Building Defects – What you need to know

Posted 18 October 2016

Category: Building Defects

Under the new strata law reforms, owners corporations have to consider building defects and rectification at each annual general meeting (AGM).

However this only applies until the expiry of the warranty periods for the applicable statutory warranties.

It is also different to the new building defects bond scheme which starts on 1 July 2017 (see more below). David Bannerman, Principal at Bannermans Lawyers said: “Due to difficulties in determining which warranty scheme applies, and the expiry of these warranty periods, at a minimum those preparing agendas should be careful and conservative about when the warranty periods expire until appropriate legal advice has been obtained.”

He added that a motion should be included in the AGM agenda where a building is less than seven years from the date of the first occupation certificate. Urgent advice may also be needed because of the expiry of a warranty period, before the AGM.

Many of Bannerman’s clients use their suggested motion which says:

“The owners corporation resolves to consider building defects and rectification and engage Bannermans Lawyers in accordance with its fee proposal dated (insert date) to provide advice regarding liability and recovery of losses in respect of building defects.”

The law firm also explain that the owners corporation has a mandatory obligation to repair and maintain the common property, including building defects.
However another party may be held accountable to rectify or pay the loss, such as builders, developers, certifiers, home owners warranty insurers, contractors, subcontractors, designers or engineers.

David added: “It is not part of the strata managing agent’s agreement with the scheme to provide legal advice on building defects nor is it sufficiently qualified to do so.”

New building defects bond scheme

The building defects bond scheme will start on 1 July 2017. David said it will provide for a 2% bond, restricted voting rights for developers and a procedure for obtaining expert reports paid for by the developer.

However he added that owners corporations will not need to consider the new bond scheme as it will not apply to the majority of this current construction cycle.

The scheme only applies:

• To buildings which are not eligible for home warranty insurance i.e. buildings over three storeys high
• Where contracts for residential building work are entered into after 1 January 2018
• If there is no contract e.g. where the builder and developer are the same entity, where works commenced after 1 January 2018.

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Author: David Bannerman
Date: 18/10/2016
Publication: Real Estate Institute NSW
Section: Online News

***The information contained in this article is general information only and not legal advice. The currency, accuracy and completeness of this article (and its contents) should be checked by obtaining independent legal advice before you take any action or otherwise rely upon its contents in any way.