A $105,000 Strata Repair That Also Became a $400,000 Problem

The Seiwa Case is a well-known NSW strata title case about common property, waterproofing and an owners corporation’s repair obligations.

But look at the case through a capital lens and something else appears.

A waterproofing problem estimated to cost about $105,000 to comprehensively repair existed alongside $150,000 of lost income and a $250,000 impairment in the value of the affected apartment. Those amounts were not all ultimately paid. Nor were they different estimates of the same thing.

That’s the interesting part.

One defective piece of common property had begun appearing in several different places in the strata system as several different forms of strata capital.

And that makes the Seiwa Case about much more than waterproofing repairs.

[a 7:25 minute read, with 1946 words]

The physical problem in the Seiwa Case was remarkably ordinary.

• There was an uncovered terrace attached to a top-floor Sydney apartment.

• Under its tiles was a waterproof membrane.

• The membrane failed.

• Water entered the apartment.

• There was also seriously corroded structural steel around an enclosed balcony.

• Eventually, the problems became serious enough that the family occupying the apartment moved out.

Then came a classic strata scheme dispute: Who was responsible?

The answer turned on where the legal boundary of the lot sat. Was the membrane part of the apartment or was it common property?

The NSW Court of Appeal eventually confirmed that the membrane was common property and therefore the responsibility of the owners corporation.

That’s the well-known part of the Seiwa Case.

But there is another story hiding inside the judgments. Follow the strata money.

The first important number was - $105,000.

That was approximately the quoted cost of the more extensive waterproofing rectification works for the common property.

Think of that as the physical capital problem. Capital needed to be put back into the building to restore a defective asset.

But while that problem remained unresolved, another number appeared - $150,000.

That was the amount the Court awarded the owner for lost income after the apartment became unusable.

So, the defective common property that needed repair now also appeared somewhere else. Not as a repair cost, but as lost income from the privately owned apartment.

Then there was a third number - $250,000

That was the reduction in the capital value of the apartment [based on expert evidence accepted by the Court], which put the apartment’s value at about $1.55 million if fully rectified and about $1.3 million while the waterproofing problem remained unresolved. A difference of $250,000.

That amount was not ultimately awarded on top of the $150,000. The Court instead ordered the membrane to be repaired.

The third $250,000 property value reduction tells us something important nevertheless about how the market value of the apartment was being affected by a defect located in common property.

One defective membrane, but three different effects on strata capital.

This is where the Seiwa Case becomes interesting to GoStrata’s analysis and mapping of strata systems.

The physical strata scheme repair requirement had not disappeared. It was still there. But its economic consequences were appearing also elsewhere.

• The common property required capital expenditure.

• The private lot was losing income.

• And the owner’s private property capital was being impaired.

That is one of the recurring features of GoStrata’s Capital Distortion Doctrine.

Strata systems encourage us to put money into categories:

• common property money,

• lot owner money,

• repair expenditure,

• levies,

• income, and

• property value,

But strata schemes don’t necessarily respect those categories. A failure in one part of the physical system can move economically through all of them.

The strata capital hasn’t disappeared. It has changed form.

There is another reason the $250,000 property value reduction matters.

Why would a strata scheme problem that might cost about $105,000 to comprehensively repair reduce the apartment’s value by $250,000?

Justice Brereton at first instance considered that too.

• A purchaser would not simply price the estimated cost of repairing the membrane.

• They would also confront uncertainty about how extensive the repair might become.

• There would be inconvenience.

• And critically, the purchaser would not control the repair.

They would have to rely upon the strata scheme to perform it, a strata scheme that had already demonstrated reluctance to do so.

So the market wasn’t merely pricing waterproofing. It was pricing the defect + uncertainty + delay + inconvenience + lack of control.

And perhaps it was pricing something the strata system rarely puts a number on: governance risk.

The condition of the governance system itself had begun affecting the capital value of the privately owned apartment.

It also exposes an even more fundamental strata system problem.

• The membrane belonged to the owners corporation.

• The apartment belonged to Seiwa.

• The strata scheme controlled the repair.

But the owner experienced much of the economic consequence of not repairing it.

• Its apartment became unusable.

• Its income disappeared.

• Its property value was impaired.

So the legal ownership of the defective asset and the economic exposure to its failure were sitting in different places.

That’s a recurring feature of strata systems – that strata capital ownership, capital exposure and capital control are often separated.

And once they are separated, delay can become somebody else’s problem. At least for a while.

There is one more thing hiding inside the $250,000 property value reduction.

