Excess(es) in Strata Building Defect Claims

After 14 years the NSW Court of Appeal finally helps NSW strata owners in HOW insurance claims.

Since the introduction of Home Owners Warranty insurance in NSW in 1997, the private insurers have consistently said that when a strata corporation makes a claim for common property it's effectively doing so for all the owners.  So it's not one claim but multiple claims and (guess what?) the strata corporation has to pay multiple excesses.  At $500 per excess that's $10,000 in a 20 lot strata corporation and $100,000 for a 200 lot strata corporation.

I've always argued against that position with mixed success.

Now in its decision in Vero Insurance Limited v Owners of Strata Plan No 69352 & Ors on 30 June 2011 the NSW Court of Appeal has confirmed that an strata corporation can make a HOW insurance claim in its own right (and not for the lot owners), that it's only one claim and that only one excess applies.

So, finally strata owners in NSW have legal support for the correct position and HOW insurers have to stop deducting significant amounts for strata claims.

I hate to think how much money strata owners have been cheated out of over the last 14 years by the insurers insistence on multiple excesses.  But think about it this way ... even if there were only a 100 strata building claims per year of blocks with 20 lots, that's over 28,000 excesses ($14 million) instead of just 1,400 excesses ($700,000).  And, the reality is that the numbers and amounts are probably a lot higher.

Now, I wonder if any of those strata schemes can claim the excesses back now.  Is anyone interested in trying?  If so, contact me here.


Francesco ...

Melbourne Psychiatric Hospital to become Strata Development

In a strange twist the site of the Larundel Phsyciatric Hospital in Bundoora has been earmarked by the Victorian Planning Minister, Matthew Guy, as a significant urban renewal site for a major mixed-use precinct on 10.6 hectares,

The redevelopment will provide more than 500 apartment and townhouse dwellings as well as nearly 12,000 square metres of retail and commercial space and is “an ideal site for urban renewal, only 16km from Melbourne city, well-served by public transport and close to La Trobe University and Bundoora Park,” Mr Guy said.

After the Larundel Hospital closed in the 1990’s it was purchased by the Victorian government who gradually developed parts of it with local builders to create over 200 homes.  Now Deal Corp has purchased the remaining 10 hectares of the site for the development of a mixed use precinct including a local activity centre combining retail, service and commercial activities with a wide variety of medium density housing options. The former hospital buildings will be retained for their local heritage value and re-used as part of the project.

Mr Guy’s fellow MLC for Northern Metropolitan Region Craig Ondarchie said the development would provide an increased diversity of affordable housing supply in Melbourne’s north while restoring and celebrating the local heritage.

And, given the decay of the old hospital buildings shown in these photos this can only be a good development.

So who wants a new apartment in the old psychiatric hospital?

Francesco …

Strata Building Defects in the Real World

By the time we hear about the problems of strata building defects they have been sanitised by the investigation, claim and legal processes.

Long expert reports quote building code provisions and specification details when describing what's wrong with the building, insurance claim forms summarise defects in tables and bulleted lists, legal documents plead breaches of statutes, contracts and tortious principles and Court judgements pronounce the law (one way or another).  It's all important but it's also quite divorced from the reality of building defects for strata owners.

For them building defects are very obvious, very immediate and very real.

When there's water penetration it's coming into living rooms, bedrooms and bathrooms.  Dripping onto things, ruining carpets and curtains, staining the walls and ceilings and creating damp smells and mould.  Owners have to mop up the wet mess, move things out of harms, put buckets and towels out and wait for dry weather to arrive to relieve the situation.  Seen this soggy mess in your apartment before?

When walls crack and render de-laminates, it's happening in the corridors and owners walk on the fallen plaster.  Do any of these images look familiar to you? 

When balcony railings loosen or glass balustrades explode they cause falling dangers on owners' balconies and the glass rains down on other owners and people in the street.  And, all of a sudden balconies become unsightly and unusable.

