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Too Little Too Late For NSW’s Building Industry

Government proposals to reduce the occurrence of building defects in NSW spell out an unpleasant reality for strata and building managers. Strata managers are left in throes following the introduction of consumer protection legislation. The legislation, which builds on the restriction of home warranty insurance by the former Carr government, has been widely criticised. The Carr Government restricted Home Warranty Insurance in New South Wales to residential buildings less than four storeys.

Whilst the Statutory Warranties apply for the work, there is no insurance coverage to fall back on. Now known as The Home Builders Compensation Fund, HBCF, previously referred to as Home Warranty Insurance.

Statutory Warranties apply to all residential work, this includes residential units in NSW, SA and Victoria.

The main principle of the reform is to increase the liability of builders and designers responsible for faulty construction. It also seeks to implement a duty of care for buildings. This means that owners in future years can be compensated in the instance of negligence by architects, engineers and builders. 

The reforms have been criticised as ineffective. This is because most building flaws are not structural, but instead are concerned with water leaks and fire safety defects. There are also many issues concerning the tiling in the Wet Areas where the tiles are spot fixed to the walls which leads to multiple problems years down the track that are unseen by a visual inspection but easily found with the correct specialist equipment.

Industry practice among developers and builders has been to use temporary companies for individual building contracts. This helps them cut corners and avoid liability. This lack of responsibility is a result of legislation passed in 2012. The legislation weakened the requirement of developers to provide guarantees on their work.

Consumers are often left with no recourse when safety issues are present. This is due to the absence of statutory home warranty insurance and guarantees.

Another reason why the NSW building industry is due for redress is because of the ‘hushing up’ of commercial property defects. Building owners are hesitant to make water penetration and absence of fire safety issues public. This is because of the impact it will have on the value of their property. 

The 2019 Opal and Mascot Towers defects were only publicised so loudly because of the life-threatening nature of the defects. When defects are non-life-threatening, building owners have little reason to take action in the best interest of their tenants.

Building for profit at the expense of quality has been common during the recent property boom. Australia’s legal sector has called for reform of current building regulations. These calls have been made with the intention of providing increased safety for residents who at the moment are unprotected. 

There have been calls for extended building warranties in NSW and annual defect inspections. This is currently the case in the automotive industry – where pink slips need to be renewed annually.

The most common defects reported by owners in apartment blocks are:

  • Internal water leaks – 42%
  • Cracking to internal or external structures – 42%
  • Water penetration from outside – 40%
  • Guttering faults – 25%
  • Defective roof coverings – 23%
  • Defective plumbing – 22%
  • Tiling problems – 20%  This figure is grossly underestimated as stated by SBDIR above.
  • Building movement – 17%
  • Noise break-through – 17%
  • Defective balcony balustrades – 15%
  • Lack of or defective fire safety measures -15%
  • Electrical faults – 14%
  • Inappropriate or correctly installed materials – 12%
  • Defective machinery – 12%
  • Other – 5%

SOURCE: UNSW City Futures Research Centre – Governing the Compact City: The role and effectiveness of strata management, 2012

It’s a trying time for the NSW property sector. Statutory warranties are absent on commercial buildings and residential building work has almost no protection from major defects. The liability period of builder’s warranties need to be extended to protect home owners, owner corporations and tenants. 

6 years and 6 months for Major Defects is nowhere near long enough in NSW. In Victoria you have a 10 year limitation period and in QLD the Home Warranty Insurance does not rely on the Builder dying, becoming insolvent or going missing. The Policy is activated straight away.

The NSW Government has clearly sold out to the developers and insurance companies, whoever was in power. Why lower the coverage of the HBCF from 7 years all defects to 6 years major defects and 2 years minor defects.

Who allowed the legal loophole for companies to become single entities to develop and build and then allow them to close down and render any chance of a claim being made as zero and no legal liability for any of the Directors.

Sydney Building Defect and Inspection Reports are the experts in building defect inspections and can service your property anywhere in NSW. If you are a home owner or strata manager and need a building defect inspection report completed, contact us to discuss your situation.