What is a section 74 scheme and how does it work?

29 November 2016

Commentary , Body Corporate

If a building in a unit title development has suffered damage, perhaps from weathertightness issues or an earthquake, the Body Corporate  will usually coordinate the repairs. This is to ensure all repairs are done at the same time, and to the same standard.

The damage in these situations is usually spread between common and private property or building elements that affect the entire development such as the roof. The Body Corporate  is generally not allowed to levy for or do work to private unit property.  This can result in an impasse if the unit owners are not unanimous as to the appropriate way of addressing any defects/damage.  Section 74 of the Unit Titles Act 2010 provides a useful way for the Body Corporate to perform all the necessary repairs (including to unit property), and allocate the repair costs equitably amongst the unit owners.

Section 74 applies if any building or other improvement comprised in any unit or on the base land is damaged or destroyed, but the unit plan is not cancelled.  Under this section the High Court is able to approve a scheme of repairs. This is a useful mechanism for reinstating or repairing buildings after such damage has occurred. A scheme ordered under section 74 may include provisions for the reinstatement in whole or in part of the building or other improvement, or the transfer of units to the Body Corporate  so as to form part of the common property.

Initially a building surveyor will assess the damage and produce a recommended scope of repairs.  This can then be costed by a quantity surveyor, and proposed levies can be calculated.  If any owners are concerned with the proposed scheme they are able to appear and be heard in Court when an application is made.

For a Court to approve a section 74 scheme, they must be satisfied that 1) the building has been damaged or destroyed; and 2) the scheme is appropriate in the current circumstances.  Once approved, a scheme is binding on all unit owners including ones that purchase their units after the scheme comes into effect.

Case law has produced some guiding principles on whether the terms of a proposed scheme are appropriate. These include:

  • whether the scheme has broad support from all parties concerned;

  • a scheme should be appropriately detailed to reduce misunderstanding and argument;

  • all work should be done at the same time and to the same standard;

  • the scheme itself should not depart from the Body Corporate rules any more than is reasonably necessary to achieve what is fair between unit owners in the circumstances.

In summary the section 74 procedure is a very useful tool for unit title remediation projects where it proves impossible to achieve unanimous consent to the proposed repairs.