Background
The Citadel Complex in Sydney comprises two strata schemes: a residential scheme with 92 lots and a commercial scheme with 11 lots. PINN 386 Pty Ltd leases two commercial lots and operates the Petersham Inn, including a bar, gambling facilities and adult entertainment. The complex’s strata management statement allocated building-insurance costs 90% to the residential owners corporation and 10% to the commercial owners corporation.
After finding that PINN’s use of the commercial lots substantially increased insurance premiums, the NSW Civil and Administrative Tribunal adjusted the residential scheme’s share. On appeal, the Appeal Panel determined a building replacement value of $37,052,400 and an unadjusted allocation of 81% to the residential scheme and 19% to the commercial scheme. It then adjusted the residential scheme’s liability to $54,445.74 for 2022–2023 and $61,734.38 for 2023–2024, leaving the commercial scheme responsible for the balance. PINN appealed to the Supreme Court on four questions of law.
The Court’s Holding
The Court granted leave on all four grounds but rejected each one and affirmed the Appeal Panel’s decision. It held that ss 160 and 162 of the Strata Schemes Management Act 2015 (NSW) apply where a building consists entirely of multiple strata schemes, even though no part is held as non-strata land. Section 162 supplies the method for allocating the insurance premium according to replacement value and permits the Tribunal to adjust that allocation when a particular use of part of the building increases the premium.
The Tribunal’s powers under ss 162(3) and 162(4) depended on the statutory requirement to insure, not on proof that the policies actually obtained complied in every respect with the statutory definition of a damage policy. The Court also held that the statutory allocation prevailed over the strata management statement’s 90:10 split. To the extent that the statement prescribed an inconsistent allocation, it was ineffective, and s 232(5) did not prevent the Appeal Panel’s orders. The Further Amended Summons was dismissed, and PINN was ordered to pay the residential owners corporation’s costs.
Key Takeaways
- Section 162 applies when a building is divided between two strata schemes, even if the building contains no non-strata land.
- The Tribunal may determine premium shares by replacement value and then adjust them when the use of part of the building increases insurance costs.
- A strata management statement cannot enforce an insurance-cost allocation inconsistent with the statutory scheme.
Why It Matters
The decision confirms that NSW’s statutory insurance-allocation rules govern multi-strata buildings and cannot be displaced by a contrary cost-sharing provision in a strata management statement. It also clarifies that possible defects in an insurance policy do not remove the Tribunal’s power to determine and adjust liability under s 162 where the statutory obligation to insure has been imposed.