here there is a multitude of accidents waiting to happen.)
Might I politely but provocatively suggest the ‘strata lawyers issuing press releases’ may be, to quote the Minister for Fair Trading NSW, looking for an ambulance to chase? Or are they just issuing press releases out of the goodness of their own hearts? Are they are really concerned for us?
CC
I’m not sure what your issue is with this report.
The effect of the law has been changed meaning that there’s no point in pursuing your EC to upgrade common property OR suing them for damages for failure to maintain CP.
It sounds like the lawyers are saying this is now back to being a low-cost CTTT issue instead of a potentially lucrative Supreme Court matter. How is that ‘ambulance chasing’?
The opinions offered in these Forum posts and replies are not intended to be taken as legal advice. Readers with serious issues should consult experienced strata lawyers.
You tell me, please, Mr T. I don’t get.
First, it’s a commercial thing / precedent, isn’t it? Does it mean anything to residential type stratas?
Second, won’t these lawyers stand to make money helping folks (sorry, caught that from KRudd) get things past the CTTT?
I truly can’t see why these lawyers would issue PR releases unless there was something in it for them. But call me a suspicious cynic if you like but please don’t get cranky.
The Thoo case has effectively stopped all s62 claims in its tracks, yet I believe the misrepresentation on behalf of the judges was unintentional and over-reaching as it included residents who are affected by very dangerous issues such as crumbling walls, leaks, broken windows, concrete cancer etc. This case was after all about an air-conditioner, not about the wellbeing of any resident within a disfunctional scheme.
Now people can only turn to the CTTT (the Clown Factory) where the most you can hope for is a puny fine! There is now absolutely no incentive for an OC to protect residents/owners within a Strata Scheme.
I believe everyone’s response seems to forget damages are no longer obtainable under s62, even if the OC are negligent.
Hopefully the Dr Thoo will appeal to the High Court and restore the protections afforded to NSW citizens (and all other Australians, let’s not forget a NSW precedent can be used in other states) for this ruling is unjust.
Until that happens, the 3 judges should be ashamed of themselves as they have erred in their ruling by failing to establish what exactly isn’t required under s62.
All Strata Lawyers have basically had their client list almost totally depleted due to this case, something I am sure Makinson d’Apice are only all to aware of.
@ccbaxter said:
You tell me, please, Mr T. I don’t get. First, it’s a commercial thing / precedent, isn’t it? Does it mean anything to residential type stratas?
Second, won’t these lawyers stand to make money helping folks (sorry, caught that from KRudd) get things past the CTTT? I truly can’t see why these lawyers would issue PR releases unless there was something in it for them. But call me a suspicious cynic if you like but please don’t get cranky.I’m not cranky, just puzzled by your choice of words and the vehemence of your argument. I can only draw your attention to the response from PCM2 below.
Strata is strata, whether it is commercial or not. There is no Commercial Strata Schemes Management Act and this ruling was specifically about Section 62 of the SSMA.
I can’t speak for strata lawyers and why they might issue these press releases except that all the big firms – Makinson d’Apice, Teys, Grace Lawyers, Bannermans etc etc – do so directly or in regular newsletters, presumably to keep their clients informed (or at least let them know they know what’s going on).
It costs an awful lot less to get legal representation at the CTTT than at the Supreme Court and it is the latter to which the Appeals Court has closed the door. And owners can still demand that Owners Corps have ro repair and maintain common property – they just can’t insist on upgrades.
I actually think these rulings have very positive aspects to them. The one about replacing or repairing like for like means that buildings won’t be held hostage by new owners who buy into old buildings but want the latest whizzbang fit-out that they weren’t prepared to pay for in a new building.
It will also stop rich, lawyered-up bully boys skipping the CTTT by suing their Owners Corps for damages which means their cases had to be heard by the Supreme Court.
The downside is that a lot of old buildings will be stuck with the common property that they have unless 75 percent of owners can be persuaded to pay for upgrades. Given the prevailing attitude of “get out before the bills come in”, that could mean the deterioration of a lot of older buildings.
It’s not the end of the world – but there has been a significant shift in its axis.
The opinions offered in these Forum posts and replies are not intended to be taken as legal advice. Readers with serious issues should consult experienced strata lawyers.
I didn’t think I was being vehement. Thanks for taking the time to explain further.
In general terms, I applaud the Supreme Court decision.
For instance, it means that a new owner cannot demand that a 40-year-old building he bought into be upgraded to offer Foxtel, just because it’s the “modern” thing. It can be done, but only if the OC pass a Special Resolution (75%+).
I read of a case some years back, and I believe it was in QLD, where a woman bought a unit in an older walk-up block. Some time later she had an accident and ended up a quadraplegic. She sued the OC to force them to make the block wheelchair accessible. And won.
The only part of the recent decision I have a problem with is not being able to sue for damages for breach of statutory duty. What if you had a high brick retaining wall which was starting to lean, and the OC (stupidly) resolved not to repair or replace it. Then it collapses, injuring a resident?
