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Residential Focus

10 March 2021

#Property, Planning & Development

Published by:

Divya Chaddha

Residential Focus

Security of Payment wraps around the residential sector in NSW – owner occupiers no longer exempt

Owner occupiers are no longer immune from the operation of NSW’s Security of Payment legislation since the recent tranche of amendments to the Building and Construction Industry Security of Payment Regulation 2020 (Regulation) which commenced on 1 March 2021.

This means that builders entering residential building contracts after 1 March 2021 are now entitled to issue payment claims under the Building and Construction Industry Security of Payment Act 1999 (Act) to owner occupiers and to seek adjudication of disputed payment claims under the Act. This is an alternative, expedited and effective pathway for builders to extract payment from owner occupiers. As an interim process it does not displace final merits proceedings in the Tribunal (or a court) but ensures cash flow to the builder beforehand, in other words – pay now, fight later.

This is uncharted territory for owner occupiers in NSW who have been shielded from the Act since its inception. On the other hand, builders in the residential sector would already have exposure and familiarity with the Act’s processes from its application to downstream sub-contracts and contracts with owners corporations or developers.

The scheme of the Act is unforgiving in terms of timeframes and requirements and this can impact owner occupiers disproportionately, where they are unfamiliar with the Act.

It will be critical for owner occupiers to understand the implications of the Act, in particular, how to respond to a payment claim with a payment schedule that complies with the Act. There are draconian consequences for failing to do so.

Deletion of the “owner occupier construction contract” exemption

Previously, “owner occupier construction contracts” were exempt from the Act’s adjudication process under clause 4.1 of the Regulation and section 7(5) of the Act, which specifically provided that the Act does not apply to these contracts. As such, residential builders could not use the Act to recover disputed payment claims against owner occupiers.  

From 1 March 2021, the Regulation omits clause 4, thereby deleting “owner occupier construction contracts” as a prescribed class of contracts to which the Act does not apply.

This amendment, although quietly introduced without public consultation, has been ‘on the cards’ since the owner occupier exemption was moved from the Act to the Regulation in a prior round of amendments.   

Snapshot of the adjudication process

The adjudication process and its strict time limits are summarised below:

  • the builder submits a payment claim which describes the construction works or related goods or services to which the claim relates. The builder can only submit one claim per month
  • the owner has 10 business days (unless this timeframe is varied by the contract) from receipt of a payment claim to serve a payment schedule which indicates the amount proposed to be paid, giving reasons to explain any lesser amount. Where incomplete or defective works are cited, these must be adequately detailed and not just broadly asserted
  • there are two significant implications of the payment schedule:
    • firstly, if the owner fails to serve the payment schedule before the deadline, the builder is entitled to recover the payment claim in full in court as a debt due against the owner. In these circumstances, the owner is prohibited from bringing any cross-claim or raising any matters arising under the contract in its defence
    • secondly, the payment schedule is the high water mark for the reasons raised for withholding payment. No new reasons can be raised if the dispute goes to adjudication under the Act. This makes it essential that a payment schedule is served, within time and is fulsome in its reasoning.
  • if the builder disputes the amount that the owner proposes to pay in the payment schedule, the builder may proceed to have an adjudicator determine the amount payable by lodging an adjudication application (within 10 business days of receiving the payment schedule)
  • the owner has five business days from receipt of the adjudication application to make its adjudication response. This consists of submissions to support the reasons for withholding payment expressed in the payment schedule. As indicated above, an adjudicator may not consider new reasons introduced in the adjudication response, which were not raised in the payment schedule
  • a determination is required to be given within 10 business days after the adjudication response is lodged. The amount determined must be paid within five business days of receipt of the determination. The determination can be challenged only on very limited jurisdictional grounds.  The determination can be converted into an adjudication certificate and filed in court as a judgment debt. 

The process effectively generates a binding but interim decision on payment disputes within 35 days of the inception of the process, with payment due within a further five days. The process also carries with it an entitlement to suspend work where payments due under the Act are not made.

Practical implications for owners

The adjudication process is available to the builder for each and every payment claim during the project. It is vital that owners (or their nominated representatives) stay on top of contract management and issue payment schedules within the prescribed timeframes. Otherwise, payment claims will be payable in full.

Practically, it is assumed that the final or penultimate claim is most likely to be disputed and referred to adjudication. It is common for owners to dispute the final claim on the basis that there appear to be incomplete or defective works. In such circumstances, section 10 of the Act entitles owners to set-off in their payment schedule the cost of rectification and completion. Those anticipated costs must be substantiated and not merely spurious. 

Owners, particularly in contracts without a superintendent or architect involved, may consider arranging progress inspections by building consultants before key payment claims. Reports could then be deployed in the payment schedule and adjudication response to establish the extent of works claimed which are incomplete or to establish the defect, rectification methodology and rectification costs. It will also be essential that the building consultant is engaged sufficiently in advance of the payment claim to allow sufficient time to undertake an assessment so that the strict deadlines under the Act can be met.

Practical implications for home builders

For 20 years, builders contracting other than with owner occupiers have enjoyed the benefits of the adjudication process under the Act, which is designed to promote cash flow. The sector is now uniform in its enjoyment of the spoils of the Act, for builders to promptly receive entitlements as determined by adjudication, rather than pursuing money claims through lengthy and expensive litigation in the Tribunal or a court, that will in all likelihood be accompanied by a claim by the owner in relation to defects.

