15 May 2014
(Contribution to Debate, 14 May 2014, Legislative Assembly, NSW Parliament)
The Sydney metropolitan strategy predicts that by 2031 Sydney will need to accommodate an extra 1.3 million people, which requires the building of thousands of new high-quality homes. The law must promote well-constructed, reliable buildings that do not need to be fixed—homes that people can enjoy without the stress of pursuing litigation and rectification.
We must protect people's investment in homes and ensure that they can hold developers and builders to account. More than half of new developments in Sydney will be apartments, and in my electorate multi-unit dwellings already represent the majority of building approvals. We have had massive redevelopments at the Carlton United Brewery and Advanx site, and others are redevelopments are underway or proposed at Barangaroo, Darling Harbour and over the Central railway tracks.
A City Futures Research Centre survey of 1,550 individuals, 106 strata managing agents and 11 peak body representatives found that 85 per cent of respondents in strata buildings built since 2000 had one or more defects present, with 75 per cent reporting that defects had not yet been fixed. This is alarming and demonstrates a clear need for reform that helps owners get faulty work fixed and discourages builders from cutting corners. The Home Building Amendment Bill makes a number of changes to protect in some cases owners and in other cases builders and developers. However, I believe that the focus is on protecting builders and developers to the serious detriment of owners, and I cannot support the bill in its current form. The bill also represents a missed opportunity with a number of much-needed reforms excluded. Of critical concern is the bill's proposed change to the types of defects covered by the six-year statutory warranty period.
Currently an owner can commence proceedings against the builder or developer for breach of the statutory warranties within six years for structural defects and two years for other defects. The bill would change the types of defects covered by the six-year period. In both the existing Act and the bill a defect must be a major structural element to be covered for six years. The bill clarifies that a structural element includes fire safety and water penetration. However, it does not guarantee that such problems will be covered by the six-year period because defects need to also satisfy other specific criteria to be eligible for a six-year warranty. The bill removes the criterion that most owners currently rely on for six years' coverage for serious defects: physical damage. Without the physical damage criterion, it is likely that defects will need to cause the destruction, collapse or inhabitability of a building or part of the building to be covered for six years.
This would exclude an enormous range of defects because essentially if something can be fixed it can be argued that the building does not require destruction, will not collapse and can be lived in, especially if people continue to live there. Fire safety and water proofing defects in many buildings, particularly larger buildings. may in reality not be covered at all under this scenario because they are generally not detected in the first two years. Initial fire safety checks are required for only 20 per cent of certain fire safety measures. Annual fire contractors do not have to check all fire safety measures and are not adequately regulated. Fire is a matter of life and death, and should warrant the six-year warranty period in all cases. Water proofing defects are usually caused by cost and/or corner cutting and are expensive to fix. If the builder knows he or she will evade financial responsibility, there is little incentive to do the job properly.
Whether fire safety or water ingress problems cause a building to be uninhabitable or fall down, or just require an expensive fix, is irrelevant; what is relevant is who is at fault and therefore liable to pay for remediation. Where the builder or developer is at fault, the owners should not pay and a six-year warranty period is necessary for owners to have meaningful rights. Of great concern is that the bill proposes to make this provision to greatly reduce the defects covered by a six-year warranty retrospective, meaning that many owners will lose their current rights overnight. I cannot support this aspect of the bill, and I have spoken with the Opposition about its proposed amendment in the upper House. The statutory warranty period begins on completion of the work to which it relates.
However, for a new apartment building, the time of completion is unclear as it relies upon information to which the owners do not have access. The bill makes the date of completion for apartment buildings the date an occupation certificate is issued authorising the occupation and use of the whole building. This is infinitely better than the current situation that forces owners to spend resources determining when the warranty period commenced. However, this could be improved if the date of the registration of the strata plan or the strata plan subdivision were used because they are easy to identify, as opposed to an occupational certificate where there is potential for a builder to produce interim occupation certificates that owners may not discover initially, causing them to miss their deadline to enforce their rights. Where there is work for two or more separate buildings, the bill should clarify that a separate contract must result in the issuing of a separate occupation certificate so that the completion of the work for each building is unambiguous.
The statutory warranty period should be reset for repairs by an original builder. Often repairs are done after the warranty period is over, without a new contract or the protection of the warranties for the adequacy of the repair work that this would provide. Repair work can be more complicated than the original work and it is often carried out by the builder who botched up the original work. Without the potential for liability, there is no incentive for builders carrying out repairs towards the end of or after the warranty period to ensure that repairs are adequate and will last.