I think renovations and upgrades are quite a separate issue to “maintaining the CP to a serviceable state” (not necessarily to a brand-new state or a “modern” state), and are already adequately distinguished in the Act.
The real problem is we are owners in a property registered as strata plan and have minimal knowledge about law but still have strong opinions.
The judge stated you cannot claim damages (I assume in his case he meant when request for change/ upgrade / enhancement was not approved by the owners) but at the same time did not make any statement about not being able to claim compensation for lost value when your lot lost value due too not being maintained as required by the strata Act. To read between the lines and state you cannot take a thief to court and should go to an arbitrator is a bit long.
But who knows this is the real problem as we all have different opinion and I do not know the law.
I’m not a lawyer either but I think what the Appeals Court judge was saying was that there are other avenues available to individual owners to force Owners Corporations to abide by the terms of Section 62 – from CTTT orders to the appointment of a strata manager to replace the Owners Corp – that there is ‘relief’ available without the need to pursue damages.
In a way, this places the responsibility for the upkeep of the building back where it ought to be … with individual owners or groups of owners. If we have allowed things to get so bad that we feel we are entitled to claim damages, then we have passed the point where we, individually or collectively, should have taken to options open to us.
This particular judge may not be familiar with the workings of the CTTT and how unpredictable its adjudications can be, let alone the sometimes poisoned chalice of an appointed strata manager, but the theory is sound: why have an elaborate and long-standing system for enforcing strata law if you just ignore it?
By the way, I’m not sure that the ruling doesn’t cover the situation you describe of loss of value due to failure to maintain and repair.
However, I wonder what this means to individual members of the EC, carrying large swathes of proxy votes, who have used their voting power to consistently and knowingly ignore Section 62 requirements. If i recall correctly, the judge didn’t say anything about not seeking damages against individuals.
The opinions offered in these Forum posts and replies are not intended to be taken as legal advice. Readers with serious issues should consult experienced strata lawyers.
What the judgment says is that the remedy available in the event of a failure to comply with section 62 is prescribed by the Act, and therefore the Act circumscribes the consequences that flow from a breach of section 62.
If you look at it another way, if the intention was that damages should flow from a breach, then the Act should say that (note the CTTT doesn’t have the power to award damages).
It is worthwhile reading the case to understand the context – here you have an owner who wanted ventilation to two of his lots. The OC didn’t refuse until considerable time and effort had been spent trying to find ways of fixing the problem. So it is not a case of the OC refusing to do anything. On my reading of the case it was the owner who was more intractable, because he only wanted to use the two lots for specific purposes and have ventilation supplied to those lots at very specific standards.
I am not so sure if this would let parties off the hook who were party to a breach of section 62 and were negligent. You could possibly take action against them personally, and if they were negligent they would not be covered by insurance. In the case given of an EC failing to fix a wall in danger of falling down, yes I think you would have a very clear civil claim against the individuals on the EC, as distinct from the OC.
Perhaps JimmyT could ask the lawyers who issued the press releases mentioned here to explain things a little further. Maybe a couple of more normal, hypothetical situations could be put to them.
At first it seems simple but are we trying to simplify it to the point it does not work
To me there are three different cases:
1. Maintenance
2. Enhancements
3. Change
Light bulb breaks and is changed under maintenance not an option but an obligation
Light bulb breaks and is changed to a chandelier under maintenance an option but only under a special resolution
Chandelier breaks and is changed to a light bulb under maintenance an option but only under a unanimous resolution
Compensation and damages:
If the common property is not maintained an owner is entitled to both damages and compensation
Enhancement (positive) the majority rules and the losers do not get damages or compensation
Changes that has negative impact on a lot value without the lot owners consent and (any) owner is entitled to both damages and compensation
Exceptions:
Only a unanimous decision by the owners can change the above, and a new owner needs to be aware of this when purchasing into a property where this has been done
The ultimate law is the Australian law that does not approve of the majority stealing from the minority any local law that does not have all involved agreeing is overridden by the federal law.
In summary if you know the law has been broken you go to court and get both damages and compensation, if you think or believe the law has been broken you get advice and an arbitrator may be cheaper than a solicitor.
If you only want it fixed, and do not seek damages or compensation, the option of an arbitrator may be the simplest and quickest option.
An owners corporation must properly maintain and keep in a state of good and serviceable repair the common property (SSMA 1996 s. 62(1))
The reference is common property and all common features as registered as a strata plan.
The case in this tread seems to concentrate on “positive” change – enhancement and then apply it to all
PS I still know nothing about law but like all I have a strong opinion.
It’s never simple, every scenario is different. That is why there is no definitive answer.
I don’t think you can say that failure to maintain common property will allow an owner to claim damages and compensation, as Ms Hoskinson Greene states:
a breach by the Owners Corporation of its statutory duty to…maintain, repair, renew or replace common property does not give rise to an action for damages for breach of statutory duty on the part of…individual lot owners.
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