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Posted 19 August 2020
Category: Residential Building Works, Construction
The New South Wales Government’s latest round of amendments to the Home Building Act 1989 has zeroed in on strata practices in building defects claims. Such claims are now more complicated and require specialist assistance more than ever.
This paper briefly comments on some aspects of the following;
1. The rights lost on and from 25 October 2011.
2. Urgent action required to preserve rights.
3. Changes to building contracts from 1 February 2012.
4. Changes to home warranty insurance from 1 February 2012.
5. The future for managing building defects claims.
Strata building defects claims are often pursued very slowly and not always in the right direction for reasons including
The amendments, which are the first for this sector from the newly elected government, seem to have been rushed through parliament. One wonders whether it was intentional and how these amendments promote the advertised outcome of encouraging building in New South Wales, which partially depends upon consumer confidence in new units. The rights lost from 25 October 2011 are explained below.
In respect of the rights taken away, the New South Wales Government has allowed two 6 month grace periods which traverse the Christmas Period. However, as mentioned above it has imposed significant over-arching obligations which will have a very significant impact on consumer rights in the years to come. These are explained below.
The term “diligently pursue” is not yet defined. However, the amendments contemplate that it will be defined at some time in the future.
Speculating, we anticipate that the diligent pursuit requirement will not be met where:
Speculating again, we anticipate that the diligent pursuit requirement would be met where a scheme:
a. Promptly investigates, seeks advice and pursues defects as soon as they become apparent;
b. Actively pursues defect claims by commencing proceedings and efficiently putting on all of its evidence against builders and/or developers;
c. Complies with Tribunal or Court timetables where reasonably practicable;
d. Obtains evidence in reply and presses matters to settlement or hearing in a timely manner; and
e. Addresses any issues that arise during proceedings in a diligent and timely manner.
A huge concern for schemes created in the future, where the building contract was entered into after proclamation (anticipated 1 February 2012), is that the statutory warranty periods for claims against the builder, developer or sub-contractor will be reduced from 7 years for all defects to 2 years for non-structural defects and 6 years for structural defects. Where a defect becomes apparent in the last six months of the warranty period, then there will, for that defect only, be six months to commence from when the defect becomes apparent.
Having the building contract is critical for ascertaining whether the warranty period is 7 years from completion or 2 years for non-structural and 6 years for structural defects. This is ridiculous as it is very rare for schemes to have a copy of the contract and it is not specifically identified as a document the developer must provide at or before the first annual general meeting. Many schemes will be in a position where they will not know when “completion” was or how many years after “completion” they have to commence proceedings.
Many typical and important defects in future strata schemes will have 2 year warranties. They will include most of the usual fire safety defects prevalent in strata buildings due to poor certification practices and the limitations of annual fire safety statement inspections, despite the usual expectations of schemes that they have been properly investigated and reported on annually. Defective membranes in shower trays, another common problem will probably also have a 2 year warranty.
The convoluted and vague definition of “structural defect” from the Home Building Regulation 2004 is extracted below. We expect the courts will at some point clarify how it should be applied.
1. For the purposes of section 103B (2) of the Act, structural defect means any defect in a structural element of a building that is attributable to defective design, defective or faulty workmanship or defective materials (or any combination of these) and that:
a. results in, or is likely to result in, the building or any part of the building being required by or under any law to be closed or prohibited from being used, or
b. prevents, or is likely to prevent, the continued practical use of the building or any part of the building, or
c. results in, or is likely to result in:
i. the destruction of the building or any part of the building, or
ii. physical damage to the building or any part of the building, or
d. results in, or is likely to result in, a threat of imminent collapse that may reasonably be considered to cause destruction of the building or physical damage to the building or any part of the building.
2. In subclause (1): structural element of a building means:
a. any internal or external load-bearing component of the building that is essential to the stability of the building or any part of it, including things such as foundations, floors, walls, roofs, columns and beams, and
b. any component (including weatherproofing) that forms part of the external walls or roof of the building
Schemes may need to become aware of and commence proceedings in relation to building defects within 2 years from completion. That may be difficult noting that 2 years from completion will almost always be less than, and sometimes much less than, 2 years from the date of strata plan registration.
In line with construction cost increases, the threshold for when home warranty insurance is required and where a cooling-off period applies will be increased from $12,000 to $20,000. There seems to be the possibility of optional insurance for works below $20,000.
There are less rigorous “short form” contract requirements for works between $1,000 and $5,000 which must:
For contracts of insurance entered into after proclamation (anticipated 1 February 2012):
As noted above, this area has now become vastly more complex. Schemes need to react quickly to the changing landscape.
The executive committee/owners corporation resolves to seek legal advice in relation to time limits, required steps and relevant parties for any building defects claims.
Note (not part of motion): The owners corporation has a mandatory obligation to repair and maintain the common property including building defects which can be varied by law. If building defects exist then another party may be held accountable to rectify or pay the loss, such as, builders, developers, certifiers, Home Warranty insurers, contractors, subcontractors, designers or engineers. There are key dates and steps required to be undertaken in order to claim for the loss or rectification. Such time limits, without limitation, range from immediately to 45 days, 6 months, 12 months, 2 years, 6 years, 7 years and 10 years, starting from different points in time. Failure to comply with these time limits may result in denial of the claim or liability or reduction in the amount otherwise ordinarily recoverable. 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. |
***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.