Some building defects are less obvious but more sinister like missing or defective fire dampers, non fire rated doors and inadequate fire separation between apartments. Since no-one can see that these essential fire safety measures are not there or simply don't work, in these cases strata owners might just find out about the building defects after it's too late.

So, whilst we all need to work on the details (legal, technical, strategic and political) to improve the quality of new strata buildings and get owners redress when there are defects,  let's not forget that the reality for strata owners with building defects is much more serious and disruptive than the details and outcomes suggest.

Getting the money to fix water leaks after a few years of suffering from them is not really enough compensation.   Finally having your strata building fire safety compliant doesn't make up completely for the fact that owners and residents have been living in danger. And, being able to safely use your balcony does very little to make up for the inconvenience of not be able to use it and the reduced amenity of the apartment.  If compensation for those things were included in building defect claims they'd be a lot bigger.

And, maybe that's one reason why builders and developers are not taking building defects seriously enough ... they're simply not that exposed to real damages claims.  Paying to fix inadequately performed building work many years after it was done is hardly a serious penalty to anyone.  After all, they saved the money on building in the first place and enjoyed the profits from it ever since.

Which leads me to think that the sooner strata owners begin trying to claim the non-repair losses that building defects cause, the sooner everyone will pay more attention to this serious problem.

I'm currently working with a few groups of Australian strata owners to get redress about their building defects and am interested to hear from others who want to do more about their building defects too.



Francesco ...

More Australian Linkedin Strata Groups

I've promoted some groups on Linkedin about strata issues before and I've recently posted about the new Australian strata association, Strata Community Australia.


But, now the two come together as Strata Community Australia has established a Linkedin group here.


It's getting some real interest and momentum with discussions underway about strata research, home renovations, strata management intermediaries, building defects, rising Queensland insurance premiums, the role of high density in future housing and more.


So, why not join the SCA Linkedin group now and make your strata voice heard?


Francesco ...

Stealing a City Brick by Brick (Literally)

This sounds crazy but in St Louis thieves are destroying and stealing the city’s buildings brick by brick.

Unlike most of the USA, St Louis buildings are predominantly made of brick because after a fire that devastated much of St. Louis in 1849, city leaders passed an ordinance requiring all new buildings to be made of noncombustible material. That law, along with the rich clays of eastern Missouri, led to a flourishing brick industry here.

But today, the demand for the high quality bricks in the St Louis buildings has attracted gangs of brick thieves.

Officials believe that many of the 391 fires in vacant buildings over the past two years were caused by brick thieves.  Deliberately torching buildings to quicken their harvest of St. Louis brick, prized by developers throughout the South for its distinctive character.

“The firemen come and hose them down and shoot all that mortar off with the high-pressure hose,” said Alderman Samuel Moore, whose predominantly black Fourth Ward has been hit particularly hard by brick thieves. When a thief goes to pick up the bricks after a fire, “They’re just laying there nice and clean.”

Some brick thieves also use cables and picks to collapse a wall and then harvest the bricks.

It’s reported in the New York Times that brick thieves often arrive at brickyard with “bricks in the trunk of a Lexus,” to sell.  After all a pallet of 500 bricks goes for roughly $100.  And it’s estimated that as many as eight semi-trailer loads of stolen bricks leave the city each week for Florida, Louisiana or Texas.

It’s become such a problem that there’s even a short film about called Brick by Chance and Fortune by director Bill Streeter.

I just found this amazing until I realized that it was all too real.

So hang on to your houses (literally).

Francesco …

Giant Marilyn Visits the City

In Chicago they’ve erected a giant statute of Marilyn Monroe is a classic pose from The Seven Year Itch.

It’s called “Forever Marilyn”, is 26 feet tall and was created by Seward Johnson 

What a striking scene it makes in the downtown area.

Francesco …

Matching Housing to People

Do people live in the housing they really want?  A recent Australian study suggests they don’t.


And, not because their aspirations exceed their financial capacity but because housing stock doesn’t exist to suit them in the places they can afford to and choose to live in.

