Who Is Personally Liable for Unpaid Contractors in a Strata Scheme?

A Practical Guide for NSW Self-Managed Strata Committees

Unpaid contractor invoices are one of the most common causes of legal disputes in strata schemes. Many committee members worry that if a contractor is not paid, they could be personally liable.

In most cases, the debt belongs to the Owners Corporation, not individual owners or committee members. However, there are important exceptions where personal liability can arise.

This guide explains who is legally responsible, when personal liability can occur, and how self-managed schemes can protect themselves.

1. Who Is Normally Liable for Contractor Debts?

In NSW, the Owners Corporation is the legal entity that:

• Engages contractors
• Enters into service agreements
• Issues work orders
• Approves payments
• Bears responsibility for unpaid invoices

This means:

• Individual owners are not automatically liable
• Committee members are not automatically liable
• The debt sits with the strata scheme as a whole

Contractors must pursue the Owners Corporation, not individual people, in most standard situations.

2. Can Committee Members Ever Be Personally Liable?

Yes — but only in limited, serious circumstances.

Personal liability may arise where a committee member:

• Acts fraudulently
• Acts outside their legal authority
• Knowingly misrepresents payment approval
• Authorises work without proper approval
• Diverts funds improperly
• Trades while the scheme is insolvent
• Knowingly allows insurance to lapse

In these cases, protections under strata legislation may fall away.

3. What If the Scheme Simply Has No Money?

If a strata scheme cannot pay a contractor due to:

• Levy arrears
• Poor budgeting
• Unexpected repair costs
• Legal disputes draining funds

Then:

• The contractor may pursue debt recovery against the Owners Corporation
• NCAT or court orders may be issued
• Special levies may be forced
• Payment plans may be ordered

But this alone does not create automatic personal liability for committee members.

4. Can a Contractor Place a Charge on a Lot?

Contractors cannot directly place a charge on an individual lot.

However, they can:

• Obtain judgment against the Owners Corporation
• Force levy recovery action
• Trigger special levies
• Apply pressure through legal escalation

Ultimately, owners pay via levies — but liability still flows through the Owners Corporation.

5. What If the Work Was Not Properly Approved?

This is where many self-managed schemes run into trouble.

If work is:

• Not approved by the committee
• Not authorised by ordinary or special resolution
• Outside spending limits
• Ordered unlawfully

Then:

• The Owners Corporation may dispute liability
• The committee member who ordered the work may face personal exposure
• The contractor may argue misrepresentation
• Insurance may refuse protection

Informal approvals are one of the highest-risk behaviours in self-managed schemes.

6. Does Insurance Cover Unpaid Contractor Disputes?

Standard strata insurance does not cover:

• Unpaid invoices
• Cash flow issues
• Poor financial management
• Insolvency

However, Directors & Officers (D&O) insurance may provide protection where:

• A committee member is accused of negligence
• A legal defence is required
• Governance errors are alleged

This protection depends entirely on the wording of the policy and whether it remained active.

Final Thoughts

In most cases:

• The Owners Corporation is liable
• Not individual owners
• Not committee members

However, personal liability can arise where committee members:

• Act outside their authority
• Act negligently or dishonestly
• Ignore proper approval processes
• Allow the scheme to trade while insolvent

Clear approvals, strong financial controls, and documented decisions are the best protection.

Strata On Demand Can Help

Strata On Demand provides professional support for self-managed strata schemes across NSW, offering 30+ pay-as-you-go services that reduce financial, legal, and governance risk — without full-service strata management fees.

You only pay for what you need, when you need it.

For contractor liability risk and payment governance, the five most relevant services are:

1. Work Order Management

Ensures contractor instructions are controlled, documented, and authorised.

2. Contractor Vetting & Onboarding

Confirms insurances, licensing, contracts, and risk controls before work begins.

3. Budget Preparation

Prevents cash-flow shortfalls that trigger unpaid invoice disputes.

4. Compliance Health Check

Identifies governance and financial exposure before disputes escalate.

5. Tribunal Preparation (NCAT)

Provides structured documentation and support if contractor disputes reach Tribunal.

If your scheme is facing unpaid contractor issues, unclear approvals, or financial pressure, Strata On Demand can help stabilise your governance, protect your committee, and restore compliance before exposure increases.