Strata Title Suffers Carpet Burns

or, let’s be honest about how this Court decision stings …

A Quick Read

Superior Court decisions are binding.  Sometimes superior Court decisions have widespread impacts.  And occasionally superior Court decisions are wrong.  In this article, I explain why I think that the recent NSW Supreme Court strata decision in the SPS Building Case is wrong and suggest how it should be handled [and challenged].

[a 9.00 minute read with 1789 words]

The Full Article

---

INTRODUCTION

I’ve said that superior Court decisions about strata title issues are a very important way that strata citizens find out what strata laws mean and how to apply them as I explained in the Article Why Watching Strata Cases Matters.

Plus, we publish easy to understand summaries of key strata title cases in GoStrata Media’s CaseWatch.

But a recent NSW Supreme Court decision proves to be a challenge for me, and I guess, everyone else in NSW strata title, as it looks to be wrong [in my humble opinion] about the status and ownership of carpets.

So, why is that and what can [and should] we do about it?

THE DECISION IN THE SPS BUILDING CASE

In The Owners - Strata Plan 99960 v SPS Building Contractors Pty Ltd [2024] NSWSC 687 about building defects in a Tweed Heads strata townhouse building, the NSW Supreme Court made four findings that carpets installed in strata lots at the strata plan registration date are common property and not the strata owners’ property.

The key findings about the carpets are at paragraphs 111, 143, 179 and 182 of the judgment.

And you can read GoStrata Media’s CaseWatch about the decision Getting Down Into the Carpet Piles.

A QUICK LAW LESSON

The reasons the SPS Building Case matters to strata stakeholders requires a few quick law lessons about Court judgment as follows.  So, sorry.

First, there’s stare decisis which is the legal doctrine that operates to secure certainty in the law by binding a court to follow previous decisions, unless they are inconsistent with a higher court's decision or wrong in law.  So, lower hierarchy Courts and Tribunals must follow the legal principles decided in higher hierarchy Courts. 

In NSW, Supreme Court decisions bind the District Court, the Local Court and the NSW Civil and Administrative Tribunal.  So, the places where most strata disputes are dealt with.

Second, there’s ratio decidendi which is a legal rule that says the legal principles that Court or Tribunal decisions establish only come from the parts of legal reasoning within a judgment upon which the outcome of the case depends.

Third, there’s obiter dicta which is a corresponding legal rule that says that a Court’s or Tribunal’s expressions in judgements that are not essential to the decision are not legally binding as a precedent. 

So, anything in the SPS Building Case that was essential to its decision [the ratio decidendi] bind other lower Courts or Tribunals [by stare decisis] but not the other non-essential comments [obiter dicta].

WHAT’S WRONG WITH THE SPS BUILDING CASE DECISION [AND WHY]

The main problem with the decision in the SPS Building Case is the conclusions it reaches that carpets are part of floors in strata buildings and, as a result, common property.

I think that’s wrong for a few reasons as follows.

1.  The English Language

Let’s start with English language definitions which include:

‘floor’ which as a noun means ‘the lower surface of a room, on which one may walk, eg: "a wooden floor"’.

‘carpet’ which as a noun means ‘a floor covering made from thick woven fabric, eg: "the house has fitted carpets throughout"’.

So, it appears to me that normal English speak people would not say that carpet is part of a floor, but rather, something that is laid on top of a floor.

2.       Definitions in Strata Schemes Development Act 2015

Next let’s look at some definitions in the Strata Schemes Development Act 2015 as follows:

Section 4 defines ‘floor’ simply as including a stairway or ramp,.

Section 6 defines the lower horizontal boundary of strata lots as ‘the upper surface of the floor’.

There’s no definition for ‘carpet’.

There’s no definition for ‘surface’.

So, there’s nothing in the strata title laws that includes carpets into the definition of floors and I believe that the expression ‘surface of the floor’ must mean that things laid on or attached to a floor [like carpet] are not part of the floor.

Plus, the Strata Schemes Management Act 2015 excludes carpets from the parts of the building that must be insured for damage under section 161(4)(b) which seems odd if carpets are actually common property.

3.       Other Court Decisions

The NSW Supreme Court relied on the NSW Court of Appeal decision in The Owners SP 35042 v Seiwa Australia Pty Ltd [2007] NSWCA 272 to support its reasoning that the carpet was part of the floor and therefore common property.

But, Seiwa doesn’t say that, the floors in question in that case were tiled and not carpeted, and the ratio decidendi of the judgment [remember the law lessons] in relation to floors was about when to determine the location of lot and common property boundaries saying that ‘the lower horizontal boundary of a cubic space as the upper surface of the floor of that space, that boundary is fixed as at the date of registration of the strata plan’.

