The high stakes of high rise

As land in our cities gets scarcer the trend towards high-rise living is unlikely to reverse. And with this come some unique challenges, as we have seen recently with the Opal Tower in Sydney.

Over the past 25 years, the number of occupied apartments in Australia has increased by 78 per cent to 1,214,372 dwellings. By 2016, 38 per cent of all occupied apartments were found to be contained within blocks that were four or more storeys in height, whereas in 1996, less than one in five shared this characteristic. 

In any construction there are defects, but in large residential developments defects are frequently replicated across lots, which can mean significant rectification costs. The most common complaints with new apartments concern waterproofing, with roofs, balconies, wet areas and planter boxes featuring heavily. Where structural failure is suggested, such as in the Opal Tower, the magnitude arises not from replication but from the threat of collapse where multiple residences are arranged vertically. Here, not only could the rectification costs be significant, but consider also the cost of alternative accommodation.

Around the country, one thing affected buildings have in common is the prospect of lengthy legal action to determine liability and quantum.

We outline some of the nuances in the liability and insurance positions for high rise residential projects:

New South Wales

In NSW, both the builder and the developer owe statutory warranties under the Home Building Act 1989 NSW and are liable for defects. For works carried out under contracts entered into before 1 February 2012, a seven year warranty period applies to all defects, while for works carried out under contracts entered into after 1 February 2012, a six year warranty period applies for major defects and two years for any other defects. The time limits are calculated from completion of the works.

Insurance is unlikely to assist if the building has a rise of more than three storeys, as the builder is not required to obtain insurance under the Home Building Compensation Fund (which in any event would only be triggered if the builder is dead, disappeared or insolvent). Policies of insurance taken out by the owners corporation after completion typically exclude loss or damage from defective workmanship or design.

Buildings with a rise of more than three storeys where building contracts were entered into after 1 January 2018 will fall under the strata building bond and defect inspection regime, where the developer has two per cent of the construction cost at risk for the cost of defect rectification for the first two years post completion.

Click here to see the situation in Australia's other eastern states.

This publication does not deal with every important topic or change in law and is not intended to be relied upon as a substitute for legal or other advice that may be relevant to the reader's specific circumstances. If you have found this publication of interest and would like to know more or wish to obtain legal advice relevant to your circumstances please contact one of the named individuals listed.