Australia: Home owners: what to do about defects

Last Updated: 14 March 2019
Article by Marc Baddams

It seems a straightforward arrangement, a builder is contracted to build a residential building. They build it and hand it over to its owners. Contract fulfilled.

But what if it isn't that simple?

As with most products, a building can look great on the outside but contain hidden defects. The difference is that building defects can have very serious consequences. When a builder skimps on their materials or workmanship, or a building is inadequately designed, the outcome is the potential loss of thousands of dollars in individual investment, or sometimes more.

The recent defects discovered in Sydney's Opal Tower are a startling example of this. The owners of units in the tower are discovering a truth that many others in Australia have not been unfortunate enough to have to consider — they need to be not only familiar with their rights, but be prepared to pursue them with claims for rectification of defects, or compensation.

The Opal Tower case

Opal Tower is a residential tower in Sydney's Olympic Park with 36 storeys above ground and 3 basement levels below ground. Residents moved in from August 2018, but by the end of December 2018, they were being ushered out again in an emergency move.

Safety concerns regarding the appearance of cracks in various areas of the building precipitated the evacuation. Reports soon reached the news, including pictures of chunks of concrete littering carpets. 

The evacuation and safety concerns prompted a special investigation. The Opal Tower Investigation final report, released on 19 February 2019, identified several serious issues in the tower's construction, most notably "the as-constructed hob beam/ panel assembly was under-designed, according to the National Construction Code (NCC) and the Australian Standard for Concrete Structures (AS3600), at a number of locations in the building". These beams were then susceptible to "failure by shear compression and bursting", the report laid out, made worse by a decision to cut down on grouting between the hob beams and panels. 

Residents were out of the building for months as they waited for their apartments to be declared safe. It would not be a stretch to say many owners were left uncertain about the safety of their units. So, what could the owners do about it?

What owners are entitled to

The evacuation of an iconic new building in one of Australia's biggest cities has drawn attention to building practices all over Australia, and many owners are turning their minds to the question 'What would I do?'

Opening a tower that had major cracks only a few months later would seem to give rise to straightforward claims for breach of contract. For Opal Tower owners, the media coverage has resulted in some positive outcomes, including coverage of some costs while residents were forced to be out of the building. 

In general terms, most building owners have rights to require builders to rectify defects or provide compensation under the defect liability provisions in their contracts where those defects arise during the defect liability period, usually up to 24 months from the date of practical completion (sometimes it is less). Those contracts cannot limit the owner's rights under the relevant warranties implied by the Home Building Act 1989 (NSW).

For contracts entered into from 1 February 2012, the statutory warranty period for major defects is 6 years and for all other defects it is 2 years. There is a 6 month extension if a building defect becomes apparent during the last 6 months of the statutory warranty period. Owners need to bring their claims arising from breach of those warranties, for rectification of the defects or compensation, within the time limits prescribed by the Home Building Act.

A "major defect" means:

  1. a defect in a major element of a building that is attributable to defective design, defective or faulty workmanship, defective materials, or a failure to comply with the structural performance requirements of the National Construction Code (or any combination of these), 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, or 
  2. a defect of a kind that is prescribed by the regulations as a major defect, or
  3. the use of a building product (within the meaning of the Building Products (Safety) Act 2017) in contravention of that Act.

A "major element" of a building means: 

  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, or
  4. any other element that is prescribed by the regulations as a major element of a building.

Other types of claim 

There are other causes of action that may be available to building owners for defects in their building. 

For example, claims for negligence and claims for misleading and deceptive conduct can be made in some cases. 

There also time limits for bringing these types of claims. Generally, the time limit is 6 years from the date the cause of action accrues. You should seek advice on what that means for you, because it has a particular legal meaning that can be different from case to case. 

Rectification or compensation in the relative short terms is one thing — what about the ongoing effect of a building with suspect construction? What the impact on the value of the property or in terms of lost income for those owners whose tenants were evacuated? For Opal Tower owners it has been reported they may band together to seek compensation in relation to loss of value and income as a consequence of the faulty building, however, whether such a claim is made remains to be seen.

Who is responsible?

Owners should take a range of entities into consideration when pursuing compensation. Many entities are involved in creating a building, so pinning down the right one (or several) is important. Of course, the builder and developer and are usually the first to be considered. However, there are also sub-contractors, Local Councils, private certifiers, designers and other specialists all involved in the process of building construction. Each can in some cases be liable if there are defects in your building. 

Conclusion

It is reasonable to expect buildings to be constructed with integrity. When cracks appeared in Opal Tower, more people than just the residents were shocked. However, it is not only large-scale developments that can be affected by defective materials, design or workmanship. It can happen in any building. 

If you are in the unfortunate position of having to deal with defects, it is essential to become informed about what to do, make a decision about taking appropriate action to protect your rights and your investment, and to do it before the time to do so expires. 

For further information please contact:

Marc Baddams, Partner
Phone: + 61 2 9233 5544
Email: mrb@swaab.com.au

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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