Important rights to Owner or subsequent Owner provided by Statutory Warranties

01/10/2015

Owners Corporations and the Executive Committee have significant obligations, duties and roles in relation to management of the strata complex.

Fundamentally pursuant to Section 62 of the Strata Management Act the Owners Corporation must properly maintain the common property.  Sometimes it is difficult for Owners Corporations to determine what is common property. 

Further the Owners Corporation have a right to bring a claim against a builder for breach of the Statutory Warranties (to which we refer to elsewhere) and to seek to recover damages for the Builder’s breach of such warranties. 

What happens if the Executive Committee or Owners Corporation fail to bring such a claim within the proper statutory period?

What is the appropriate limitation period in which one can bring a claim?  Now is the time to consider your rights.

This was a simple question to answer under the Home Building Act as it was and since the amendment of the Act which came into effect on 1 February 2012.  However since the Home Building Amendment Bill 2014 which has come into effect, there is confusion as to what is the effect of that amendment to some of the previous rights of Owners and Owners Corporations to claim against a Builder for breach of the Statutory Warranties.

It would be unsafe to rely on the existing version of the Act in relation to the time limits.  The existing version of the Act as to time limits is found in Section 18E of the Home Building Act which provides for breach of the statutory warranties to be commenced within a certain period of time. 

The current version of Section 18(E) provides in part:

“18E   Proceedings for breach of warranties

(1)       Proceedings for a breach of a statutory warranty must be commenced in accordance with the following provisions:

(a)       proceedings must be commenced before the end of the warranty period for the breach,

(b)       the warranty period is 6 years for a breach that results in a major defect in residential building work or 2 years in any other case,

(c)        the warranty period starts on completion of the work to which it relates (but this does not prevent proceedings from being commenced before completion of the work),

(d)       if the work is not completed, the warranty period starts on:

(i)         the date the contract is terminated, or

(ii)        if the contract is not terminated-the date on which work under the contract ceased, or

(iii)       if the contract is not terminated and work under the contract was not commenced-the date of the contract,

(e)       if the breach of warranty becomes apparent within the last 6 months of the warranty period, proceedings may be commenced within a further 6 months after the end of the warranty period,

(f)         a breach of warranty

"becomes apparent" when any person entitled to the benefit of the warranty first becomes aware (or ought reasonably to have become aware) of the breach.

“Major Defect” is defined at Section 18(e)(4).

The question that remains is what is the limitation period in relation to Contracts that were entered into before 1 February 2012 (the date that the Home Building Amendment Bill 2011 commenced).

Prior to that time proceedings for breach of the Statutory Warranties had to be commenced in the appropriate Court or Tribunal within 7 years of completion of the works.  Has this been varied?

There are many writings which indicate that the amendment in 2014 changed the limitation period.  We are aware of some Owners Corporations taking the view that the time limits and the restrictions that now apply, apply to Contracts which were entered into prior to
1 February 2012.  This is not the risk adverse proposition that should be adopted by Owners’ Corporations.  If this is incorrect and there is still a right to a claim against the Builder for Contracts entered into prior to 1 February 2012 for up to 7 years of completion of the works and the Owners Corporation fails to take appropriate action, is there maybe a claim by various lot owners against the Executive Committee or others responsible for the decisions made?

Richard Watson has reviewed the position and has an opinion of it and spoken to many lawyers, in particular, experienced construction lawyers within the industry and there is a divergence of the opinion.  As one senior counsel who was briefed to consider this aspect said “the law could have been clearer” and there is further research to be done.  The outcome depends on the meaning of the transitional provisions, namely, whether the amendments apply to all previous Contracts or some previous Contracts.

If you have an issue as to whether you should bring a claim; now is the time to consider your rights in particular, where building work was current and pursuant to a Contrct entered into in effect prior to 1 February 2012.  In those circumstances it is incumbent upon the Owners Corporation to properly consider whether there is a claim against the Builder for damages because of the Builder’s breach of the Statutory Warranties.

There is a further difficulty in that the Owners Corporation has an obligation to properly maintain the property.  Accordingly if there is defective work or defective materials, then the Owners Corporation must rectify the works. 

This will require the Owners Corporation to fund those works.  This may require the Owners Corporation raising a significant levy in certain circumstances.  One recent enquiry involved the question of a possible claim of approximately $1 million against a Builder. 

Until determination of this issue by an appropriate Supreme Court we believe that the limitation period will not be clarified sufficiently to enable Owners Corporations and Executive Committees to hope for the best whichever way they decide.

All is not lost as in the appropriate case, an application to the Court could be made to have this issue (as to the limitation period) considered without necessarily incurring the whole expense of determining the case in full. 

If you are concerned as to what is happening in your strata please do not hesitate to telephone Richard Watson to discuss the matter and seek advice or a second opinion as to your options.