The decision last week by Syd Fisher to put the development company behind the troubled Gazebo apartment block into liquidation has exposed one of the major problems many apartment owners face trying to get developers to make good on defective buildings.
Fischer’s decision to scuttle the company 2EBR, wipes out $135,000 legal costs awarded to apartment owners in the Supreme and Appeal Courts, not to mention claims for about $4.5 million in alleged defects currently being sought.
The directors of 2EBR would argue, perfectly legally, that this particular company, set up specifically to convert the former Gazebo hotel at No 2 Elizabeth Bay Rd into apartments, does not have the assets to meet its debts. It has no prospect of any further income and therefore the liquidator has been called in.
It’s a lose-lose situation. Fischer loses one of his companies – any profits it may have made from the sales of the 160-plus Gazebo apartment long gone – while the owners of those apartments lose up to $4.5 million in alleged defect rectifications that they are now obliged, by law, to undertake.
The NSW government plans to plug the defects hole, in part, at least, with a two percent defects bond that was due to come in with the much delayed strata law reforms. These reforms will not now see the light of day until about this time next year.
Predictably, though, the other side of the deal – making it a lot harder for owners to claim for defects – was rushed through at the beginning of this year and made retrospective. It’s a carrot and stick approach to strata defects that is, for the time being, all donkey food for developers and no stock whip.
Much vaunted anti-phoenixing laws also came into force earlier this year. They purport to prevent building companies from shutting down to avoid their debts then reappearing weeks later under a different Australian Business Number but with identical owners.
Of course, if fly-by-night developers take their money and run, with no intention of ever pouring another millilitre of concrete, these laws don’t count for much.
In any case, all of this is virtually meaningless in the current property bubble feeding frenzy where, depending on its post code, a cardboard box with a bucket for a toilet would still attract auction bids.
And the responsible developers who have been trying to build confidence in their industry by providing quality product, not to mention supporting the defects bond, must be sobbing into their bubbly.
Why do they bother when our legislators are happy to spend the proceeds of a property boom like sailors on shore leave while turning a blind eye to the glaring gaps in protection for apartment buyers?
Beverley Hoskinson-Green, a top strata lawyer with Makinson d’Apice, says that, while the 2 percent defects bond would be a welcome addition to home buyers’ protections, what is needed is to “break the nexus between certifiers and developers.”
“As it stands, developers choose and pay for the private certifiers,” she says. “It’s little wonder then that some certifiers, looking at where their next job will be coming from, are just ticking the boxes on their current one.
“Councils should have a list of certifiers and they should be appointed to developments on the basis of next cab off the rank.”
Nowhere in our world is the phrase caveat emptor – buyer beware – more relevant than in property purchases.
Ms Hoskinson-Green suggests buyers tread warily when looking at developers that have no track record anywhere, are just the address or name of the specific development or, especially, are a variation of a tried and trusted name (like “Flat Chat No 2”).
That cardboard box may have a brand name on the side but will the parent company be around when it rains and the walls get soggy?