On 16 April 2019, the Supreme Court of New South Wales handed down its decision in the matter of Glenquarry Park Investments Pty Ltd v Hegyesi  NSWSC 425.
The case largely concerned whether proposed works to common property amounted to repairs, replacement or renewal of common property under s62 of the Strata Schemes Management Act 1996 (which was the predecessor to s106 of the Strata Schemes Management Act 2015), or whether it amounted to improvements or enhancements under s65A of the 1996 Act (the predecessor to s108 of the 2015 Act).
The building in question was constructed in the 1930s, had four floors, a basement area and contained six lots. Each floor was served by a lift and a staircase.
The owners of three lots held 52% of the unit entitlement between them and could pass an ordinary resolution, but could not pass a special resolution. The majority owners wanted to carry out works to the common property that would cost millions of dollars. The minority owners considered these works too extensive and wanted less extensive (and therefore cheaper) works to be carried out.
Proceedings were commenced after ordinary resolutions were passed in August authorising the owners corporation to undertake extensive works to the common property. A resolution was also passed for all lot owners to pay a special levy to fund the works, amounting approximately $1.9 million.
Issues for determination
The issue in dispute was the extent of works required to be carried out and whether the works in question fell under s62 or s65A of the 1996 Act. That is were they repairs or improvements/enhancements to the common property? Repairs, replacements and renewal of common property do not require a special resolution. Alterations, improvements or enhancements of common property under s65A of the 1996 Act do require a special resolution.
Replacement of lift, lift shaft and stairs and finishing work
One of the ordinary resolutions passed in August 2016 authorised the upgrading and replacement of the internal stairs and lift shaft, installation of a new lift and finishing work for the internal stair, foyer and lobby area.
The owners corporation had a report indicating that although the lift had been in operation for about 80 years, it was being maintained in a reasonable manner. However, the lift did not meet current code requirements and overshot each floor level by approximately 100mm. The report stated the lift could continue to be maintained for many more years, provided spare parts could be sourced. However, eventually wear and tear would require that the lift be replaced meaning the lift would be inoperative for a lengthy period of time.
The Court, following Ridis v Strata Plan 10308 (2005) NSWCA 246, indicated that s62(2) concerned repairing fixtures or fittings which have deteriorated, are damaged or are operating inadequately and that it was clear that s 62(1) & (2) do not operate to impose an obligation on an owners corporation to replace common property where it was functioning as intended.
The Court also stated that practicality requires allowing a degree of judgment and latitude to an owners corporation in deciding the extent to which repair and replacement work should be done. In certain instances, maintenance may be carried out to replace something before it breaks down.
However the Court went on to state that the purpose of s 65A, which requires a special resolution to authorise enhancements or improvements to common property, was to protect minority owners from having the costs of these works being imposed on them by the majority. The minority may prefer to continue to maintain an item of common property even if this would end up being more costly. This may be because they do not have large amounts of money to spend at one time.
The Court held the report clearly indicated that it would be possible to continue maintaining the lift, even though this may not be the most economical or practical course. The replacement of the lift was originally conceived as part of an overall plan for the refurbishment of the building which was evidently an enhancement of common property.
The Court in its judgement stated that it was implicit in The Owners Strata Plan 50276 v Thoo  NSWCA 270 that the obligation in s 62(2) of the 1996 Act to renew or replace items of common property is limited by a concept of reasonable necessity where the item can no longer be kept in a state of good and serviceable repair and the provision is only directed to circumstances where the item “is no longer operating effectively or at all, or has fallen in to disrepair”.
Ultimately the Court decided that the works were more extensive than required under the obligation to repair and maintain common property. They were not reasonably necessary in the Thoo sense implicit as the report indicated that it would be possible to continue to maintain the lift and which could be expected to operate for many years. There was no evidence to establish that a new lift car, or a new lift shaft was required. It was held that the lift was operating in accordance with its design requirements and could be kept operating into the future and had not reached the point where it “can no longer be kept in a state of good and serviceable repair” (per Tobias AJA in Thoo). The Court also stated that the existing functionality of the lift could be maintained without renewing or replacing it. As such, the works had to be authorised by a special resolution.
Cement rendering and painting
The building was constructed with a double layer of masonry walls. The brick ties used in the walls to connect the external brick wall to the internal brick wall had corroded and lost their strength. An option provided in a 2014 report commissioned by the owners corporation was for the entire façade to be cement rendered and painted. In August 2016, a resolution was passed to replace the brick ties, cement render and paint the building. The replacement of the brick ties was not challenged. The Court held that existing functionality of the external walls could be restored by repairs to the damaged bricks and mortar. Rendering the walls, putting a new surface on the building and incorporating the external pipe work, would be an enhancement going beyond the restoration of the walls to their previous functional state. As such, a special resolution was required.
Landscaping and external paving
The Court upheld the Tribunal’s finding on this point which was that the Tribunal was not satisfied that the alterations to footpaths and steps and construction of modified terrace areas and circular stairs to specified units fell within the owners corporation’s duty to maintain and repair common property. The works were not simply enhancement or improvements consequential upon necessary repair or maintenance and as such would need to be authorised by a special resolution.
It is difficult for owners corporations to justify the replacement or renewal of common property if the existing common property is functioning as intended and this functionality can be maintained by carrying out repair and maintenance works. This finding is directly relevant to both section 106 (the new s62) and section 108 (the new section 65A) of the 2015 Act and disputes over whether works are a repair or an alteration or improvement.