Case study comments make compelling reading

The chilling narrative detailing how a relatively modest defects claim blew out from a ban on residents going on their balconies into a $2million legal fight makes compelling reading.

However, a coda to “Broken Promises, Blame Games and Balconies”, about the plight of the Otto 2 building in Roseberry, Sydney, outlines the comments and observations from some of the report’s respondents.

It is equally fascinating, if only because it looks to future legislation as well as past failures. The list of topics covered is virtually a mud map to all the problems that have afflicted strata since it was invented here in Australia almost 60 years ago.

It includes: The statutory limitations on bringing actions; Dispute resolution; Making developers accountable; Regulatory responses to the risk of insolvency; Effectiveness of the RAB Act; The strata bond scheme; Collaboration between regulators; Inspections during building work; Improving rates of compliance and building product performance.

The following comments have been drawn, distilled and summarised from Part 3 of the case study.

Certification

Among the many comments, the Otto project’s Principal Certifying Authority, Peter Antcliffe, said the practices of the industry had definitely improved since the Design and Building Practitioners Act and Residential Apartment Building Act were introduced.

He said there were now more detailed designs being produced making it easier to identify non-compliance during inspections and giving builders a much clearer set of plans to build to.

He added, however, that the costs of certification had multiplied by a factor of 10 or more – little surprise given that it previously cost less than the door locks for each unit –  and that certifiers needed more training on how to conduct inspections.

Deadlines for defect claims

The report says some participants felt that the two-year time limit to bring actions for breach of warranties for minor defects results in more litigation because it does not give sufficient time for defects to crystallise and be resolved.

They said it was all very well to ask owners to complain to the NSW Fair Trading but there was just not enough time to identify these issues before the two years was up.

Dispute resolution

It was suggested that ensuring disputed defect claims came before a reputable independent adjudicator as soon as possible was the key to more timely outcomes.

The difficulty for the tribunals, courts and government was finding the best available experts to act in those roles. “Without this, the current processes are often ineffective.”

Making the ‘developer’ accountable

When regulating ‘developers’ a key question for government is how the term is defined in legislation so as to ensure all relevant parties are ‘captured’ when seeking to impose responsibilities and accountability.

Currently, there are different definitions of ‘developer’ in the Home Building Act and RAB Act. There is a proposal to resolve this via amendments. The proposed new definition of ‘developer’ will be found in the proposed Building Compliance and Enforcement Bill28 and is similar to the RAB Act definition.

If enacted, the legislation will cover persons who contract or arrange for building work to be carried out; the owner of land on which work is carried out; and the principal contractor for the work as defined in the proposed new Building Act 2022.

Insolvency and phoenixing

To paraphrase a long and complicated section, the regulations around insolvency are a mess and developers aren’t breaking any laws when they go into voluntary receivership in one company, then start trading as another entity.

Radical reform of both federal and state laws will be required to snuff out this odious practise.

Effectiveness of the RAB Act

The Office of the Building Commissioner’s use of the Building Works Rectification Order process was met with lengthy written arguments from the lawyers for Sydney Christian Life Centre (the land owners) and Icon NSW (the developers).

“They raised multiple legal arguments against the use of these powers, including arguing that their use was an abuse of process whilst litigation was on foot,” the report says. “The OBC did not agree with these assertions.

“It says the use of the powers does not cut out the legal processes open to parties. As is shown in this case, the cost of litigation in these matters is extensive and leads parties to focus on the legal battle rather than fixing the defects.

“Intervention using the Residential Apartment Buildings (Compliance and Enforcement Powers Act) 2020 (RAB Act) powers can act as a circuit breaker to that process and owners’ corporations that decided to opt in to Project Intervene are seeking the OBC’s assistance.

“The government should ensure that the RAB Act powers are as robust as possible to support Project Intervene.”

The Strata Bond Scheme

Introduced in 2017, the NSW strata bond scheme requires 2 per cent of the construction cost of new apartment buildings to be paid to the government upon commencement of an apartment project.

“There was a consensus among the case study participants that the strata bond scheme is unlikely to materially improve outcomes for owners of apartment buildings.”

Reasons given included that the amount of the bond was inadequate, the timeframes were too short, the process was very complex and the quality of some of the experts that are willing to be involved was lacking.

There are reforms proposed to the strata bond scheme process, including to extend the overall time for the process from two to three years.

Coordination between regulators

Regulation of the building industry is a joint responsibility of state government, local government and the appointed Principal Certifying Authority. There are overlapping enforcement powers given to these three parties which can create confusion for consumers and can also lead to one assuming the other will or should act.

In the Otto case the content of Council’s orders issued to Otto 2 overlapped with the BWRO issued by the OBC to the developer. Both Council and the OBC have said their communication with each other could have been better.

Inspections during building work

Questions were raised about whether certifiers have adequate training in inspecting external waterproofing or many other highly technical elements of construction. They rely on certification from others and in many cases where they question compliance, they are told by the builder that the installer has more knowledge and their certificates should not be questioned.

These observations highlight the heavily reliance within the building approval system on self- certification. The certifier and possibly the engineer perform the role of independent certification.

However, both professionals will be engaged on a certain number of inspections and this is often an area where the builder and developer want to cut cost.

“The government will need to monitor this issue and should consider how to support certifiers, architects, engineers or other suitable experts receiving the training required to enable effective independent inspections,” the report says.

Compliance and building product performance

“Disputes about defects in strata developments will be curtailed by increasing the rates of compliance in the design and construction of apartment buildings,” the report says.

“The NSW government is well aware of this and has already made several reforms that go directly to changing the culture of compliance.”

This includes the development of the iCIRT ratings tool and latent defects insurance both of which are “gaining momentum”.

The comments above were drawn from the much more detailed commentary that forms Part 3 of the case study. Industry professionals and other interested parties would do well to read the entire document in detail.