What you should know about Owners Corporations
Strata Managers are well aware that Owners Corporations have an obligation under Section 62 of the Strata Schemes Management Act 1996, to manage, upkeep and repair common property.
Dealing with defect claims
When issues of defects arise, Owners Corporations must act in order to discharge their statutory obligations.
The problem facing Owners Corporations however is that managing the investigation of defects and taking the appropriate steps to satisfy their statutory obligations is often a very daunting task.
Here are some points for Strata Managers which may help you assist Owners Corporations to better manage defect issues.
In a typical scenario:
- Owners Corporations are usually made up of mums and dads or other individuals, who may be owners or investors;
- The Chairperson of the Executive Committee is often the person with the most time, but not always the most skilled;
- The skill sets of an Owners Corporation are not the same skill sets in a corporation or business;
- Decisions on what steps an Owners Corporation ought to take when confronted with defect problems often take some time to be made;
- Often, decisions on taking legal action are late and run the risk of being time barred;
- Owners Corporations obtain advice from:
− Building consultants as to the nature and extent of defects, rectification and methodology;
− Lawyers as to what the rights and obligations of an Owners Corporation may be;
− Strata Managers who sometimes do and sometimes do not have a handle on the issues;
- Owners make decisions based upon the advice of others, but sometimes their decisions are influenced by outspoken members of Executive Committees and other lot owners.
Confusion as to different positions
Against this background, Owners Corporations can become easily confused by the advice they obtain when compared to the position that may be taken by a Home Owners Warranty Insurer (if there is one), Builder and/or Developer.
- A building consultant engaged by an Owners Corporation may provide a very thorough and detailed report of defects;
- On being notified of a claim, the Home Owners Warranty Insurer appoints a consultant, who says that “the extent of the defects is far less than what the Owners Corporation has identified”;
- The original builder on the other hand says that the defects are far less than what both the Owners Corporation consultant and the insurance company’s consultant have identified;
- The report from the Owners Corporation’s consultant is 400 pages. The report from the insurance company’s consultant is 200 pages. The builder’s consultant’s report is 50 pages.
From an Owners Corporation point of view the different reports obtained received from their expert, insurer and builder can result in confusion and a lack of clarity as to the true position of the nature and extent of the defects and rectification works that are required without a further round of costly investigations.
Another problem area is that the nature of the scope of rectification work is often a function of the quality of the consultant’s report.
A ‘tick and flick’ assessment will not result in a detailed review of the defects, but can result in a much broader scope of work simply because the consultant wants to make sure that nothing is missed by way of rectification works.
Although initially a Schedule of Defects is a good start, a more focused report will result in a more focused scope of rectification work.
Lack of available funds
Although an Owners Corporation has a statutory obligation to maintain upkeep and repair, they may not necessarily have the funds to undertake fairly substantial investigation of nature and extent of the defects.
In such a case a special levy will be required which will further delay progress.
The lack of available funds does affect the progress of the investigation, which then impacts on the claims preparation, in turn impacting upon the notification preparation to the Home Owner Warranty Insurer.
What inevitably occurs is that the Owners Corporation comes close to the end of the limitation period and there is a mad rush and panic to notify the insurer and/or commence proceedings.
Other challenges for Owners Corporations include:
- The need for Owners to sometime take emergency repairs especially if there is a requirement to satisfy a fire order
- Conflicts which arise between Executive Committee; Owners, Builders and developers on how to deal with defects;
- The need to properly scope the rectification works;
- Where there is a Home Owners Warranty Insurer understanding the difference and implications between incomplete work and defective work which would be relevant where a builder that had been engaged to undertake refurbishment works becomes insolvent;
- Ensuring that the right legal and technical team has been engaged;
- Poor expert reports.
A well informed and efficient Strata Manager and committed Executive Committee are key to the proper and timely management of defect issues.
Some other tips include:
- Obtain proper legal advice early;
- Fully brief lawyers and experts with accurate information;
- Have good costs controls and reporting procedures;
- Ensure timely responses to legal team and other consultants;
- Have regular meetings with the Executive Committee and owners to keep them informed;
- Keep focused on the issues and ensure that the matter moves forward.
If you would like any further information on this topic, please contact: