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Owners corporation law

12 Jul 2016

Unfortunately, we are well into storm season in Australia, and the east coast is being battered with its usual fair share of heavy rains and high winds.

Dealing with the aftermath of a storm is difficult for everyone affected. It is particularly difficult for owners’ corporations (OCs) because they must also deal with upset lot owners, dispossessed tenants and damage caused to common property. But where exactly does an OC’s obligations start and end?

The most important thing that an OC should have in place is the right coverage under its insurance policy. It is a statutory requirement to be insured for the full replacement value of all common property assets (unless you are in a two-lot scheme).

In addition, you should ensure that your insurance policy covers damage such as storm damage, to the greatest practicable extent, and covers the cost of emergency or crisis accommodation for displaced residents, to the greatest possible extent.

In the aftermath of a storm, an OC needs to be proactive to ascertain the extent of any and all damage to the common property. Ideally, its manager or a consultant should come on-site as soon as possible to assess damage and, if a resident reports any damage, the OC should act promptly to investigate and make repairs.

This assumes of course, that the damage is done to common property, not lot property. In Victoria, the boundaries within a lot that delineate the point between common property and lot property can vary widely.

Much depends on the notations recorded on the header sheet of the registered plan of subdivision as there are no hard and fast principles of interpretation. Often the notations read like gibberish to the ordinary person and state matters such as “location of boundaries defined by buildings – interior face – all boundaries”.  What this seemingly innocuous phrase means is that items such as tiles and waterproof membranes, and the underside of ceilings will belong to the lot owner, not the OC.

This matters a great deal when there is storm damage to these types of items, as it might well mean that lot owners might be required to claim any damage from a storm to these items under their own home and contents policy. If their insurer does not provide this type of coverage, then the owner can be left high and dry.

In recognition of this situation, some OCs elect to ensure that their policy of insurance for damage covers all parts of the building (including lot property) but may have a rule in place to require owners to pay for the excess under any claims made to the insurer. Committee members ought to discuss these types of situations each year when the policy is up for renewal.

The legislation states that OCs have a strict duty to repair and maintain the common property in good condition. Where an OC fails to meet these obligations, they may be liable for any property damage caused as a result, as well as pure economic loss if that loss is reasonably foreseeable.

In other words, when a storm damages common property and that damage causes consequential damage or loss to a lot, the OC may be responsible. If an OC does not act promptly, it places itself at risk of being sued. That is why being proactive and acting promptly is so important.

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