Strata Buildings with Residential Units (Lots) - Defective Building Works Expanded Rights and Obligations since 2020 – Design and Building Practitioners Act 2020

27/04/2023

Over decades there have been problems associated with issues arising such as defective residential strata units causing losses and distress to Owners.  There is commentary within the Press relating to some high profile building issues which have caused great losses to individual home owners and associated parties.  For many years the Government has tried to bring in laws to protect the consumers.  Unfortunately the laws have not been able to effectively protect numerous Lot Owners and Owners Corporations from the problems associated with defective building works and costs of rectification.  There are many successful strata buildings without such defective work which do not cause significant stress and losses to Owners.

Over the years there have been numerous high profile insolvencies by Builders, Developers and others resulting in significant losses to Lot Owners and Owners Corporations. 

Similarly, there are many home owners that are hopeful to have their dream home built and those home owners suffer significantly due to defective works and other issues relating to the building of one’s home.

There are many Developers and Builders who produce good products however there are a significant number that the product produced is inadequate.  The Courts and Tribunals are overrun with cases of disputes.  Over the years Governments have introduced various legislation in an attempt to protect the innocent purchasers.  There is nothing that is certain to achieve this.  There are many different financial structures that are put in place which in effect protect assets and individuals behind various companies. 

There has been recent reform in relation to the New South Wales construction industry and the incorporation of the following Acts and Regulations:

1. Design and Building Practitioners Act 2020 (“DBP Act”).
2. Building and Development Certifiers Act 2018.
3. Residential Apartment Buildings (Compliance and Enforcement Powers) Act 2020 (“RAB Act”).
4. Design and Building Practitioners Regulations 2021.

Below we set out some facts (assumed facts) which do not relate to any particular matter, setting out the problems faced by purchasers of residential units.  The assumed facts and related issues are:

1. The purchaser (the purchaser of a new home) (Lot Owner) purchases a new strata unit from a Developer or a relatively new strata unit from an original purchaser of the Lot. 
2. The Developer or the original Owner of the land undertakes the development of the residential units.
3. The Developer enters into a Contract or arrangement with a Builder to build the residential units.
4. There are other parties engaged in relation to the design of the units.
5. The Builder engages sub-contractors to undertake the building works.
6. The Developer and Builder obtain the necessary approvals and build the units. 
7. On the issue of an Occupation Certificate and registration of the Strata Plan, the units become part of a Strata Scheme and are sold to the original purchasers. 

For this example we assume, however the date is not particularly relevant, that the Strata Plan was registered on 1 July 2022. 

In this particular matter, we assume there are defective works allowing water ingress into some of the lots and for this exercise, we assume that 1 of the 40 units is so badly affected by water ingress, and the purchaser of the unit from the Developer has not been able to occupy the Lot since the purchase.

1. Firstly, the Lot Owners have rights and obligations.
2. The Owners’ Corporation have rights and obligations.
3. The Builder and Developer have obligations to the Owners Corporation.

Currently strata development and management are dealt with under:

1. Strata Schemes Management Act 2015 (“SSM Act 2015”).
2. Strata Schemes Development Act 2015.

Currently residential building work which includes the construction of residential home units subject to a Strata Scheme, is the subject of the Home Building Act 1989 as it has been amended from time to time. 

There are numerous other Acts in relation to other persons involved in the building process.

The Design and Building Practitioners Act 2020 was implemented in an attempt to hold various practitioners including Design Practitioners and Building Practitioners involved in “construction work” for example of residential strata buildings, accountable for their work in the planning, design and construction stages of the building.

The Practitioners the subject of the Act, include but are not limited to Design Practitioners, Principal Design Practitioners, Building Practitioners and Professional Engineers. 

Since 2021 under the DBP Act required the person who carries out construction work has a duty to exercise reasonable care to avoid economic loss to owners caused by various matters. 

In 2022 and 2023 there have been many cases in particular, in the Supreme Court of New South Wales dealing with issues relating to the operation of the DBP Act.  These cases express the legal position relating to the extent of the legal obligations of various persons involved in the construction.  There are still some unresolved issues as to the interpretation and operation of the various Acts.

Separately the Home Building Act 1989 sets out implied warranties which are implied in all Contracts for construction work cove red by the Home Building Act 1989.  This includes residential building work (subject to some limitations).  The Builder and Developer as defined, are bound by those statutory warranties.

Generally the law relating to breaches of Statutory Warranties is settled.  Statutory Warranties are provided for in Sections 18A – 18G of the Home Building Act 1989.

The Home Building Act 1989 provides for limitation periods in relation to commencing proceedings for breach of the statutory warranties by persons entitled to bring those claims.  There have been numerous cases in relation to the issues that arise relating to who can bring the claim and against whom a claim can be made. 

In addition, the Lot Owners and the Owners Corporation are regulated by the Strata Schemes Management Act 2015 as to their duties and obligations.  There are obligations for example, on the Owners Corporation to properly maintain and repair the common property.  This would be for example, include repairing part of the common property to ensure that the building is properly maintained.  Section 106 of the Strata Schemes Management Act deals with the rights and obligations of the Owners Corporation and Lot Owners. 

There is often conflict that arises when one considers the obligations of the Owners Corporation to properly maintain the common property and the rights of the Owners Corporation to bring claims against various person and entities under the various legislation. 

There is a further complicating matter to be considered in circumstances where neither the Developer nor Builder is required to provide Building Warranty Insurance (which has previously been known as Home Owners Warranty). 

Into the mix of issues and problems that arise, is that often the “Builder” and “Developer” are not solvent and unable to satisfy their obligation to rectify the defects.

The introduction for example of the Design and Building Practitioners Act 2020, provides further rights and obligations and matters for consideration to effectively obtain a resolution to the often difficult circumstances, that the Owner or subsequent Owner may find themselves in after construction or purchase of their dream home.  In addition, there are different limitation periods in relation to various claims

Watson & Watson have been involved in many significant matters achieving a positive outcome for many clients in the plethora of issues that can occur in relation to strata buildings and residential units.

One needs to properly consider the matter at an early stage and to consider options and alternatives on a commercial basis, so as to best achieve the most commercial outcome.  In whatever course you seek to proceed with, there are significant risks.

The complexity as much as anything, relates to the facts of the matter and the question of the solvency of the various persons and entities responsible or possibly against whom a claim can be made.

At Watson & Watson we can assist you in relation to your strata issues or disputes and building and constructions matters.  Richard Watson is an Accredited Specialist in the stream of Building and Construction and has acted separately for Principals, Owners, Builders, Contractors, Architects, Designers and Project Managers in hundreds of disputes covering the entire spectrum of the Building and Construction Industry for 40 years.  Do not delay in seeking appropriate and timely advice.  Please contact Richard Watson Principal or Shereen Da Gloria his Personal Assistant to discuss your matter.

This is only a preliminary view and is not to be taken as legal advice without first contacting Watson & Watson Solicitors on 9221 6011.