Australia: Application Of The ´Ultimate Limitation Period´ Extended

Limitations and time bars abound in construction arrangements. The application of the 'ultimate limitation period' of ten years has recently expanded, but a lot of work done before 1 August 2008 will still slip through the cracks.

Contractor claims are often expressly barred unless they are made within a specified period and defects must be notified within 3, 6 or 12‑months, depending on the contract. The Home Building Act 1989 requires builders to give statutory warranties for seven years, but limits home warranty insurance indemnity to two years for non‑structural and six years for structural issues. The Limitations Act 1969 bars claims six years after the 'cause of action accrues'.

Despite the raft of bars and limitations, claims relating to building issues, brought many years after the structure is occupied, remain common place.

Building claims based on breach of a duty of care are subject to a six year limitation period, but the six year period does not commence to run until the defect becomes apparent (unless expressly prohibited under the contract). A fundamental defect may take years or even decades to reveal itself.

Section 109ZK of the Environmental Planning and Assessment Act attempted to manage this long tail of construction liability by barring claims made more than 10 years after the date on which the final occupation certificate was issued. The difficulty is that history has recorded many instances where an occupation certificate has never been issued. If there is no occupation certificate, there is no 10 year 'ultimate limitation period'.

On 1 August 2008, s109ZK was amended to provide that where no occupation certificate has been issued, a building action may not be brought more than 10 years after:

• the last date the building work was inspected by a certifying authority; or

• if no such inspection has been conducted, the date on which that part of the building, where the building work was carried out, is first occupied or used.

The change to the application of the 'ultimate limitation period' was made to ensure that the period during which an action for loss or damage may be brought in relation to defective building work is consistent with the period for which accredited certifiers are required to be covered by insurance under the Building Professionals Act 2005.

For reasons apparently only known to the New South Wales Government, the change does not apply to building work commenced before 1 August 2008. If the building work was commenced before that date and there is no occupation certificate issued, there will be no 'ultimate limitation period' and exposure to potential claims can, in theory, last for forever.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.