I do not support the inclusion of a defence for the builder or developer if a defect arose as a result of the advice of a professional such as an engineer or architect. This will harm owners by increasing the complexity and cost of defect disputes, bringing new parties into proceedings and encouraging builders to fight against liability instead of agreeing to repair genuine defects. The NSW Civil and Administrative Tribunal does not have jurisdiction over architects and engineers and it is likely that the proposed change will see cases transfer to the courts instead of the tribunal's specialist jurisdiction. This proposal could also create a dangerous situation whereby developers and builders work together to evade liability while doing substandard work through contractual structure arrangements purposely set up so that the professional advice is technically independent of both the builder and the developer.
If the Government is intent on keeping the defence in the bill, it should include safeguards against contract structures created to rely on the defence such as excluding use of the defence by the developer where the builder was a close associate of the developer or the company used by the developer to contract with the builder. The Act includes requirements for contracts depending on their size. Small job contract provisions currently apply to contracts between $1,000 and $5,000 and full contract provisions apply to contracts worth more. The bill applies small contract provisions to contracts worth up to $20,000, which is appropriate.
However, the existing exemptions from any written contract requirements for contracts between parties with contractor licences, regardless of how significant the works are, should not be continued as they could encourage handshake contracts, tax avoidance and illegal work. The bill should ensure that small jobs contract requirements apply to any building work worth more than $1,000 where a licensed builder works for a licensed contractor on premises that he or she owns, or where the contract is subordinate to a principal contract for residential work, and where the contract is for specialist work that is not also residential work. Those small job requirements can easily be met by a simple one-page template document.
In 2011 the Government made a number of changes to home warranty insurance. If owners cannot claim on home warranty insurance during the warranty periods because the builder is not dead, has not disappeared or is not insolvent, they can make a delayed home warranty insurance claim if they notify the insurer of defects during the warranty periods. However, following the 2011 changes under this Government the insurer can refuse a delayed claim if the owners failed to diligently pursue the statutory warranties. While a definition of "diligently pursue" was promised in 2011, it still does not exist and the bill should provide one to give owners and insurers certainty.
The 2011 changes limited home warranty insurance claims for non-completion of work to one year after the builder last did work without the ability to make a delayed claim if the builder was still around for all of that warranty period. That is obviously insufficient time to take a dispute to judgement and then bankrupt or wind up the builder before making a claim. While the Government has recognised that this is unfair and that it will now allow delayed claims for non-completion of work, this mechanism should be retrospective to protect all owners. [Extension of time agreed to.]
The last resort home warranty insurance requires that apartment building owners protect the insurer's recovery rights by pursuing both the builder and the developer through the courts. While owners can eventually claim their reasonable costs of pursuing the builder from the insurer, the reasonable costs of pursuing the developer is not claimable despite the insurance requiring that owners pursue the developer for the insurer's benefit. Owners should also have the right to claim reasonable costs of pursuing the developer.
I do not support repeal of the operation of contract insurance. I understand it was originally introduced to address problems faced by owners when an insurer could deny liability under a policy of insurance on a technical point where the identity of the insured party does not exactly coincide with the party who entered into the building contract. If the insurer issues a certificate of insurance covering the work the person entitled to the benefit of the policy—the owner or a successor in title—should be covered whether or not the contractor's name shown in the building contract is different from that detailed in the certificate of insurance. This protection must be maintained.
The transitional provisions for the 2011 government changes that reduced the statutory warranty period from seven years to two or six years for structural defects apply the new system to building work under a contract entered into on or after 1 February 2012. But owners' corporations generally do not have the original contract and, even when they do, sometimes the date on the contract does not reflect the date it was entered into. This leaves a large number of owners' corporations unaware of whether they have a seven-year warranty or a two- or six-year warranty from their builder and developer. This is a serious oversight and the transitional provision for owners' corporations should be based on the date of registration of a strata plan or the strata plan subdivision. I support the focus of the Government on rectification and repairs over cash settlements as the best outcome for all parties, in particular, owners. However, I believe this should not force owners into letting dodgy builders return to work on their home again.
The bill should include safeguards where the builder may not lawfully rectify the work, has already unsuccessfully attempted rectification, or the owner is reasonably sure that the builder will not be able successfully to rectify the defective work. This bill follows changes in 2011 which further reduced home warranty insurance claims and statutory warranty rights for defects. A number of constituents have told me about conveyancers advising against purchasing newly built apartments due to the risk of defects and the lack of an insurance safety net for apartment buildings with four or more storeys. This situation is unsustainable and we must be legislating to encourage better construction of buildings while protecting owners' rights where there are defects.
We are dealing with people's homes—their biggest investment—which we must protect. I believe this bill is tipped towards protecting builders from injured owners and I cannot support it. I look forward to Labor's foreshadowed amendments in this House and in the upper House which I hope will improve the bill. In conclusion, I thank Banjo Stanton from Stanton Legal who patiently took me through the details of this complex bill and explained its implications, as well as Karen Stiles from the Owners Corporation Network for her understanding of the bill.