What happens when items owned by the owners corporation in a strata scheme (the strata common property) start to break or need replacing? Should this be an upgrade or replacement? Many owners corporations face this situation. This can be problematic when an item has broken and can no longer be fixed.
A good example is onsite electrical property, such as a digital receiver for a television aerial. The pace of technology can quickly out-date these items, making an upgrade necessary. However, the trouble for owners corporations is that there are different rules for repairing or upgrading. Replacement or repair falls within the owners corporation’s duty to repair and maintain. Replacements can generally be made immediately. Upgrades, however, require a vote to alter the common property.
Many strata schemes struggle with this distinction, but it does not have to be a difficult legal hurdle. This article clarifies the rules around upgrading strata common property.
The Rules for Replacing or Repairing Strata Common Property
An owners corporation has a strict duty to repair and maintain the strata common property (section 106 of the Strata Schemes Management Act 2015). This means that an owners corporation cannot evade repairing something that is in disrepair unless it passes a special resolution determining that it is inappropriate for the owners corporation to repair, renew or replace the property. This is a legal obligation that the courts have interpreted very strictly.
While this rule applies to replacements and renewal of defective property in the same way as damaged property, it does not apply to upgrades or equipment. Using the digital receiver example above, if the receiver can be replaced with an equivalent model (assuming it cannot be repaired), then this would fall within the owners corporation’s duty to repair the common property. Therefore, the owners corporation could engage the tradesperson to install the replacement because the owners corporation is already authorised by law to repair the property.
However, the owners corporation may place parameters around spending. For example, by setting limits on repair spending. In this case, a large replacement cost will require the owners corporation to go to a general meeting for permission. However, this is for permission for the spending amount, not the replacement itself.
The Rules for Upgrading Strata Common Property
To upgrade property, the owners corporation must gain consent from the owners comprising the strata scheme. It must gain this consent in a general meeting by passing a special resolution to carry out the upgrade. This is because strata laws require the owners’ consent for any additions, alterations, or new structures on the common property.
This makes sense because the property is communal, paid for by communal funds. However, this does cause some confusion, especially when we look at the digital receiver example. Determining whether a new receiver is a replacement or an upgrade depends on the advice of your tradesperson.
For example, if the receiver is a newer model and clear that it has new features, it is an upgrade that likely needs approval by special resolution. However, should this upgrade cost thousands of dollars, some owners may disagree with spending so much.
The Importance of Getting Owners’ Consent
If the owners corporation goes ahead with spending to upgrade property, but does not seek a resolution, a disgruntled owner could apply to the NSW Civil and Administrative Tribunal to reverse the decision. The owners corporation would then need to seek a resolution at a general meeting. However, if the owners then vote down the resolution, this may cause further expense and dissent.
Getting the vote right is a relatively simple step to avoiding this. If in doubt, err on the side of holding a meeting. Unless of course, the works are an emergency — use common sense here.
Practical Questions to Decide on the Right Process
To determine whether something is a replacement or upgrade, try asking these questions:
|Indication||Is a special resolution required?|
|Is this new property different from the original? Does it do more, cover more area, or contain different enhancements?||A special resolution is likely required as the additional features make this an upgrade.|
|Is this an emergency and the property simply needs to be repaired?||A special resolution will not usually be required for emergency replacements.|
|Is the replacement or repair the same, other than variations in the external appearance from the original?||This is a replacement, so a special resolution is not required.|
An owners corporation must seek approval to spend funds on upgrades to the common property, but needs no approval for repairs or replacements. Understanding the strata laws will assist you and your strata community in getting the right approvals for repairs versus upgrades. Getting this right means avoiding future complications and ensuring that your community backs your upgrade decisions.
If you need specific advice on determining the right approvals for upgrades or repairs, call LegalVision’s strata lawyers on 1300 544 755 or fill out the form on this page.
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