Plus, another earlier decision by the NSW Civil and Administrative Appeal Panel in Nowak v Pellicciotti [2018] NSWCATAP 245 which wasn’t specifically about whether carpet was or wasn’t common property but did say that carpeting floors was work on or to the common property which suggests that the carpet itself was not common property.

Of course as a decision of the NSW Civil and Administrative Tribunal Appeal Panel it doesn’t bind anyone except Members of the NSW Civil and Administrative Tribunal Appeal Panel under the stare decisis doctrine.

3.       Law of Fixtures vs Personalty

Property law distinguishes between real property [land] and personal property [chattels].  And, in between there are some things that were personal property but can become part of real property or land because they are attached to it or the building on the land under the law of fixtures.

Fixtures law considers factors like the degree of attachment of the thing, whether the thing can be easily removed or not, and the intention or otherwise to make the thing part of the land or building.

So, things like tiles fixed to concrete slabs are typically fixtures.  And things like blinds, curtains, stoves and [yes] carpets are not typically fixtures.

That’s the reason that contracts for sale of properties include carpets [as well as blinds and wallpaper] as extra inclusions.

5.       The NSW Common Property Memorandum

In NSW there’s a NSW Fair Trading produced document called the Common Property Memorandum that sets out guidelines about how responsibility for things in strata building is split between the strata building and strata owners that can be adopted under section 107 of the Strata Schemes Management Act 2105.

The NSW Common Property Memorandum says that internal carpeting, floor coverings and unfixed floating floors are the responsibility of strata owners, not strata buildings.

6.       Faulty reasoning

Finally, I think the NSW Supreme Court just got it wrong.

And the decision in the SPS Building Case has very significant potential impacts in the strata sector if it is right and applied including.

• Making NSW strata buildings responsible to maintain [which may even include routine cleaning], repair and replace carpets inside strata lots.

• Making NSW strata buildings responsible to repair or replace carpets inside strata lots when damaged under insurance claims since they are typically excluded from strata building insurance policies [especially since section 161(4)(b) allows that].

• Leading to similar conclusions about other unfixed or partly fixed floor coverings in strata lots like carpet tiles, linoleum, parquetry, floating timber floors, and even large rugs.

It’s also hard to know precisely why the NSW Supreme Court got this wrong.

I can understand that the Court wanted to make sure that the builder was responsible for carpets that were damaged by building defects, but it could have done that in other ways. 

And I can’t see any consideration of the legal issues I’ve identified above in the judgment. So, perhaps those arguments weren’t put to the Court by the builder’s or strata building’s lawyers.

WHAT COULD [OR SHOULD] BE DONE

There appear to me to a few things that could be done about the faulty decision in the SPS Building Case as follows.

1.  Apply it as it stands

Strata buildings could just apply the SPS Building Case decision and start cleaning, repairing and replacing carpets in strata lots. 

That would be a significant change to 50 years of strata management practices and add significantly to strata maintenance and repair work and budgets.

2.  Ignore it

Strata buildings could just ignore the SPS Building Case decision and keep doing what they’ve done to date, which is to treat carpets in strata lots as the lot owner’s personal property and leave it strata owners to clean, repair and replace carpets. 

That’s easy [and likely] but will lead to some owners and their lawyers pointing to the NSW Supreme Court decision to support claims about strata owners’ carpets.

3.  Write about why it’s wrong

Strata commentators [especially the strata lawyers] should be writing critical analyses of the decision in the SPS Building Case explaining the faults in the reasoning and saying more.

But, I have found anything like that.  Instead I’ve only seen chicken little like blurbs warning strata managers about the new approach by the NSW Supreme Court to strata carpets.

4.  Appeal it

The builder should appeal the decision [or at least that part of it about the carpets], run the correct arguments about the lot boundaries and have the NSW Court of Appeal correct the reasoning. 

I haven’t been able to find out if that’s happening or not yet.  But let’s hope so.

5.  Run a test case on the issue

Someone should run a test case on the issue to the NSW Court of Appeal to correct the reasoning and clarify the law: either by funding a limited appeal of the decision in the SPS Building Case or by finding a similar dispute in another building.

I’ve suggested that kind of thing in the Opinion piece Why aren’t there any Australian public interest strata law cases?

6.  Government should fix it

The NSW Government should address the problems caused by the SPS Building Case decision with information, statements and, if necessary, by making appropriate law changes.

I won’t hold my breath.

CONCLUSIONS

It looks like strata citizens have been carpet burned by the decision in the SPS Building Case.

So, what will you be doing? 

I’ll be continuing to say correct things about the issue [which is that carpet in strata lots is not common property], refer to the SPS Building Case decision and explain why I think it’s wrong.

August 27, 2024

Francesco …

---