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Strata Building Defects and Part 11 Protections for Strata Owners

We have previously written an article about the new duty of care protection in favour of property and strata owners, which is available under the new Design and Building Practitioners Act 2020 NSW (DBPA). Basically, it establishes a new duty of care against various building practitioners, retrospectively, covering losses arising from the last 10 years or so. However, that is not the only remedy available (of course). The issue of building defects have been around for a very long time and the legislation have been changing constantly, especially for strata buildings and it involves a myriad of legislation and laws. And that’s why those poor people at Opal and Mascot Towers were tearing their hair out when all those defects came into light. In passing, it is somewhat of a cold comfort to those at Mascot Towers, understanding that various defects were pre-existing at least since 2012 and structural defects still appear to remain.

Part 11 Protections

The 2% developer bond and inspection scheme has been in operation since 1 January 2018 under Part 11 of the Strata Management Scheme Act 2015 (NSW). In fact, it was written into the 2015 Act when it first commenced. On 1 July 2020, there was another round of amendments to the scheme.

So, where are we at with these and what do strata owners need to know? Below are some of the key summary points of the Part 11 scheme:

  1. The scheme is limited to residential building works entered into after 1 January 2018;
  1. It applies to construction of a strata scheme being 4 or more storeys in height. This covers off the home building compensation insurance gap, which applies to buildings that are 3 storeys or less;
  2. It aims to address the issues of building defects by mandating (i) an inspection regime by an independent building inspector and (ii) a compulsory 2% bond payable by the developer to cover any defects in the building work;
  3. The building bond is lodged with Fair Trading before an application is made for the occupation certificate;
  4. Within 12 months of issuance of an occupation certificate, the developer must appoint a building inspector, or the Secretary (ie. of Fair Trading) will make the appointment;
  5. The Owners Corporation will need to approve the developer’s appointment of the building inspector in general meeting by way of a general resolution (assuming it is out of the initial period). Otherwise, the Secretary (of Fair Trading) will become involved;
  6. Between 15 and 18 months after the issuance of the occupation certificate, the building inspector will make the interim inspection to identify any defective building works;
  7. Strict requirements apply regarding the building inspector’s standing, scope of works and the form of interim report, based on visual inspections (ie. use of equipment/techniques that do not involve destructive and/or invasive testing. It includes the removal of any object designed to be moved/opened whether or not it requires a specialist to remove/open any object. It can include any test whereby the object or assembly can be returned to its prior state without the replacement by a new component (so there are limitations with this);
  8. If there is no defective building work identified in the interim report, the developer can apply to the Secretary that a final report is not required. If approved, the bond will be refunded.
  9. If there is defective works, then they need to be rectified.
  10. Between 21 and 24 months after issuance of the occupation certificate, the building inspector will complete the final report. It cannot include new matters (ie. it cannot include defective building work not identified in the interim report.
  11. The bond will be released if there is no issue, and withheld pending rectification by the developer.

Overall, it is a good and measured approach by Parliament in our view (albeit a little late). It has obvious and practical problems, eg. these are retrospective (and relatively passive) inspections and there are no guarantees that there are no defects after the 2 year period. That said, it would be difficult for the statutory regime to “hand hold” the developer and builders in the construction phrase. However, if you have a concern about any issue with building defects, please feel free to give Eadz of our office a call. His direct line is 02 9806 7438.