Ten-year building warranty is a strata game changer

COMMENT: A crucial element in the NSW apartment building revolution has arrived with the first of the big insurers prepared to take a punt on Chandler’s five-star reforms.

As we reported last week, Resilience Insurance is to offer building warranty cover for new apartment blocks over three storeys high – the first time in 20 years that has been available in Australia.

When NSW Building Commissioner David Chandler told us this would be the result of his shake-up of new building standards, there were a few in the industry who quietly echoed the hero of classic Australian movie The Castle: ‘tell him he’s dreamin’.

But he said all along that once insurers could trust developers and builders, they would come back to the industry, provided there were profits to be made at a reasonable level of risk.

That risk, he insisted, would be mitigated by his iCIRT gold star system which rates the trustworthiness of builders, certifiers and developers.

Consumers would avoid unrated developers who would find it impossible to get insurance cover. That, in turn, would drive the worst players out of the business altogether while the “also-rans” would lift their games to get the required rating.

The next piece in that jigsaw puzzle was slotted in last week when Resilience Insurance agreed to provide 10-year insurance cover for new apartment buildings.

This will provide comprehensive consumer protection for building defects caused by substandard design and building work, said Fair Trading Minister Victor Dominello, announcing the move, adding that this was “a big win for apartment owners and body corporates.”

Under this insurance scheme, developers or builders would take out a policy to cover any potential costs to fix serious defects of critical building elements for up to 10 years, including the building’s structure, fire safety systems and waterproofing.

This insurance would allow apartment owners’ corporations to make a claim as soon as a defect was identified.  Also, rather than having to prove who was liable for which problem, they would only have to show that a defect existed to make a claim and have it fixed.

The next step will be down to the NSW government’s policy wonks to formulate this arrangement as part of strata and property law. There is already speculation that it might eventually replace the 2 per cent defects bond that developers must currently park with the government.

And there will be watchful eyes in the insurance industry to see which of the other big players will be next to get on board.  By all accounts, there’s already significant interest and competition would doubtless be welcomed, if only to keep costs down.

This is just another element in a suite of reforms instigated by the apparently tireless Mr Chandler, aided and abetted by Minister Dominello.

It’s worth remembering that a few months ago the building commissioner was heading for the exit, unable to tolerate what he saw as interference and lack of support in the Fair Trading ministry.

A couple of months is a very long time in politics, but 10 years is a lifetime in an apartment block with major defects.

A version of this column first appeared in the Australian Financial Review.