The Grattan Institute has just published it’s report The housing we’d choose by Jane-Francis Kelly where they surveyed over 700 Sydney and Melbourne residents about what home they would like to live in, taking into account realities such as current costs and income.  The report makes some interesting points and comes to some interesting conclusions.

It’s obvious that when people are asked to choose any kind of housing they want, they typically say they’d like a large detached house near the centre of the city.

After identifying the housing attributes that make a difference to people in focus groups the researchers compared trade offs between those attributes to see what compromises were more (or less) desirable.  Their analysis was split between owners and renters.

The housing types considered were detached housing, semi-detached housing, low rise apartments (up to 3 storeys) and high rise apartments (over 3 storeys); in small, medium and large sizes; and in 4 different zones in Sydney and Melbourne.

In their responses about apartments the people were concerned with the following things –

• apartments were too small
• they lacked outdoor space
• neighbour proximity (above and below) caused problems
• unwanted disturbances caused disruptions
• privacy (for themselves and others) was limited
• the risk of bad neighbours was higher
• body corporate organisations were a nuisance and expense
• apartment construction quality was unreliable
• noise control was too low

So, it seems that these typical problems for strata corporations are doing more than causing operational problems but actually affecting people’s willingness and desire to buy and live in strata apartments.

The report concludes that housing in Australian cities is not a good match for the choices and trade-offs people would make if they could (between housing type, size and location).

What needs to be done is design, approve and build more housing in the locations people can afford that meets their housing preferences.  So, let’s work towards doing that (especially apartments) to make everyone’s outcomes better.

Francesco …

More Strata Defect Sagas in Sydney

Since I’ve started exploring the world of strata building defect claims I’m unearthing a lot of bad news for strata owners and serious problems to be overcome.

The latest strata defects drama affects a medium sized building in Sydney’s Bondi Junction called Harbourview.

After many years where the defects in the building were either left unnoticed or hidden by developer's and builder's associates, the committee finally learned in 2009 that there were serious waterproofing problems that could cost millions to fix.

But since the building was completed in early 1998 they were already out for time for Home Building Act claims (having only 7 years from building completion).  So, they started legal action against the builder (Australand) for negligent construction, and the former strata manager (Strata Schemes Management Corporation) and former on site manager (BMAUS Australia) for not properly handling the defects whilst they were in time to sue.

Australand, defended the legal action and relied on a little used provision of the Environmental Planning and Assessment Act (section 109ZK), introduced in July 1998, that limits ‘building claims’ for 10 years from when an occupation certificate is issued for the building.  On that basis Australand applied to dismiss Harbourview's legal action against them.

The case was complicated because when the strata building was built there were no occupation certificates, there was no section 109ZK or 10 year time limits on legal action.  So, the NSW Supreme Court had to look at how the transitional provisions applied to Habrourview.

Unfortunately for the owners in late June 2011 the NSW Supreme Court decided that the transitional provisions applied to Harbourview’s situation so that its certificate of classification was deemed to be an occupation certificate, the 10 year time limit for building actions applied, and even though their rights were reduced as a result, Harbourview could not pursue the claim against Australand.  You can read the judgement here.

So, it appears that the strata corporation was out of time to sue in 2008 which was before it actually discovered the waterproofing defects in 2009.  It just doesn’t seem right and makes me think that there’s lots of strata corporations in the same situation (and who should be careful not to miss the 10 year time limits).

The strata corporation is considering an appeal. 

Let me know if you know of similar situations.

Francesco …

Why Not Give a Strata Minute

An interesting and successful public engagement campaign from 2010 in Chicago has prompted me to think about how to get strata owner engagement in an easy and effective way.


At the second annual Open Cities conference held in Washington D.C. in November 2010 urban planning and policy practitioners, technologists and public officials to discussed how new media can help local governments and community organizations make cities better. One of the projects that was announced was Give a Minute Chicago, an effort by CEOs for Cities with support from the Chicago Architecture Foundation.


