By Nicholas Witherow and Aisha Dennes.
Partner and Head of Litigation Nicholas Witherow and Associate Aisha Dennes combine deep experience in litigation with broad experience in property and commercial transactions. They bring a holistic and commercial perspective to support clients facing disputes, advising clients on strategic approaches to avoid or minimise disputes and achieve commercial resolutions.
Water penetration is one of the most common issues we see behind disputes affecting owners corporations in Victoria. We know the situation can move very quickly, from a minor leak to a major legal headache. The following hypothetical scenario highlights the issues:
The owners corporation (OC) is alerted that water is leaking through the ceiling of one of the downstairs units. It is unclear where the water is coming from, possibly overflowing garden beds, or one of the upstairs units. What does the OC need to consider?
Seek advice and act promptly on strata issues
In a situation like this, the OC and the committee may be unsure who is responsible for the costs of investigating and repairing water damage. Should they approve spending the OC’s money on investigations? Or is this just an issue for the lot owner and not something they should get involved in?
We always tell lot owners and OCs to get advice and act early on water issues. There are practical and legal reasons not to wait while you determine who is liable for the leak:
- If a leak is discovered, both the OC and the affected lot owner have a legal obligation to take reasonable steps to mitigate their losses. This does not make you responsible or stop you claiming compensation.
- It is often time-consuming and costly to establish responsibility for water damage.
- Delays can make any damage more extensive, and more expensive.
When an OC comes to us early, we can guide them and the committee through the reports and investigations they will need. This gives them confidence about how they are spending the OC’s money and provides the best options to claim any compensation available.
Manage damage and minimise losses
Taking prompt steps to investigate and manage the leak does not mean the OC is admitting responsibility. If someone else ends up being liable, the OC can still claim the costs of investigating and rectifying damage.
The law requires lot owners and OCs in this situation to take reasonable steps to mitigate their loss, that is, to stop the damage from spreading or becoming worse. If the damage gets worse because nothing was done to manage the leak once it was identified, the OC may end up having to pay for the additional damage. In this scenario, that could extend to ceiling collapses, structural damage, mould damage or costs associated with lots becoming uninhabitable.
If the OC unreasonably delays acting, they might also be failing in their legal duty to manage and maintain the common property. In which case, they could also face complaints or claims from lot owners.
In deciding what steps to take, the OC also needs to consider its own insurance policies, particularly building insurances, to ensure that the OC is complying with any obligations under those policies.
The OC may not have sufficient reserves in a sinking or maintenance fund to pay for extensive repairs, but it still needs to take reasonable steps. These may be temporary measures to address leaks. Or it may need to consider options to raise funds, such as issuing special levies or borrowing money.
Liability for water leaks can be complicated
Even if the water leak appears to be a problem just between lot owners, the OC may still share responsibility. Establishing liability for a water leak in a strata complex is a forensic exercise and it is unwise to make assumptions.
In a practical sense, by the time the leak is detected, the physical source may be hard to identify.
Water disputes can also be legally complex to untangle. In Victoria, water disputes involving domestic buildings are typically heard by the Victorian Civil and Administrative Tribunal (VCAT). Several laws cover different aspects of the dispute. Victoria’s Water Act 1989 covers damage from the flow of water. Building defects are dealt with in the Building Act 1993, while strata management issues are contained in the Owners Corporation Act 2006 and Subdivision Act 1988.
Generally, the law says that when water flows from one person’s property onto the property of another person and causes damage, the person who caused the flow will have to pay damages. Which sounds straightforward enough. But in a strata complex, the boundaries between common and individual property are not always clear. In this example, a leaking garden bed may be common property or private property. If the leak originated in a water pipe that services multiple units, that could also be common property.
Further complicating the issue, any water that falls on or flows through the common property may be considered the responsibility of the OC. Even if the water originates in one lot, it may flow through common property at some point, and therefore make the OC at least partly responsible.
A leak may also indicate building defects in the original construction that affect the building as a whole and not be confined to lots showing signs of the leak.
Early advice gives the best options to recover costs
Once the source of the leak is identified, the OC and/or individual lot owners may be able to claim the costs of repair. For example, they may need to consider suing the builder or bringing a claim under builders warranty insurance in certain circumstances.
There are time limits for bringing claims for building or plumbing defects. These time limits may be expiring by the time leaks are discovered. There are also time limits to make a claim on builders warranty insurance. These are other reasons to act quickly so you don’t just miss a deadline.
When you get leaks investigated, you want to make sure you get reports that contain all the information you will need if you decide to make a claim. This applies whether you ultimately decide to bring a legal action for compensation, or whether you are able to recover under an insurance policy. Each body has requirements about the contents and format of the reports you will need to submit.
We can advise on these formal requirements and help the OC avoid having to order additional investigations or reports because the first ones did not contain everything they needed.
Document and communicate at each stage
Communicating clearly with lot owners is an important strategy to help minimise or de-escalate disputes in strata complexes.
Owners corporations have powers under law and the OC’s own rules to take actions to address issues such as water leaks. However, we recommend that OCs keep lot owners informed at each stage, even if there is no legal requirement to consult.
Expect issues such as water damage to be stressful for lot owners. Groups of lot owners will be affected in different ways, but all will have a vested interest in the resolution. Being as transparent as possible can help avoid internal conflict or complaints that the OC is acting improperly.
You will need clear records of the defects and all steps taken to address the issue to bring an insurance or compensation claim.
Good records and prompt action also help to reassure prospective buyers, an issue that lot owners might also be concerned about. A water penetration issue needs to be disclosed in Owners Corporation Certificates, which are included in the documents required for the sale of a property. It is much more attractive to prospective buyers to see an issue has been identified and remedied promptly, rather than allowed to deteriorate.
Be prepared to act
Water penetration issues continue to affect many strata complexes, and we do not see the issue going away any time soon. But that also means any OC is not alone in dealing with water damage. In our experience, being prepared to get advice and act promptly gives you the best opportunity to resolve the issue as painlessly as possible.
Get P&B Law's support with your owners corporation disputes.
Disputes involving owners corporations are always challenging, with complex commercial, personal, and legal considerations. P&B Law’s experienced team guides clients through every stage, with common-sense advice and strategies to achieve the resolution that’s right for them. Contact us today if you’re concerned about a dispute.
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