The Court did not immediately award it because that loss did not necessarily have to be permanent. If the membrane was repaired the reason for the reduced apartment value disappears.

That makes sense. And in the Seiwa Case, the strata scheme eventually did repair it.

But consider a slightly different version of the story.

What if the owner had needed to sell first?

• Perhaps somebody died.

• A relationship broke down.

• A court required a sale.

• The mortgage became unaffordable.

• Health or financial circumstances meant the owner simply couldn’t wait.

Or perhaps getting the strata scheme to repair the building required years of experts, meetings, lawyers and legal proceedings while the owner continued paying the costs of holding the apartment.

Now the strata capital problem changes again.

If a $1.55 million apartment is sold for $1.3 million because the common property remains defective, repairing the membrane six months later may restore the apartment’s value.

But it restores that value for the new owner. The previous owner has already sold.

A temporary strata capital impairment has become a crystallised capital loss.

That issue wasn’t decided in the Seiwa case. But the Seiwa Case makes it visible.

Of course, the owner could avoid selling, wait for the repair and avoid crystallising the reduced value.

But waiting isn’t free either as there may be:

• Mortgage interest.

• Levies.

• Rates.

• Insurance.

• Alternative accommodation.

• Lost rent.

• Expert costs.

• Legal costs.

• And the opportunity cost of capital trapped in an impaired asset.

So the owner can find themselves facing an unusual strata choice: Sell and crystallise the capital impairment – or wait and finance the delay.

Either way, the defective membrane is consuming strata capital somewhere.

That is why simply saying “the capital value will come back after the repair” doesn’t quite describe the economics.

It may come back. But when it comes back, who still owns it, and what it cost them to wait, all matter.

There is one final curiosity in the Court of Appeal judgment in the Seiwa Case.

The entire dispute over responsibility existed because of where the legal boundary of the lot had been created when the strata plan was registered.

In the Court of Appeal, Tobias JA, warned that insufficient attention to those lot boundaries could create unintended consequences for future repair responsibilities and, for some existing strata schemes, described the outcome as effectively the “luck of the draw” depending upon the physical configuration of floors, ceilings and walls when the plan was registered.

That’s another Capital Distortion insight hiding in plain sight.

Capital allocation in strata schemes starts long before anyone prepares a budget as it can be embedded in:

• the building design,

• the strata plan,

• the property boundaries, and

• the legal architecture of ownership itself.

Those things determine who owns a strata asset. And eventually they can determine who gets the bill when it fails.

So, no. A $105,000 strata repair did not literally become a $500,000 strata problem.

The Seiwa Case doesn’t say that.

The $150,000 was an actual damages award. The $250,000 was an accepted measure of potential apartment value impairment while the common property defect remained unresolved. They measured different things.

And that’s precisely why the Seiwa Case matters.

A single defective piece of strata scheme common property was simultaneously capable of appearing as:

• a repair requirement,

• lost income,

• impaired private property value,

• holding costs,

• legal costs, and

• potentially a crystallised capital loss.

Traditional strata thinking tends to see those things separately. GoStrata’s Capital Distortion Doctrine asks us to see the system connecting them.

• The strata plan determined who owned the membrane.

• The membrane determined where the physical problem occurred.

• The governance system determined who controlled its repair.

• And time determined where the economic consequences eventually landed.

That’s the Capital Distortion story hiding inside an otherwise familiar strata waterproofing case.

And it’s another reminder that in strata systems, money rarely just disappears.

It changes form.

Aug 24, 2026
Francesco Andreone

Case: The Owners – Strata Plan No 35042 v Seiwa Australia Pty Ltd [2007] NSWCA 272

Court: New South Wales Court of Appeal

Issue: Whether the defective waterproof membrane beneath the lot’s terrace formed part of the common property for which the Owners Corporation was responsible, and whether the $150,000 damages awarded for lost rental income were properly assessed.

Key Finding: The Court dismissed the appeal, confirming that the waterproof membrane was common property and upholding the $150,000 loss-of-rent award. The first-instance proceedings had also accepted evidence that the unresolved defect could reduce the apartment’s value by $250,000, although that amount was not awarded because repair could restore the value.

GoStrata ARC Significance: The Seiwa Case reveals how a single physical defect can produce multiple and differently located capital consequences — repair expenditure in common property, lost income and impaired value in private property, and potentially crystallised capital loss if the impairment is realised before repair. It is a particularly clear illustration of Capital Distortion because capital ownership, capital exposure and capital control can sit in different places within the strata system — and the market may price the resulting governance risk., capital exposure and capital control sit in different places within the strata system.