The project asks Chicago residents to take a brief moment to contribute their ideas about what would make them walk, bike or ride transit more often. Citizens can submit their ideas online or using a mobile phone. People’s input is creatively displayed on the Give a Minute website, and an analysis of all the input received will be provided to several key local officials. CEO for Cities plans to expand the concept to New York, San Jose and Memphis, Tennessee in the near future.


Give a Minute is a great example of how organizations and governments can use technology to encourage public participation on important urban issues. But it also that many people aren’t willing to spend more than a few seconds to participate in the public process of democracy.


To me that sounds like strata. Where owners have invested significantly in their strata building and rely on their investment for housing, income and asset accumulation but are not motivated to participate in any meaningful ways.


So, maybe the ideas behind Give a Minute and the technologies it uses could be used in strata buildings to develop owner (and resident) engagement, better assess needs and preferences and create feedback loops about issues, actions and outcomes.


It’s outside the strict requirements of strata laws and contracts … but that doesn’t mean it’s not a good idea.




Francesco …

Lend my Strata Building Money

Although most of the money needed by strata corporations comes from the owners, when they can't pay (or can't pay enough) Australian strata corporations can borrow money.

Borrowing has been possible since strata title began and depending on where the building is different rules apply about the kind of decision needed, borrowing limits and whether or not security can be offered (like a mortgage or a charge).

The tightest restrictions apply in Queensland where borrowings over $3000 in Accomodation Module buildings and over $250 per lot in other buildings needs a resolution without dissent. 

Next comes the ACT where all borrowing needs a special resolution and Victoria which also requires a special resolution if the borrowing is more than the total annual budget. 

Everywhere else (and in Victoria and Queensland for smaller borrowings) a majority decision is all that's needed.

Most states (except Western Australia) don't allow mortgaging common property but the Northern Territory does if it's approved by a resolution without dissent.

So next time your strata corporation needs money and the owners can't or won't pay maybe you need a loan.

There's a few companies specialising in lending to strata corporations including Lannock, Finlease and Macquarie Bank.

So see you collecting your strata loan money soon.

Francesco ...

French Strata Buildings celebrate Bastille Day

Strata buildings in France have been celebrating because since it’s just been Bastille Day.

So I thought I'd blog a bit about strata Gallic style.

France is a codified law country (unlike Australia) so the way strata laws work is quite different.  Based on the Law No 65-557 of 10 July 1995 and Decree No. 67-223 of 17 March 1965, French Strata Law has been amended by the SRU Law of 13 December 2000 and ENL Act of 13 July 2006.

This law replaced laws made in 1938 that provided mechanisms to manage shared and separately occupied buildings that emerged in the 1860s.

It’s called co-propriete and is different to co-onwership of land in that the concepts of building division, separate ownership of separated parts and common ownership of shared parts apply.

Buildings are divided into units, public areas and special areas (public areas reserved to only some owners).  Each owner is allocated a share which is based on the proportionate value of the their unit to all the other units.

There are rules that apply to all owners as a contract and the shared expenses are paid by owners according to their share.  The only exception are expenses justifiably incurred collecting owners unpaid expense which are payable in full by owners.

An annual budget must be prepared and approved (any expenses not in the budget must be separately approved) and accounts must be kept on an accrual basis.

Decisions are made by owners meetings where each owner can vote (but an owner is always limited to 50% of the votes no matter how many lots they own).  Decisions can be by simple majority vote or two thirds vote depending on the matter.  In some cases a one third majority to a simple majority without more.

Running the strata scheme is done by a union (like a committee) that owners can volunteer for.  And, management can be given to a trustee (from the owners) or a professional trustee and the trustee has strict obligations and duties.

The French courts can make orders in relation to strata disputes including appointing a manager and terminating the strata.  There are also special detailed provisions for the redevelopment of strata schemes.

There are nearly 7,600,000 strata lots in France (30% of them in Paris) and the largest strata scheme is Grigny in Essone which has over 5,000 lots.  So it’s a bigger sector.  But 70% of strata schemes have less than 30 lots and almost 30% have less than 10 lots.

