Insights

Following the Mascot Towers and Opal Towers crises questions are being asked of whether the current legislative and certifying regimes do enough to protect property purchasers. The spotlight has now turned on the NSW government to introduce new measures to improve construction quality and increase the accountability of developers and certifiers.

The major issues with the current system include:

1.    Privatisation of building certification

Private certifiers inspect and certify building work to ensure they comply with the approved building plans and applicable building standards. As developers engage the certifier directly, many question whether this inherent conflict of interest has led to buildings being certified that shouldn’t have.

2.    Lack of a statutory insurance fund

In NSW, the builder provides a warranty implied by statute for their work and are liable to repair major defects within 6 years from the date of completion and  2 years for other defects. Whilst this duty is owed, a builder of a development site that is more than three storeys in height is exempt from obtaining insurance under the Home Building Compensation Fund, a statutory scheme which would usually provide protection to consumers if the builder died, disappeared or became insolvent. As such with no safety net to fall back on in the case of the builder being bankrupt or insolvent, owners are left to fund the cost of the repairs themselves.

3.    Current strata bond is only 2% of contract price

Any building contracts commencing from 1 January 2018 for strata buildings of four storeys and over, require the builders to lodge a building bond of 2% of the contract price with Fair Trading. The purpose of the building bond is to secure funds (up to the amount of the bond) to pay for the costs of rectifying defective building work. Whilst this was seen as one step taken by the NSW government to address the lack of statutory insurance, the issue is whether a 2% bond is really sufficient and whether the scheme addresses the conflict of interest issue where the inspectors that are engaged are selected by the developer.

The NSW Government has already taken one step in response to consumer concerns by appointing David Chandler OAM as NSW Building Commissioner at the beginning of August 2019. The primary roles of the Building Commissioner will be to investigate and impose disciplinary action for misconduct in the industry, promote legislative change and regulate licensing in the industry.

The other proposals to combat the major issues are as follows:

1.    Introduce an official registry of engineers and certifiers which is made public so that their history can be reviewed;

2.    Require regular auditing of 25-30% of the industry each year to pinpoint non-compliant professionals and increasing the penalties in place;

3.    Select certifiers independently from the register rather than allowing the builder to select the certifier themselves; and

4.    Introduce a statutory insurance fund or increase the bond required to be paid.

Are you able to purchase a property under strata and need advice, contact our property team today and speak with on our of experienced property lawyers.

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