Australia: Protection for your home: Critical time periods for building defects

Last Updated: 14 December 2016
Article by Ben Robertson

Your purchase of your home is an important investment and you should be aware that when building defects occur there are critical time periods which need to be complied with to ensure that your rights to pursue any responsible party(ies) are not lost.

We have set out below some key issues surrounding building defect claims. Our firm has the expertise to advise and guide you in building claim matters and we can provide assistance to you in the event that any building defects become apparent in your home.

  1. Completion of Building Works

Establishing the date that building works are completed is an essential first step when ascertaining the end date to commence proceedings in respect of a building defect.

For new buildings in strata schemes completion of building works occurs on the date that an occupation certificate is issued. If an interim occupation certificate is issued completion will occur on that date, and not the date of a later final occupation certificate.

For non—strata buildings, the completion date can be difficult to ascertain with precision. Due to the way completion is defined in the Home Building Act 1989 prudent homeowners should adopt a position that the assumed date for practical completion could be up to 12 months prior to the issuance of an occupation certificate.

  1. Contractual Defect Liability Period

Building contracts typically contain a defect liability period in respect of building works that is usually between 12 to 24 months from practical completion of the building works.

In NSW, a contractual defects liability period cannot remove or limit rights to a statutory warranty.

Typically, only a party to a building contract will be able to bring a claim pursuant to a defect liability period and successors in title will not be able to bring a claim.

  1. Statutory Warranties

Proceedings to require a builder or developer to rectify defective works, or to be held to account for the cost of rectifying defective work can be brought pursuant to a number of statutory warranties.

The statutory warranties are available to the owner who contracted with the builder, any non-contracting land owner, and successors in title. The statutory warranties are as follows:

  1. A warranty that the work will be done with due care and skill and in accordance with the plans and specifications set out in the building contract;
  2. A warranty that all materials supplied by the builder will be good and suitable for the purpose for which they are used and that, unless otherwise stated in the contract, those materials will be new;
  3. A warranty that the work will be done in accordance with the Home Building Act 1989 and will comply with that act or any other law;
  4. A warranty that the work will be done with due diligence and within the time stipulated in the contract, or if no time is stipulated, within a reasonable time;
  5. A warranty that the work will result, to the extent of the work conducted, in a dwelling that is reasonably fit for occupation as a dwelling;
  6. A warranty that the work and any materials used in doing the work will be reasonably fit for any specified purpose or result made known to the builder by the person for whom the work is done, so as to show that the owner relies on the builder's skill and judgment.
  1. The Time Period In Which To Claim Statutory Warranties

Critical dates to commence statutory warranty claims are informed by the date when a building contract is entered into.

For building contracts entered into pre 1 February 2012, the statutory warranty period is 7 years.

For building contracts entered into on or after 1 February 2012, the statutory warranty period is:

  1. 6 years (with a 6 month extension if a building defect becomes apparent during the last 6 months of the statutory warranty period) for major defects; or
  2. 2 years (with a 6 month extension if a building defect becomes apparent during the last 6 months of the statutory warranty period) for defects which are not major defects.

A major defect is:

  1. A defect in a major element of a building that is attributable to defective design, defective of faulty workmanship, defective materials, or a failure to comply with the structural performance requirements of the National Construction Code, and that causes or is likely to cause:
    1. The inability to inhabit or use the building (or part of the building) for its intended purpose; or
    2. The destruction of the building or any part of the building; or
    3. A threat of collapse of the building or any part of the building.

A major element of a building is:

  1. (An internal or external load-bearing component of a building that is essential to the stability of the building, or any part of it (including but not limited to foundations and footings, floors, walls, roofs, columns and beams); or
  2. A fire safety system; or
  3. Waterproofing

Care needs to be taken when a building period straddles the 1 February 2012 date, because it is possible that a builder and developer obtained legal advice to split a building contract to take advantage of the reduced statutory warranty period and reduce their exposure to defect claims.

  1. Other Causes Of Action

Negligence

Following the decision of the High Court in Brookfield Multiplex Ltd v The Owners – Strata Plan No. 61288 [2014] HCA 36 there is a very high threshold to satisfy in any claim for negligence against a builder or developer. There may, however, be other parties that could be the subject of a negligence action such as a Local Council or private certifier responsible for certifying the building.

You have 6 years from the time that a defect becomes known or reasonably discoverable to commence proceedings for negligence.

Misleading and Deceptive Conduct

In some circumstances you may be able to pursue a builder, developer, designer, certifier, subcontractor for misleading and deceptive conduct.

You have 6 years from the date that the cause of action accrues.

  1. 10 Year Bar To Proceedings

Proceedings for a building claim in NSW are subject to a 10 year bar, where proceedings must not be commenced more than 10 years after the date on which a final occupation certificate was issued.

If no final occupation certificate was issued then proceedings must not be commenced more than 10 years after:

  1. The last date the building work was inspected by a certifying authority; or
  2. If no inspection by a certifying authority was conducted, the date on which the part of the building in relation to the building carried out was first occupied or used.
  1. Home Warranty Insurance (insurance under the Home Building Compensation Fund)

Building works valued at more than $20,000 carried out on a building which is 3 storeys or less should have the benefit of Home Warranty Insurance. The insurance is not mandatory for buildings which are over 3 storeys.

It is important to note the following:

  1. Since 1 July 2002 the insurance scheme has been "last resort" insurance which operates where a builder dies, disappears, or becomes insolvent ("Insured Event") and is unable to complete building works or meet their statutory warranty commitments.
  2. The insurer is unable to reduce its liability under the policy or reduce any amount otherwise payable in respect of a claim because of a delay in a claim being notified to the insurer if the claim is notified within the period:
    1. No later than 6 months after you became aware, or ought reasonably to have been aware, of the fact or circumstance under which the claim arises;
    2. In the case of a claim for loss or damage due to incomplete works, no later than 12 months after the later of:
      1. The contract date; or
      2. The date for commencement of work in the contract; or
      3. The date work ceased.
  1. Any claim in respect of a major defect must be made within the policy period of 6 years, however, if the loss becomes apparent within the last 6 months of the policy a claim may be brought within a further 6 months after the end of that period.
  2. Any claim in respect of a defect other than a major defect must be made within the policy period of 2 years, however, if the loss becomes apparent within the last 6 months of the policy a claim may be brought within a further 6 months after the end of that period.
  3. A delayed claim can be made if an Insured Event doesn't occur within the period of insurance and the following has occurred:
    1. a claim is properly notified to an insurer during a period of insurance (or if a loss becomes apparent within the last 6 months of the policy within the 6 months after the end of that period); and
    2. enforcement of the statutory warranty has been diligently pursued.
  1. Summary Action Points

Purchase of a property, whether it is your family home or an investment property, can be one of your most valuable investments so consider the following three key action points:

  1. You'd get a mechanic to check a car prior to the end of a warranty period so why not seek legal advice. Seeking legal advice 6 months prior to the expiration of a statutory warranty period is a good strategy and we can assist with briefing and co-ordinating appropriate experts to identify any defects and providing advice on liaising with the builder/developer and commencing appropriate proceedings.
  2. If you have the benefit of Home Warranty Insurance make sure you fully utilise it. Seeking legal advice on making appropriate insurance notifications and insurance claims at the earliest stage possible can reduce later disputes with the insurer.
  3. Alternative dispute resolution through NSW Fair Trading. We can provide assistance on attempting resolution of a building claim through NSW Fair Trading where a critical deadline for a statutory warranty period isn't imminent.

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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