So, whilst it’s bordeaux, steak and pommes frittes rather than beer, steak and chips …. it seems that strata is strata wherever in the world you happen to be (including France).

Au Revior.

Francesco ….

Boxman Taunts City

In another amusing street art scene in Cordoba, Argentina, the artist Pablo Curutchet created a 27 foot tall cardboard box sculpture of a man standing in the canal and watching over a city street.

It's pretty funny and its bio-degradable.

Francesco …

Crisis in South African Strata

Over the last few months a strata crisis has been developing in South Africa.

One of the largest South African strata management companies, Constantia Sectional Title Management (CSTM), who manages 450 buildings and 20,000 lots is under investigation by the Estate Agency Affairs Board for the alleged “misuse of trust funds” and has now been placed into liquidation. 

But that investigation has revealed that in certain instances CSTM failed to pay over its client’s water and electricity obligations to the relevant municipalities. The failure to pay over the money to municipalities has meant that sellers of CSTM managed sectional title units are struggling to obtain a clearance certificate which is vital for a sale to happen.

Owners of affected properties will not be able to get clear certificates which will prevent settlements and buyers will have trouble satisfying their mortgagees requirements for release of funds to buy.

It’s a serious problem that’s not likely to be resolved quickly.

Property consultant at Biccari Bollo Mariano (BBM) attorneys, Marionette Bubb, frankly stated the fate of CSTM’s body corporates as follows “without the banks the buyers are not going to be given loans, if the sellers manage to get a cash buy that’s fine but then you [the buyer] will have to convince the trustees to give out a clearance certificate in order to finalise the property transfer, that will no doubt cause a delay so in the interim the new home owner will effectively be paying occupational rent until the transfer is finalised which could take months”.

You can read more about it here.

Francesco …

Changes to Real Estate Stamp Duty & Grants

State stamp duty rates and home ownership grants have significant effects on Australian real estate buying and selling.  Since most states have recently announced their budgets, there have been a few changes.

And, it’s important to know since it affects the bottom line.  For example, owner occupier buyers in Queensland buying before 1 August 2011 can save $6,575 in stamp duty because concessions are being scrapped on that day.

Here’s a quick state by state rundown.

Victoria - for real estate settlements after 1 July 2011, land transfer duty rates are reduced for eligible first home buyers purchasing their principal place of residence for up to $600,000. Duty will be reduced by 20% now, and by additional 10% on 1 January 2013, 1 January 2014 and 1 September 2014, reaching a total reduction of 50%. Additionally, the first home bonus and regional bonus is extended to 30 June 2012, providing first home buyers with a $13,000 bonus for newly constructed homes and an additional $6,500 if the new home purchase is in a regional location.

Queensland – the existing stamp duty concession for houses under $350,000 ends and the existing $3,500 payable in stamp duty jumps to $10,075.  New home buyers also get a short term $10,000 ‘Queensland building boost grant’ which will be available on newly built homes purchased prior to the start of 2012. And, the $7,000 first home owner’s grant remains in place.  Stamp duty rates have also changed (increased).

South Australia – there are no changes to stamp duty rates, but the First Home Buyers Grant will be phased out by halving of the grant on 1 July 2012 and phasing it out on 1 July 2013.

Tasmania – there are no changes to stamp duty rates, but the concession on land purchases for first home builders and for first home buyers have been cancelled.

Northern Territory - there are no changes to stamp duty rates and the concession available to first home buyers and owner occupier buyers continues.  Plus a ‘BuildBonus’ has been introduced with a $10,000 incentive for purchasing or building a new home. 

So, there’s mixed news for real estate buyers around Australia.

Francesco … 

Strata Defects are a Serious Problem

I’d thought that after 20 years or more of legal actions raising awareness of the problems of building defects in strata buildings that the problems would be smaller, less common and easier to resolve.

But, my recent re-involvement in a few strata building defect problems and some preliminary research results suggests I’m wrong and the problems of strata building defects are as bad as ever (if not worse).

