Strata wars - why common property is the new legal battleground

In the realm of strata disputes, particularly those concerning building defects, understanding the distinction between lot and common property is crucial. This distinction can delineate liability for rectifying defects to areas of common property. Under the Strata Schemes Management Act 2015 (NSW) (SSMA), an Owners Corporation (OC) has a strict statutory duty to maintain common property in a state of good and serviceable repair. However, grey areas exist where the lines between common and lot property are unclear, necessitating reference to the strata plan and the conditions at the time of its registration.

This article explores two significant legal decisions that clarify the scope of an OC’s duty under section 106 of the SSMA and the ability of lot owners to bring contractual actions against third parties for defects affecting their common property interests.

Common property vs lot property

A common misunderstanding in strata living is the distinction between “lot property” and “common property”. “Lot property” refers to individually owned spaces within the strata plan, including airspace inside walls, floors, ceilings, and certain fixtures. In contrast, “common property” is owned collectively by all owners and maintained by the OC through levied strata fees. Examples of common property include driveways, swimming pools, and common hallways. The rights of lot owners in common property are indivisible, allowing them only the right to use and enjoy it, subject to by-laws.

Grey areas - defects in common or lot areas?

Section 106(1) of the SSMA mandates the OC to maintain common property in a state of good and serviceable repair. However, grey areas often arise, particularly when defects occur in spaces technically classified as common property but not used by lot owners or vice versa. It should be noted that areas can be either lot or common property and can even change from one to the other, but it cannot be both. This has sparked debate in courts over who should rectify issues arising regarding repairs and maintenance in these “grey areas”. A typical example of such a “grey” area is when a defect manifests within a lot envelope but requires repairs extending above the ceiling line or below the floor (technically those areas are common property).

The Seiwa decision - contributory negligence and common property

In Owners SP 35042 v Seiwa Australia Pty Ltd [2007] NSWCA 272 (Seiwa Decision), the Court addressed whether a lot owner could be held to be contributorily negligent for defects in the common property. It was held that the OC breached its statutory duty to repair waterproofing membrane and rusted balcony steelwork, which were deemed common property. Importantly, it was decided that contributory negligence is not a defence to an action for a breach of statutory duty.

The Rialto decision - lot owners’ standing in common property matters

The Rialto Sports Pty Ltd v Cancer Care Associates Pty Ltd [2022] NSWCA 146 decision (Rialto Decision) affirmed that lot owners have standing to claim damages for their proportionate share of rectifying damage to common property. The court ruled that the SSMA does not negate personal rights that a lot owner may have against a third party for breach of contract, even if it involves common property affirming former decisions to state that lot owners will inevitably suffer loss if there are defects in the common property. The Court also found that lot owners are entitled to recover rectification costs for incomplete or defective building under their respective contracts. 

Key takeaways

In summary:

• Understanding the distinction between lot and common property is essential in strata disputes.

• The OC’s duty under section 106 of the SSMA is a strict liability, extending beyond repair to include preventative maintenance.

• The Seiwa Decision clarifies that contributory negligence is no defence for an OC’s breach of duty, while the Rialto Decision affirms lot owners’ standing to claim damages for defects in common property.

• These cases highlight the evolving legal landscape surrounding common property issues in strata schemes.

Final thoughts

If you are ever unsure about what is common or lot property, you should reach out to one of our professionals to provide clarity before any action is taken so you are certain about who is liable for what is lot or common properties, having regard to the “grey areas”.

Authors: Robert Kalde & Holly Tang