Australia: The pitfalls of commencing construction without a construction certificate in NSW

In brief - There are serious consequences for development carried out without a construction certificate

Difficulty in obtaining insurance, the possibility of sale contracts being rescinded and inferior marketability are among the problems that developers can face if they do not obtain a construction certificate prior to commencing construction.

Granting of development consent in NSW does not authorise commencement of construction

The Council of the City of Sydney's recent application to the NSW Land & Environment Court seeking to injunct the Meriton Group from continuing construction of its South Dowling Street development project in Sydney - on account of no construction certificate having been obtained - is a timely reminder of the pitfalls of failing to procure the necessary planning approvals prior to commencing construction.

It is also a timely reminder that the granting of development consent in NSW does not, as a general proposition, legally authorise the commencement of construction. In fact, it does not authorise anything other than the right to proceed to apply for a construction certificate. Once that certificate is issued, physical works may legally proceed.

Sydney City Council seeks to injunct developer from carrying out further work

In the case of Council of the City of Sydney v Karimbla Properties (No.24) Pty Ltd [2014] NSWLEC 77, the council sought to injunct the developer, a subsidiary of the Meriton Group, from carrying out further work on the development.

The council contended that there had been a significant breach of the Environmental Planning and Assessment Act (EPA Act) by Meriton in failing to obtain a construction certificate prior to commencing the works. The extent of the unlawful works included, amongst other things, two buildings constructed to a height of nine storeys and a third building to a height of three storeys.

Developer argues that ordering work to stop would not be reasonable

Meriton admitted the non-compliance and tendered voluminous evidence on how the oversight occurred, but ultimately submitted that it was not reasonable in the circumstances to stop work on the $119 million residential development project. The arguments presented by Meriton included a submission on the dire consequences for the numerous contractors engaged on the project should a stop work order - of indefinite duration - be ordered by the court. As Justice Craig observed [at 18]:

While the Respondents do not rely upon hardship for themselves if work is stopped, it is apparent from the evidence, as it presently stands, that there is a real prospect of significant financial impact upon a large component of the present workforce. That is a fact relevant to the exercise of discretion when considering the balance of convenience.

Equally significant was the submission that even though no construction certificate was issued, the building was built in accordance with the development application (DA) approved by the consent authority and was otherwise built in accordance with the Building Code of Australia.

The court ultimately dismissed the council's interlocutory application for injunctive relief, effectively permitting Meriton to proceed with the works, for the time being at least.

No statutory framework to obtain construction certificate retrospectively

The real difficulty associated with commencing development works without a construction certificate - including demolition and excavation works (both characterised as "development" under NSW law) - is the absence of any statutory framework available to obtain a construction certificate retrospectively for works already carried out.

The situation stands in contrast to an application seeking to "modify" a development consent (after a construction certificate has been issued) under section 96 of the EPA Act to take into account work already carried out; in those circumstances the Act permits retrospective approval.

The problem is compounded by the difficulty of obtaining an occupation certificate under section 109H of the EPA Act - which can only be issued where a construction certificate has been previously issued. Occupation of a development without an occupation certificate constitutes an offence under the EPA Act.

Applying to a consent authority to obtain a building certificate

Various steps can be taken to "regularise" unlawful works via an application to a consent authority to obtain a building certificate under section 149A of the EPA Act. The usual test here is whether the unlawful works would have or could have been approved under the relevant planning controls had due process been followed. If the answer to the hypothetical proposition is yes, then a building certificate will typically be issued.

However, the notion of regularising unlawful work under section 149A of the Act is an entirely different concept to that of approval. In summary, the granting of a building certificate prevents a consent authority – typically a local council – from issuing an order requiring the building or unlawful works to be repaired, demolished, altered or rebuilt, as the case may be, for a period of seven years.

The issuing of a building certificate does not:

  • entitle the landowner to apply for an occupation certificate
  • preclude the consent authority from prosecuting the person or persons who carried out the unlawful works
  • provide certainty as to what steps, if any, the consent authority may take at the expiration of seven years

Failure to obtain construction certificate creates problems which could have been avoided

On a practical level, consent authorities rarely seek orders requiring the demolition of buildings constructed without a construction certificate after the lapsing of a building certificate, particularly where the building or unlawful works were approved under a DA in the first instance.

But irrespectively, there are serious implications for development carried out without a construction certificate, relating to such matters as the difficulty in obtaining insurance for unapproved buildings, the prospect of sale contacts being rescinded on account of vendors being unable to deliver a product immune from future legal challenge and the general inferior marketability of buildings that exist in part or whole without an occupation certificate.

There have been a number of calls for reform in this area of the law, premised on the view that buildings otherwise constructed in accordance with the prevailing planning controls should be capable of unqualified retrospective approval in limited circumstances. Of course, such reforms do not countenance the weakening of penalties for those who wilfully transgress the process, but that is a different issue.

No doubt there is more to come for Meriton in navigating its way around the problems associated with major development being carried out without a construction certificate.

Anthony Perkins
Planning and development
CBP Lawyers

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.

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