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The vexed question of who has standing over common property building defects in an apartment building is more pertinent than ever, in these days of more inhabitants of high-rise buildings administered by Owners Corporations. 

It is also more relevant in these days of higher rainfall levels across Australia and including in Victoria where once, only little more than a decade ago, there was concern about an ongoing drought. 

Waterproofing and leaky building defects, afflicting balconies, ceilings, and common area basements are now frequent hallmarks of domestic building claims in Victoria.  Regularly encountered common area problems can be façade issues with render or combustible cladding, water ingress issues with pipes in wall cavities and water leaks from balconies, and cracking and water ingress in basements with slabs, columns and beams. 

It is important to note that, save for cladding claims that may have a longer 15-year limitation period, the Owners Corporation will be subject to the usual 10 year limitation period (counted from the date of the Occupancy Permit) to issue legal proceedings against the original builder and other construction practitioners (eg designers) in building defect claims. 

It is not a rare situation for building defect claims in Victoria to involve the Owners Corporation as the Applicant for the common property defects, and for various named lot owners as co-Applicants in relation to defects located on or affecting their private lots / apartments. 

There is no special resolution needed (obviously) for private lot owners to bring legal proceedings for defects located in, or damage sourced in, their private apartments.  However, for building defects located in or on the common property, only the Owners Corporation has legal standing to initiate such legal proceedings for redress. 

Given that an Owners Corporation has a duty to repair and maintain the common property under the Owners Corporation Act 2006 (section 46) they may indeed have a duty to initiate legal proceedings against the parties responsible for such defects, or instead have the lot owners pay for such defect repairs directly (if there is not going to be legal proceedings against the builder or other parties). 

Special Resolutions

In order to authorise an Owners Corporation to issue legal proceedings it is necessary to obtain a “Special Resolution” from the lot owner members of the Owners Corporation, either by vote at a meeting (AGM or SGM) or by ballot.    A Special Resolution requires 75% of votes in favour, out of all lots entitled to a vote on the issue.   Section 18 of the Act refers to the need for a Special Resolution in these circumstances. 

If it is not possible to get a Special Resolution of votes in favour at the first attempt, at a meeting or by ballot, there can be some leeway on this, for instance by having an interim special resolution.  However, to do this the Owners Corporation must satisfy the requirements in section 97 of the Owners Corporation Act 2006 (“the OC Act”) which is not always easy to do if there is not a quorum for the vote or if the vote in favour is not at least 50% of the total votes of all lots affected by the Owners Corporation. 

Based on the precedent case in the Victorian Supreme Court of Body Corporate No 1 / PS40911511E St James Apartments v Renaissance Assets Pty Ltd [2004] VSC 438, the Supreme Court held that the Owners Corporation as a legal entity is the registered proprietor of the common property and was the “building owner” for the purposes of the OC Act in relation to the common property.   

This meant that only the Owners Corporation, which owns the common property on behalf of the various lot owner members of the Owners Corporation, has legal standing to take legal proceedings in relation to common property. 

So far it is relatively uncontroversial.  It can be a complex question though on where exactly lies the demarcation between private property versus common property, when deciding who has standing to take legal action over apartment building defects.  This is particularly so in relation to the balconies of private apartments, at least in the Victorian setting. 

One can have regard to expert reports and the Plan of Subdivision to try to work out the separating line between private and common property in an Owners Corporation building.  These tend to be more technical questions and legal interpretations are really confined to previous case law.   

Often a Plan of Subdivision will show the boundary as the median line halfway between the two faces of the external and internal wall, or halfway between the ceiling of the topmost apartment and the roof.  Needless to say, the roof of an apartment building will be seen as common property, as will the basement. 

In relation to apartment balconies, the tiled floor of the balcony has traditionally been seen as private property appurtenant to the lot, while the inside face of the balustrade is similarly seen as private, but the outside balustrade face presenting to the street is seen as common property. 

Between Australian jurisdictions, there have been differing case decisions on where the separating line is between common versus private property on apartment balconies.  This is a critical question because it obviously affects the question of who has legal standing to bring legal proceedings. 

It is generally accepted that the slab beneath and supporting a balcony is part of the infrastructure and with a purely functional purpose, and will be common property, while the tiles on the balcony floor are decorative and not functional and are private property. 

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

Also, in the ACT Supreme Court decision of The Owners Units Plan No 1917 v Koundouris [2016] ACTSC 96 (13 May 2016) the Judge declared at paragraph 580 that the waterproofing should most appropriately be 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.” 

In contrast, in Victoria at the VCAT level a differing conclusion has been reached on where the separating line is between common versus private property and whether or not the waterproofing membrane should be regarded as private or common property. 

There is little doubt across the jurisdictions that the floor tiles on a balcony, which can present as delaminating or lifting in many defect situations, are regarded as the private property of the lot owner.  That said, the actual problem leading to the manifestation of distress is sourced in the waterproofing, or the lack thereof. 

In the VCAT decision of Owners Corporation PS 508732B v Fisher [2014] VCAT 1358, the Tribunal found (in relation to a conventionally drawing Plan of Subdivision) that the balcony waterproofing membrane lay within the individual lot property boundary, making it part of the private property of the apartment. 

This article is intended to be used for general information only and should not be relied on as formal legal advice.  For more specialised advice on building defect claims and your legal rights and responsibilities, do not hesitate to take expert guidance from lawyers well versed in construction law. 

Article written by Justin Cotton, Director of Lovegrove & Cotton Pty Ltd 

Disclaimer

This article is not legal advice rather a discussion of the topic in only general terms. Should you be in need of legal advice, please contact a construction law firm. The experienced team at Lovegrove & Cotton can help strata communities and owners corporations resolve any type of building dispute.