Duty to Repair Common Property – The Law has Changed!!

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