Owners Corporation recover from the Builder substantial sum (almost $1million)


Owners Corporation recover from the Builder substantial sum (almost $1million) by negotiation to enable rectification of defective plumbing works installation -  second opinion justified

A member of an Executive Committee of an Owners Corporation approached Watson & Watson in December 2013 because she was concerned as to rights and obligations concerning rectification of the plumbing works which were failing in a multistorey complex in which there were over 60 residential units. 

The unit complex had been developed in 2004 and the plumbing system was leaking throughout the building.  The Owners Corporation spent large sums patching the existing system (including removing ceilings and other access points) so that it remained operational.  Without the system being operational the building would have had to be vacated.  The Executive Committee was concerned as nothing seemed to be achieved through the current representation.  The Owners Corporation had previously instructed solicitors who briefed Senior Counsel in relation to the problems.  The builder had indicated that settlement may possibly be available however the settlement contemplated by the Builder was less than $100,000. 

The problem in part was that the building's plumbing system failed and there were leaks at many levels of the building.  It was clear that a significant cost estimated at more than $700,000 was to be incurred to rectify the works. 

Watson & Watson was asked to give a second opinion and following that second opinion was engaged to assist to resolve the claim in relation to the problem. 

The problem was twofold, namely:

1.         Whether there was an appropriate enforceable claim for which recovery would be made against the builder or other entity; and

2.         What were the obligations of the Executive Committee to rectify the defective plumbing works. 

In this article we deal with the first problem, namely, the prospects of recovering by way of Court proceedings or settlement a sum to assist in funding the rectification of the works. 

The second issue is an issue as to the obligations of the Owners Corporation to properly maintain the common property.  Pursuant to the Strata Schemes Management Act (Section 62) the Owners Corporation must properly maintain and keep in a state of good repair and service the common property.  We deal with this in a separate discussion relating to Section 62 of the Strata Schemes Management Act

The initial investigations related to the possible claim against the developer and builder who built the units. 

Upon initial investigation it became clear that there were some difficulties in that at that time a 7 year limitation period in bringing a claim for breach of statutory warranties was available under the Home Building Act.  We do not deal with the particular issues relating to breaches of statutory warranties by the builder or developer or plumber in this article.  This is dealt with elsewhere in a separate article.

The date of completion of the works is critical in that the date of completion of the works is the date from which the period during which one can pursue the builder or developer for breach of obligations for defective work or breach of statutory warranties commences.  It was a factual matter as to when the building works were completed and when the limitation period commences for bringing a claim for breach of statutory warranties (the law has since changed).  There was limited documentation available to assist us easily to determine the date of completion of the units and more importantly, the risks associated with commencing proceedings.  Was it better for the Owners Corporation to pursue the negotiations by which they could have probably at that stage negotiated a settlement of up to $100,000?

As it happened following investigations and review of the numerous documents that were available Watson & Watson received instructions to act.  Thereafter steps were taken to prepare the necessary Court documentation which up to that stage had not  been considered.  The filing of the Court proceedings is critical if the delay in loding the claim will result in failing to commence within the relevant statutory period that one has to commence proceedings.

Thereafter, an invitation was made to the builder for a meeting.  The builder engaged a major multi partner legal firm within Sydney and at that meeting there were suggestions that the Owners Corporation would fail, the Owners Corporation would have to pay significant costs, the Owners Corporation’s claim was statute barred and numerous other matters.  There was a suggestion that the settlement offer (less than $100,000) that had been indicated to the previous solicitor should be accepted.  For particular reasons in this case we considered and advised the Owners Corporation that the risks associated with proceeding were not the same that one would often find where the Owners Corporation had not previously engaged solicitors to assist in proceedings. 

Investigations were undertaken as to whether there were any other cases involving the claimed failure of similar plumbing systems.  This investigation raised issues as to the suitability of the system utilised in the manner in which it had been utilised in this building.  In some cases a particular product may have a fundamental problem.  A report had been produced from a highly qualified expert that the product utilised was appropriate for incorporation into the multistorey unit complex.  The builder as one would expect had submitted that report to the Owners Corporartion as evidence of suitability of the materials.  However, that of itself is not the fundamental issue that arises when one looks at whether a building is appropriately constructed and whether there is a breach of any statutory warranties (which relates to residential buildings) which would enable an owner or subsequent owner to obtain a successful outcome.

Evidence was obtained, proceedings were commenced and negotiations were entered into.  Before ascertaining what was an appropriate settlement Watson & Watson obtained an estimate as to the scope of works required and the cost of those works.   There were also complications as to the programming of the works.  The period of the works were estimated to be in excess of six (6) months. 

Following further discussions Watson & Watson assisted in coming to a solution as to how the works could be carried out without closing down the building for months.  The cost of relocating the occupants of 60 units for months would have been large.  A process was contemplated where the rectification works would be undertaken incorporating the new plumbing system whilst continuing to utilise the existing plumbing system.  

Final negotiations were on the basis of a settlement of a lump sum payment by the builder to the Owners Corporation and subsequently agreement was reached for a settlement over $900,000 which settlement sum was paid.

As in most cases it is critical that one looks at a commonsense position to seek to overcome the difficult position that the Owners Corporation or owner would have following discovery of defective works and in particular such defect that effectively renders the property structurally unsound or a building with major defects which prevents the occupation of the property.

The experience of Richard Watson and the team at Watson & Watson was such that an efficient review, advice and resolution was obtainable despite the difficulties that had arisen and the Owners Corporation were faced with when they first approached Watson & Watson.  If you have any doubts as to your rights and options available to you, please do not hesitate to seek a second opinion from Richard Watson.

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