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Posted 03 April 2019
Category: Building Defects
Builders and developers of new multi-storey buildings (defined as two or more separate dwellings which exceed three storeys in height) are exempt from having to obtain insurance under the Home Building Compensation Fund (Home Owners Warranty Insurance) under the Home Building Act 1989 (NSW).
This has led to circumstances, where owners of multi-storey buildings were unable to claim against the insurers, even if the defects are discovered within the statutory warranty period, when the builder or developer dies, goes missing, or becomes insolvent.
Defects in multi-storey buildings can cause long-standing issues for owners and builders alike. The costs and delays associated with litigation and rectification can flow down the contract supply chain and have serious impacts on subcontractors and suppliers.
Division 3 (sections 207-211) of the Strata Schemes Management Act 2015 (NSW) (SSM Act 2015) introduces a building bond scheme for new multi-storey buildings (defined as more than three storeys and comprising of more than 2 dwellings) from 1 January 2018. The defect bond scheme applies to:
The Department of Fair Trading has released guidelines for the building bonds and the inspections scheme, which provide further details about the different stages of the building bond processes.
However, in summary and from 1 January 2018;
Developers of new multi storey strata buildings bear most of the obligations under the new defect bond scheme and the scheme attempts to address some of the issues associated with defects in multi storey residential strata buildings. The defect bond scheme does not apply to commercial buildings.
The defect bond may not be sufficient to cover all the structural defects in the building. The costs of rectifying major defects, especially in larger strata buildings can quickly overtake the sums available in the bond if the issues occur throughout the building. This means owners corporations can be exposed to further out of pocket expenses associated with rectification, and/or litigation.
The defect bond scheme also relies on the independence of the building inspectors carrying out the interim and final inspections and reports. Where the developer is responsible for the appointment of the building inspectors, there will be questions about potential conflicts of interest and whether owners corporations can take these reports at face value.
Inaccurate reports from the building inspections can give owners corporations a false sense of security, especially if there are defects which are not evident in the interim and final reports.
The timing of the release of the final report (being no earlier than 21 months, and no later than 2 years of the completion of the building) means owners corporations will have very limited time to obtain advice and take legal action if there are any discrepancies.
The building defect bond scheme does not displace the owners corporation’s existing rights to statutory warranties under the Home Building Act 1989. It is important owners corporations are aware of their rights to claim from the builders and developers before the expiry of the statutory warranty period if they suspect any discrepancies and cannot agree to rectify the defects.
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***The information contained in this article is general information only and not legal advice. The currency, accuracy and completeness of this article (and its contents) should be checked by obtaining independent legal advice before you take any action or otherwise rely upon its contents in any way.