What is Encroachment?
Sometimes, shareholders will mistakenly undertake renovation works on parts of common property. Companies should take action to prevent encroachments in order to ensure a shareholder does not exceed his or her entitlements under the Constitution in a way that is detrimental to the other shareholders or the smooth management of the building.
Taking a Proactive Approach
The best way for companies to prevent encroachments on common property is for them to develop a practice through which all shareholders who wish to undertake renovations which they are not expressly permitted to undertake by the house rules or the Constitution approach the board for permission. Discussing proposed renovations with shareholders before they are undertaken can prevent costly disputes from arising in the future.
Rectifying Encroachments
Companies can take action to require shareholders to pay for the costs of rectifying any encroachments. The process associated with such rectification is typically outlined in the Constitution. If it is not, there are various legal proceedings that the company can take to achieve the same result.
Disputes concerning the rectification of encroachments can be complex, costly and emotionally draining for all parties involved. The best way to resolve them is for the board to have discussions with the shareholder and attempt to reach a reasonable agreement which has some benefits for all parties involved. Formal mediation can be useful in this context.
What if it’s an Historical Encroachment?
It can be difficult for companies to take action against shareholders who undertook renovations a significant period of time ago. For example, the statute of limitations may prevent a company from enforcing its rights to the company property if the encroachment took place more than twelve years ago. The company may also be prevented from enforcing its rights if its board neglected to do anything about an encroachment that it knew about.
Have you had to deal with an encroachment? Do you suspect one? Call us on (02) 9199 8597 or email us.
The information contained in this post is current at the date of editing – 29 August 2024.
