NSW: Insufficient Capital Works Funds: Keep Pushing or Go to NCAT?

Question: We have outstanding maintenance issues in our 1960s building and not enough funds. At our AGM, I raised the fact that we need a new capital works plan to detail the upcoming spending, but I was overruled. Do I keep pushing or take the matter to NCAT?

My unit is in a 3 story brick strata building with 11 lots that was registered in 1960. The building is mostly in its original condition, and many structures are in need of replacement eg windows and plumbing.

At our AGM last month, I raised the fact that we need to do a proper review of our Capital Works Plan but was overruled by the other members of the committee. The current plan was done in 2019 at a cost of $300 and was an ‘off-the-shelf’ job that has completely omitted the window and plumbing stack replacement. We have around $100k in our fund, not enough to fund work, but a good start.

How should I proceed? Am I best to keep pushing for a review of the capital works plan, or should I take the window replacement issue straight to NCAT?

Answer: The act is not optional. If maintenance is required and is not done and damage or harm is the result then each and every owner faces an unlimited liability.

Sedgwick would recommend wherever possible trying to come to a resolution outside of NCAT as there are expenses that will apply to both parties if this route is followed and this needs to be considered.

As noted above the course of action being referenced is not necessarily the best way forward. The suggestion that the Owners Corporation need to re-do their 10-year plan for the Capital Works Fund will not necessarily generate the desired outcome being sort. Even if successful, the result would be a new plan, costing another $300 spent and not necessarily the replacement / repair of the property. The new plan may simply put the windows and plumbing stack replacement in the 10th year.

The best place to started is the Strata Schemes Management Act 2015, paraphrasing;

1. Section 79 says

   1. that each year at the AGM, the Owners will vote on and estimate how much money it will need to credit to its administrative fund for actual and expected expenditure
   2. The estimate of expenditure must include to maintain in good condition on a day-to-day basis the common property

The windows are common property.

2. Section 106 and in particular 106 (1) says

   1. An owners corporation for a strata scheme must properly maintain and keep in a state of good and serviceable repair the common property, and
   2. Accepting that Section 106 (3) allows for a special resolution (which does also have its own definition) to not perform maintenance if it is inappropriate to do so and if the decision will not affect safety.

Then the questions that the AGM should have answered are;

1. Are the windows and the plumbing stack to be maintained (this would have been agreed, as stated the windows are common property, and to not maintain them would be a safety issue) a vote as negative could be set aside by NCAT.
2. Therefore the next question is when they should be repaired / replaced
   
   • this year or
   • scheduled within the 10-year plan

and then budgeted for in the same way.

From a risk mitigation point of view this question should be carefully considered. If the windows are in a dangerous condition and there is an imminent risk of danger that can easily be determined, the result should most certainly be to repair or replace ASAP. To not do so exposes all members to unlimited liability in relation to harm or damage to others.

The other concern is the $100k balance in the sinking fund. The Act is explicit in that if there are insufficient funds and the work must be done, the Owners corporation must fund and complete it. Funding options would include

• special levies or
• an unsecured loan

The act is not optional here. If maintenance is required and is not done and damage or harm is the result then each and every owner faces an unlimited liability.

Beyond the above Sedgwick would recommend the engagement of a suitably qualified Building Consultant to assist with providing a Scope of Works and a Quantity Surveyor to provide a Cost Estimate to establish the full extent of the work and associated expense of the remedial repairs as the next step in addressing the issues identified.

This post appears in Strata News #558.

Scott Driscoll
Driscoll Strata Consulting
E: scott@driscollstrataconsulting.com.au
P: 0409 632 003