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When can an individual lot owner make claims on the Owners Corporation for facilities in a commercial building?

Property Law News | October 2013

The recent decision of the Court of Appeal in The Owners – Strata Plan 50276 v Thoo has provided some guidance on the rights and obligations of Owners Corporations (“the Owners”) in respect of the common property in a Strata Plan. For any owner with aspirations of having the Owners upgrade the common property to meet the increased demands of residents, the outcome is, unfortunately, not good.

The facts of the case

Dr Thoo, a lot owner in a commercial Strata Plan known as the “Hunter Connection” sought to subdivide his lot into 3 shops which would be responsible for cooking and selling food to the public. In order to meet the requirements of the City of Sydney Council, Dr Thoo requested that the Owners bear the cost of upgrading the existing mechanical ventilation system to cope with the demand of the 3 shops. In response, the Owners passed a Special Resolution pursuant to s 62(3) of the Strata Schemes Management Act 1996 (“the Act”) resolving that it was inappropriate for the Owners to renew or replace the mechanical ventilation system.

Dr Thoo brought proceedings against the Owners in the Supreme Court seeking an order that the Owners be obliged to upgrade the system. The Supreme Court found that although the system was in a “good and serviceable state of repair” the Owners were in breach of a statutory duty to provide Dr Thoo with a system capable of delivering his required needs and so made a decision in favour of Dr. Thoo.

The appeal

The Owners appealed and in overturning the decision of the Supreme Court, the Court of Appeal held that as the fact that the system was working efficiently and effectively was sufficient, and there was no obligation on the Owners to accommodate the increased needs and expected demands of a lot owner. The court stated that the “mere incapacity” to service the future lot owners over and above the capacity of the system as designed is insufficient to engage the duty [on the Owners] in s 62(2)” of the Act.

Dr Thoo claimed that he was entitled to an equitable right to enjoy the common property as an equitable tenant in common and the Court held that disputes between lot owners over the enjoyment of the common property were not capable of being decided by the Owners.

Dr Thoo also claimed that the Owners failed to provide sufficient reasons for their decision to pass the Special Resolution which in his view meant there was no valid basis for the decision. The Court found that there was no requirement for the Owners Corporation to provide reasons for its decision. Accordingly, the individual lot owners were entitled to claim it was inappropriate to replace the existing ventilation system as it would create an unfair burden on them in respect of the high cost of the replacement in the absence of a benefit to each of them personally.

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