Here’s some recent indicators of the latest kinds of problems being experienced by strata buildings.

The City Future Research Centre at UNSW has been researching strata executive, manager and owner experiences of strata living and found that many of them had experienced defects in their buildings and had trouble getting them resolved.

Of 413 executive committee members surveyed in2010, 51% had experienced defects in their schemes and of 359 strata lot owners surveyed so far 81% indicating that they had experienced defects.  And, when asked if they had trouble getting the defects fixed 70% said that they experienced problems because of things like developers holding control of schemes, builders no longer operating, complex home warranty insurance claim processes, needing to start legal proceedings and an incompetent or deadlocked executive committee.

That’s a significant majority of them and, even if it’s a bit overstated, it suggests a very widespread problem for strata owners and others.

There’s also the unhappy stories of high profile Sydney buildings like Altair, Horizon and Hyde Park Regency who after spending years and hundreds of thousands of dollars running legal actions were largely unsuccessful because of failed expert evidence, strict interpretations of time limits and notice requirements, and the liquidation of the builders.

Plus Home Owners Warranty insurance protections have been watered down or eliminated over the last decade so that buildings over 3 storeys are not covered at all, all claims are ‘last resort’ so can only be made after pursuing the builder (and others) to finality for a few years and time limits are shorter for many defects and expire sooner than many owners, committees and managers realise.  Leaving them with no fall back in many cases.

And, in Canada there’s a new report of some unfortunate owners in Calgary who have serious building defects.

The Calgary Herald reports that owners in the Bella Vista building are facing special assessments ranging from $50,000 to $187,000 each that must be paid by 15 September 2011 to repair leaks and major deficiencies to the roof, balconies, parkade and other areas of the complex as it appears that there’s now a repair bill of about $5.5 million, up from the initial estimate of $3.8 million last fall once the full extent of the damage was uncovered.  The owners in the four-storey building blame shoddy workmanship for their plight -facing crippling bills to repair the damage and possible foreclosure on their homes. They’ve filed a $4-million lawsuit against the developers, designers, the City of Calgary and a handful of individuals seeking damages to cover "faulty" materials, workmanship and inspections.

One onwer who paid $270,000 for his twobedroom condo in 2009 is now faced with a repair bill of $74,000 and says "I'm broke. I'm done. I can't pay anything”.

It’s a seriously unsatisfactory situation for strata owners and one I’ll be doing more about in the future.

After all, it seems that strata apartment owner get less protections from shoddy building than owners of freestanding homes (which makes no sense).  And, they’ve got better and easier consumer rights when buying a $50,000 family sedan than when buying a $500,000 apartment.

It’s not right and it’s time something is done about it.  What do you think?

Francesco …

I Dream of My Apartment in the Sky

Home ownership dreams in Australia used to be about the 3 bedroom cottage on a quarter acre block in the suburbs.

But everything’s changed now …

The problems of home affordability in Australia means that whilst Australians still cling to the dream of home ownership as one of life's material achievements they are willing to scale down their aspirations and settle for flats and townhouses according to the Being Australian study by the Ipsos Mackay.

The study is based on in-depth interviews with more than 100 participants in 15 focus groups in Sydney, Melbourne, Adelaide, Newcastle and Ballarat and found people are ''redefining the dream to overcome the housing affordability issue''.  One respondent said: ''The white picket fence thing, I don't think that's really important any more. Like, a home in the suburbs with your three kids and a dog.'

This also fits with an analysis by the Bureau of Statistics last year that forecasts single-person households will increase to 3.1 million, or 30 per cent, of all households by 2026 which ''represents the fastest projected increase of all household types over the period 2001 to 2026”.

The study affirms another report called The Housing We'd Choose published by the Grattan Institute in Melbourne, which found people were willing to tailor their housing aspirations to their budget.

It’s interesting to see this shift in real estate ownership trends and re-inforces the importance of high density real estate to our futures.

Francesco …