Unit owners, take note – your rights are about to change

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Imagine you buy an apartment in a recently built complex only to later discover there are serious flaws or defects. Now picture that there’s reasonable evidence of negligence on the builder’s part. Think you can sue them? Not necessarily.


It sounds crazy, right? If the blokes building your home stuff up and it leads to serious issues that cost you money and require repair, you should be able to recoup the losses caused by their negligence.

Well, until recently it was pretty unclear whether a builder in New South Wales owed customers any duty of care in the course of constructing a property.

Last month, the Court of Appeal in NSW handed down a judgment that could have big implications for unit owners facing building defect issues. Basically, an owners’ corporation of a serviced apartment complex had tried to sue builders in 2012 for negligence relating to defects in that particular building.

It went to the Supreme Court but it found that the builders didn’t have a duty of care, which might be hard to comprehend.

Not pleased with the outcome, the owners’ corporation went to the Court of Appeal and the decision handed down a few weeks ago basically overturned the original judgement. Instead the three appeals judges found the builders did have a duty to exercise reasonable care in the construction of the building.

Chris Kerrin is a partner at Teys Lawyers in Sydney and is the go-to when it comes to building defect issues. We chat from time to time about the many and varied issues facing unit owners, the big one being what to do when something goes awry with the quality of building works.

In his view, this decision will have implications elsewhere, including in states and territories where it might not be binding but will certainly have influence. “It probably assists residential strata schemes in all states and territories to sue builders for negligent building work”.

Perhaps most importantly for unit owners in NSW, this decision runs against what he calls a “hollowing out” of consumer rights that looks set to occur in coming months. The laws are about to change – and in a big way.

Around this time last year, I wrote a blog about flagged changes to the Home Building Act. Industry experts, including Kerrin, believed the wording the government used surrounding yet another round of reforms hinted at a watering down of consumer protection mechanisms.

The Act has already been seriously diluted over time. Since 2000, there have been more than 48 separate amendments. As Kerrin says, “in a number of significant ways, consumer protection has been eroded considerably by virtue of these amendments.”

As he sees it, avenues of dispute when it comes to building defects have been repeatedly diminished, primarily with the introduction of a two-year deadline on complaints relating to non-structural defects. If problems are discovered after this time, you’re essentially on your own.

That sounds pretty grim, but it could get a whole lot worse. The government’s just-released position paper on the next raft of Home Building Act changes repeatedly refers to providing “an appropriate level of homeowner protection without impeding industry growth and investment through needless red tape and regulation”.

The position paper gives some insight into what can be expected when the legislation comes before Parliament later this year. Kerrin makes the following observations:

  • On home building contracts, tweaks to the requirements are minor in nature but look to be more supportive of builders than consumers.
  • On statutory warranties, the position paper looks to narrow the definition of structural defects to push more issues into the non-structural category, which carries a shorter timeframe of claim.
  • On dispute resolution, the proposed establishment of an expert determination process is welcome provided the builder is required to engage in the process. A defection notification period of six months will disadvantage consumers though.
  • On home warranty insurance, there are only minor flagged changes that are a mix of pro and anti-consumer, but this area needs major reform.
  • On licensing provisions, more serious reform is required to ensure builders take serious account of licensing consequences. Complaints and fines aren’t serious enough incentive to ensure works are properly completed.

And in case you’re wondering why this is such a big issue, here are some statistics to put it into perspective:

  • Since 2000, 85 per cent of owners in strata buildings have reported one or more defects in their building at some stage.
  • Sydney is the most populated city in the country. Across the state, there are almost 600,000 residential strata lots and more than 67,000 registered strata schemes.
  • In 2011-12, there were 249 defendants facing 458 offences of the Home Building Act. Penalty notices issued totalled $484,000, or barely $1000 per offence.
  • Based on the available data, Kerrin believes some 38,000 people in NSW live in a building that’s less than three years old but affected by defects in some way.

“While there are some positive elements for consumers (in the position paper) they are largely confined to more minor issues whereas areas screaming out for proper reform are neglected,” Kerrin believes.

There are many unit owners in NSW who are battling building issues and will no doubt be interested in a potential erosion of their rights to dispute defects and seek appropriate recourse against the people responsible for them. A Bill containing many of the suggested reforms should be before Parliament any day now, so watch that space.

Shannon Molloy is the deputy editor of Australian Property Investor magazine, www.apimagazine.com.au