Costs Orders Against Owners Corporations: When Maintenance Failures Meet Special Circumstances

A recent NCAT decision serves as a warning to owners corporations and insurers that ongoing failures to maintain common property can lead to significant costs consequences. The Tribunal found that longstanding maintenance breaches and unnecessary procedural conduct justified a costs order against the owners corporation, while successful lot owners were protected from contributing to related legal costs under the Strata Schemes Management Act 2015.

In McCullum v Owners of Strata Plan No 15404 (No 2) [2026] NSWCATCD 77, the NSW Civil and Administrative Tribunal (NCAT) awarded costs against an owners corporation that unsuccessfully opposed the appointment of a compulsory strata manager following years of chronic maintenance failures.

The decision confirms that:

• Costs may be awarded against owners corporations that chronically fail to fulfil their statutory maintenance duties, even where no damages are awarded
• The responsibility for delineating repair obligations between lot owners and owners corporations rests squarely with the owners corporation
• Successful lot owners can be quarantined from contributing to both the owners corporation’s defence costs and its liability under costs orders made against it, and
• Section 104 of the Strata Schemes Management Act 2015 (NSW) (SSMA) operates automatically to quarantine successful lot owners, without the need for a specific order by NCAT.

What happened in the case

The McCullums, who are lot owners, brought NCAT proceedings against the Owners Corporation seeking work orders requiring the Owners Corporation to remediate dangerous ceilings and flooring in one of their lots, compensation and the appointment of a compulsory strata managing agent.

In December 2025, NCAT appointed a compulsory strata managing agent. The McCullums then sought their costs of the proceedings on the ordinary basis. The Owners Corporation argued that each party should bear its own costs.

What NCAT decided

Despite the NCAT’s default position that each party bear its own costs, it ordered the Owners Corporation to pay the McCullums’ costs on the ordinary basis. NCAT found that "special circumstances" arose under section 60 of the Civil and Administrative Tribunal Act 2013 (NSW), having regard to the Owners Corporation’s admitted and longstanding breach of its strict maintenance duty, the complexity and seriousness of the issues and the McCullums’ overall success in securing the appointment of a compulsory strata manager.

The Owners Corporation also caused unnecessary time and expense in pursuing an untenable request for consent to a proposed common property rights by-law, and its excessive preparation and cross-examination delayed the proceedings. Finally, the Owners Corporation failed to delineate the works required to fulfil its responsibilities and, consequently, failed to establish any basis for allocating responsibility for the remedial works to the McCullums.

The costs quarantining point

NCAT also applied sections 104 and 232 of the SSMA to “quarantine” the McCullums from both the Owners Corporation’s defence costs and liability for the McCullums’ costs under the costs order. Both sets of expenses were to be funded by levies imposed on lots other than the McCullums’ three lots.

The practical significance of this aspect of the decision is that section 232 confers jurisdiction on NCAT to make orders quarantining successful lot owners from contributing to an owners corporation's payment of costs orders made in their favour. Section 104 operates “of its own force”, without the need for further orders, to quarantine successful lot owners from contributing to the owners corporation’s costs and expenses incurred in unsuccessful proceedings.

Where costs are determined separately, any dispute as to whether a lot owner is “successful” for the purposes of section 104 should be reserved for that determination, even where the outcome appears reasonably clear. However, because section 104 operates automatically as a statutory obligation, a notation identifying the successful party is sufficient to enliven its operation.

NCAT confirmed that lot owners in these circumstances are not quarantined from expenditure from existing funds, or from levies to fund remedial work to common property.

Why this decision matters for owners corporations and insurers

For owners corporations, the decision reinforces that chronic failures to maintain common property carry serious costs consequences, even where the lot owner does not obtain an award of damages. NCAT will treat prolonged neglect of statutory maintenance duties as a factor giving rise to special circumstances justifying a costs order. The responsibility for identifying and delineating what repair work is needed rests squarely with the owners corporation, not with the lot owner who brings the complaint.

For insurers, the decision is a reminder that strata insurance policies responding to owners corporation liabilities may be exposed not only to the costs of remedial works but also to adverse costs orders where the owners corporation has failed to act on known maintenance issues. Early engagement with maintenance complaints and proactive remediation remain the most effective way to limit costs exposure.

Key takeaways

• Owners corporations that fail to address known maintenance problems over extended periods face a real risk of adverse costs orders, even in proceedings where no damages are sought.
• Unnecessary procedural conduct, such as pursuing untenable claims or excessive cross-examination, will weigh against an owners corporation in a costs application.
• Successful lot owners can be quarantined from both the owners corporation’s defence costs and its liability under any costs order, meaning the financial burden falls on the remaining lot owners.
• Section 104 of the Strata Schemes Management Act 2015 operates automatically. Owners corporations and insurers should not assume that a lot owner will share in funding the costs of unsuccessful opposition to legitimate claims.