Owners who took action at the NSW Civil and Administrative Tribunal (NCAT) against a resident who broke the bylaws by ripping up her carpet and using the concrete slab as noisy flooring discovered, to their horror, that it could not, under current rules, impose a fine on her.

"This is a no-brainer, it seems to me," said Ashley Douglas, the chairman of the 20-storey, 107-unit block in Pyrmont at the centre of the dispute, which ended up spending $20,000 on legal fees trying to bring the renegade owner to account.

"It's a ridiculous position under the new legislation that monetary penalties can't be imposed by NCAT when bylaws are broken. So many apartments are now being built in Sydney and with so many more being built, it's going to be impossible to enforce bylaws.

"Apartment living is going to become a hell of a lot worse."

Before the new strata legislation was enacted on November 30, 2016, owners corporations could go to NCAT to show a bylaw had been breached or an order to comply ignored, and have a fine imposed on the transgressor.

But this latest case exposed that, under the new regime, NCAT doesn't have the power to impose a monetary penalty - effectively meaning there's little incentive for an offender to make amends, or not to offend in the first place.

"It's a flaw that seems to have been overlooked and, if an order from NCAT for someone to repair their breach is ignored, what next?" said strata lawyer Adrian Mueller of J.S. Mueller & Co. "I think it's an oversight and it needs to be fixed by Parliament.

• Related: NSW tribunal overturns Airbnb bylaw
• Related: Eight most important strata law changes
• Related: NSW residents are strata lab rats

"In the current position, it might sometimes be cheaper for someone to ignore an order than to comply with it. For instance, if someone is short-term letting in defiance of bylaws and NCAT orders them to stop, because a penalty can't be enforced against them, they can just carry on making money. This is a real problem."

A spokesperson for Fair Trading said it would not be possible to comment without studying the issue in more detail.

Some people in the industry were already aware of this issue but had hoped it would not come to light, knowing it could lead to a "disastrous" free-for-all for those apartment-owners who decide to break bylaws on all manner of issues, like parking, pets, floor coverings and short-term letting.

Karen Stiles, executive officer of the apartment owners' peak body the Owners Corporation Network (OCN), said, "This is a recipe for disaster, potentially for chaos for apartment residents.

"Bylaws are there for a reason, for the orderly working of an apartment building and to make sure all residents can peacefully enjoy their homes. But it makes a nonsense of them if a breach can be proved and then NCAT can't impose a fine on the wrong-doer when they ignore orders to comply.

"There is no longer a real deterrent for some anti-social person not to break bylaws."

The case that brought the missing link to light involved an owner who took up floor coverings and polished the concrete beneath them to use as her flooring against the bylaws of her block in November 2015. In April last year, the owners corporation applied for an order to require her to comply with the bylaw, which was granted in June 2016.

After repeated requests, she still did nothing, so in May this year the owners applied to NCAT for an order that she pay a fine for breaching the order. In the meantime, however, the new legislation had come into effect and NCAT said it no longer had the power to impose a pecuniary penalty, and that owners corporations no longer had the standing to apply. Only the Attorney-General, or someone authorised by him, now has that power.

The building's lawyer Amanda Farmer said eventually, in this case, NCAT managed to order the lot owner to pay a $2500 fine if she doesn't made amends by January 2018 simply because the original order was made under the old legislation.

"But under the new law, you can only make an application for a pecuniary penalty with the consent of the minister," said Ms Farmer of Lawyers Chambers. "It'd be interesting to see how lot owners or owners corporations get that kind of order. I have no idea how you'd do that.

"We need an amending act to sort this out. I would like to see this changed. Strata committees have an obligation to act in the best interests of the owners corporation and it's hard enough to enforce bylaws without this.

"I think there'll be owners who see it as too hard in future and too expensive to seek penalties for people breaching bylaws. So if people want to rip up floors or take up an area of common property they're not entitled to, they'll be able to without fear of fines. This has the potential to be disastrous."