“Owners Corporations, Apartment defect claims and Class Actions”

27 Sep 2017

“Owners Corporations, Apartment defect claims and Class Actions”

 By Justin Cotton, Director, Lovegrove & Cotton Pty Ltd (Construction and Commercial Lawyers)

 With the advent of both more people living in high rise residential buildings and higher rainfall levels, perhaps the most common source of building defects in Victoria now involves water ingress from apartment balconies.  In tandem with that, Owners Corporation claimants in domestic building disputes have become more frequent.

This is not only pertinent to Victoria; in other Australian regions with high rainfall climates, such as in the ACT, as construction lawyers we are seeing the same phenomenon of water ingress from balconies, leaks from common area planter boxes, and façade damage to residential mid to high rise buildings from excess moisture.

While each State or Territory would have its own specific laws or rules for Owners Corporations or Body Corporates, there are common threads when considering whether and if so how to bring a legal action against a Developer or Builder for defective works in high rise residential buildings.

Initially, the first question relates to the legal standing for a party to bring a claim for the defective works.  The usual rule familiar to most jurisdictions in Australia is that the Owners Corporation owns the Common Property as agent for the lot owner members of the Owners Corporation and is responsible for the care, repair and maintenance of it.  The Common Property includes all the land in the development that is not included within a privately held Unit, eg the basement carpark area, common area gardens and hallways, stairwells and lobbies, and the building’s façade.

With apartment balconies it can be difficult to ascertain the dividing line between Common and Private Property.  As a rule of thumb the external face of a balcony balustrade would be seen as part of the façade of the building and therefore Common Property, whereas the tiles on the balcony floor would be Private (ie part of the apartment).  Any component of the building’s structure or a purely functional part of the development is generally seen as Common Property; so for example the waterproofing membrane beneath the balcony tiles and the slab below that would be viewed as Common Property.

In the New South Wales case decision of The Owners SP 35042 v Seiwa Australia Pty Ltd [2007] NSWCA 272 (lines 37-39) it was held that the waterproofing membrane laid under the tiles on a balcony formed part of the Common Property.

Additionally in the ACT Supreme Court case of The Owners Units Plan No 1917 v Koundouris [2016] ACTSC 96 (13 May 2016), the Judge declared at paragraph 580:  “…in my view the waterproofing is better treated as a part of the slab because it is a functional rather than decorative treatment to the slab and is practically integrated with it.  It is distinct from a finish such as tiling or painting.”

Regard is generally had to the Plan of Subdivision where there is doubt, and a building consultant expert when examining the defects can also be asked to give their opinion.  The dividing or median line between an external wall of a Unit can be seen as the boundary between the Common versus the Private areas.  Of course some defects can relate partly to each type of property, or could for example have their genesis in common areas but have consequences for private Units.  For example, mould and condensation in internal areas arising from defective roof plumbing.

Depending on whether the defects that require rectification are sourced in or affect Common Property or Private Property, this will affect the question of who has standing to be the plaintiff or applicant for the legal proceeding.  It is not uncommon for the Owners Corporation to be the claimant for defects in the Common Property and for a host of affected lot owners to also be included in the legal proceeding as co-plaintiffs or other claimants, in regard to defects manifesting in their apartments.

The usual process where building or design defects affect both areas of the development is for the executive committee of the Owners Corporation or its manager to send regular notifications of the defects to all lot owner members and to acquire an expert technical report (or reports) to comment on the cause and responsibility for the problems, the best method(s) to rectify via a scope of rectification works and an estimated costing to carry out the rectification.

Following this a letter needs to be sent to the Members advising of the intention to take legal proceedings in the relevant Court or tribunal against the parties who are identified as responsible for building, design or certification defects.  This is to ensure that those lot owners who wish to join a legal action are given plenty of notice of that intention.

At some point the appropriate resolution will need to be voted on by the lot owner members to authorise the Owners Corporation to commence legal proceedings.  In Victoria, the Owners Corporation Act 2006 requires a special resolution (being a majority of 75% of the votes in favour) that must be achieved to authorise the Owners Corporation to commence legal proceedings in relation to the Common Property.  This should be voted on at a special general meeting or by postal ballot, but care needs to be taken to ensure the wording of the motion is not unduly restrictive and therefore open to potential later challenge.

Regard must be had to the rules in the specific State or Territory where the building action arises before deciding on the appropriate form of authorization.  In the ACT for example, only an ordinary resolution (being at least 50% of the votes in favour) needs to be passed to authorise the Owners Corporation to start legal action.

Based on the relevant provisions of the Unit Titles (Management) Act 2011 the Owners Corporation can then take action in regard to the Common Property but also the “defined parts” of a building containing “Class A units”.  The term “defined parts” includes load bearing structures like walls, columns, footings, slabs or beams and “any part of a balcony on the building”.

Obviously therefore it is necessary to be aware of the subtleties in the particular rules that apply to the specific State or Territory, before deciding on the correct form of authorisation and the identity of the plaintiffs or claimants to the action.  As always some lot owners will be keen to commence and continue legal action, and others less so, particularly if not every apartment is affected by building issues.  The important thing is that everyone is fully informed and notified well in advance of starting legal action.

To ensure that all interested lot owners are given ample time to decide whether they want to join the legal “class action”, regular updates and written follow ups should be given well prior to issuing proceedings.  Regard must also be had to the finite “limitation” period within which a legal action can be started.  In Victoria this is 10 years from completion of the Works, whereas in the ACT it would be either 6 years from the approval of a Certificate of Occupancy & Use or 6 years from when the defects become manifest.

Unit owners seeking to join a legal action after the limitation period has expired may find themselves shut out based on a time bar and prevented from participating.  So this is a factor that needs to be kept in mind when planning a class action in Owners Corporation matters.

If in doubt about your rights and responsibilities in building dispute situations, including about defects in buildings administered by Owners Corporations, do not hesitate to engage expert advice from lawyers well versed in building dispute resolution and Owners Corporation requirements.

For more information and assistance, please contact Lovegrove & Cotton, Lawyers

www.lclawyers.com.au