By Partner, Mike Roberts, Special Counsel, Tara Plumbe and Lawyer, Julia Racheha

The Court of Appeal has confirmed that the limitation period under s.106(6) of the Strata Schemes Management Act 2015 does not recur on a rolling basis until the breach under s.106 is remedied but rather, commences to run on the date the lot owner ‘first becomes aware of the loss’.

In The Owners – Strata Plan No 74232 v Tezel [2023] NSWCA 35, the NSW Court of Appeal determined the construction of the term “loss” under s106(6) of the Strata Schemes Management Act 2015 (NSW) (“SSM Act”). Relevantly, s.106(5) and 106(6) state:

(5) An owner of a lot in a strata scheme may recover from the owners corporation, as damages for breach of statutory duty, any reasonably foreseeable loss suffered by the owner as a result of a contravention of this section by the owners corporation.

(6) An owner may not bring an action under this section for breach of a statutory duty more than 2 years after the owner first becomes aware of the loss.

The key issue before the Court in Tezel determining whether the two-year limitation period to bring an action under s.106(6):

1. commenced from the date the owner first becomes aware of the loss, or the type of loss that is the subject of the complaint; or
2. recommenced each day the Owners Corporation failed to remedy the breach of s.106(5)

Background Facts

Ms Tezel was a lot of owner of a unit of a strata scheme in Bondi Beach.

In 2013, Ms Tezel noticed water ingress into her unit following instances of heavy rain. During 2013, Ms Tezel removed the carpet in the Unit and ceased to permanently live in it.  In 2016, Ms Tezel unsuccessfully attempted to lease out the Unit.  The Unit has remained unoccupied since.

On 6 November 2020, Ms Tezel brought proceedings against the Owners Corporation in the NSW Civil and Administrative Tribunal (“NCAT”) for the loss sustained to her Unit.

As part of the claim, Ms Tezel sought damages loss of rent from 6 November 2018 on the basis that the loss was not reasonably foreseeable prior to this date.

The NCAT Proceedings and Appeal Panel Decision

At first instance, the Tribunal dismissed the loss of rent claim on the basis that the claim was statue-barred because the loss was realised by Ms Tezel prior to 6 November 2018.

Ms Tezel appealed the Tribunal’s decision.

The appeal panel upheld the Appeal and found that the action to bring a claim for loss of rent was not out of time and construed the term “loss” in s.106(6) as loss occasioned only when an ongoing breach ceases.

Decision of the NSW Supreme Court of Appeal

Ultimately, the Court of Appeal maintained that the two-year period in which a Lot Owner’s can bring an action under s106(6) commences from the point the owner first becomes aware of the loss.

The Court held that the loss is the kind or type of loss that the lot owner is entitled to recover under s.106(5). It need not be reasonably foreseeable nor does it need to refer to the particular loss the lot owner is seeking to recover.

In imposing a relatively short limitation period, the Court held that the legislation was directed at ensuring that a lot owner cannot delay taking proceedings in circumstances where the people having to make good the loss are also lot owners, and the passage of time may affect their ability, through the owners corporation, to recover that loss from other persons.

The Court of Appeal found that Ms Tezel first became aware of the loss of rent in 2016. The two-year limitation period commenced to run at that time. In bringing the claim on 6 November 2020, Ms Tezel was out of time.

The decision is hugely important for strata insurers, lot owners and owners corporations and clearly establishes the date the limitation period under s.106(6) commences to run. This decision represents a shift away from the position of the NCAT Appeal Panel which gave lot owners greater liberty in bringing a claim for damages under s.106(5). Lot owners must now be mindful of the when losses might arise from a failure by an owners corporation to maintain and repair the common property and be proactive in bringing proceedings within a two year period.