Builders must take care to include a fact sheet regarding these laws in new residential building contracts to inform owners of the implications of the Act’s application.

Builders may also consider reworking contracts that allow milestone payments to align with the monthly payment claims contemplated by the Act.

Authors: Christine Jones & Divya Chaddha

In the media

ACA responds to automatic mutual recognition draft legislation
The Association of Consulting Architects Australia (ACA) has welcomed the automatic mutual recognition scheme, which will create national harmonisation across the architectural labour force, however, it states that several issues need to be addressed (04 March 2021).  More...

Leading sustainable steel certification scheme launched in Australia and New Zealand
The Australasian Certification Authority for Reinforcing and Structural Steels, has announced the Australasian launch of a certification scheme that will improve buyers’ ability to source high quality, ethically and sustainably produced steel for construction across Australasia (04 March 2021).  More...

HIA: Detached building approvals remain elevated in January
Narrowly behind December, the strong result in January was the second largest number of detached approvals in any month since the series began in 1983. Building approvals data lags behind other leading indicators including new home sales and housing finance data (02 March 2021).  More...

MBA: HomeBuilder continues to drive record home building activity
Latest lending data shows HomeBuilder is continuing to drive records in lending for new home building (01 March 2021).  More...

The Grenfell Tower inquiry
The Grenfell Tower public inquiry has revealed a catalogue of horrors in the construction trade, implicating manufacturers of plastic insulation that’s widely used to meet regulations focused on reducing carbon emissions and promoting energy efficiency (02 March 2021).  More...

Comments sought on ABCB building surveyors discussion paper
A discussion paper is now open for public consultation in response to the Shergold-Weir Building Confidence Report (BCR). To varying degrees, all jurisdictions rely on private building surveyors as part of their building approvals process (02 March 2021).  More...

Housing construction costs back on the rise
Releasing its latest Cordell Housing Index Price, real estate and construction services firm CoreLogic has measured construction cost growth for freestanding detached homes along with semi-detached single and double storey dwellings. Over the past year, housing construction costs have increased by 3.6 per cent (25 February 2021).  More...

Research finds Australian bushfires should change where and how we live
Climate-change-driven extreme weather events, including devastating Australian bushfires, have created the urgent need for a new approach to planning and building in high fire risk areas and a shift to climate-resilient towns and cities (25 February 2021).  More...

Regional preferences means regional reform for housing is needed
Around 20 per cent of city dwellers would like to "go country" according to a new Regional Australia Institute survey (24 February 2021).  More...

Climate resilience is on the agenda for building code update
The national building code may soon be altered to reflect the risk climate change poses to buildings. The ABCB has teamed up with its United States, Canada and New Zealand counterparts to consider building code tweaks that support adaptation to the risk of increasing intensity, duration, frequency and location of extreme weather events (23 February 2021).  More...

North Coast building sites need to lift safety standards
Following a number of serious incidents on construction sites across regional NSW, SafeWork NSW has visited more than 60 construction sites from Tweed Heads to Ballina, issuing 96 notices including eight on the spot fines, 16 prohibition and 72 improvement notices (26 February 2021).  More...

Combustible cladding: Government announces interest-free loans to speed up removal from NSW apartment buildings
Interest-free 10-year loans have been welcomed to fast-track the removal of high-risk combustible cladding from apartment buildings across NSW. Owners Corporations will be able to apply for financial assistance from next month as part of the state government’s Project Remediate, which was given the go-ahead (22 February 2021).  More...

Published – articles, papers, reports

Australian Bureau of Statistics
02 March 2021 Building Approvals, Australia
02 March 2021 Media release: Dwelling approvals fall sharply in January Building Approvals, Australia, January 2021

Practice and courts

AIBS: Public consultation on proposed AIBS Professional Standards Scheme
Public consultation has now commenced for the proposed AIBS Professional Standards Scheme for Building Surveyors and will be open until 31 March 2021. Read more here. The following relevant documents are listed below:
1. Notice of the Proposed AIBS Professional Standards Scheme
2. The proposed AIBS Scheme Instrument
3. The AIBS Public Consultation Document

ABCB consultation
Discussion Paper: Integrity of private building surveyors and their role in enforcement – a response to the Building Confidence Report
A discussion paper is now open for public consultation in response to the Building Confidence Report. The report made 24 recommendations for a best practice model for compliance and enforcement, to strengthen the effective implementation of the National Construction Code (NCC). Comment closes 27 April 2021.

ABCB: Improvements to the code’s structure and format will be implemented for NCC 2022
To guide users through the changes, the ABCB has developed a range of supporting resources that will be released in stages leading up to the publication of the NCC 2022 Public Comment Draft on 10 May 2021.

Adoption of NCC 2022 to be delayed
The delayed adoption will also see adjustments to key dates in the amendment cycle process for NCC 2022 to allow stakeholders time to participate. These adjusted dates include:
May – July 2021: NCC 2022 Public Comment Draft released for public consultation
May 2022: NCC 2022 Preview published here.
If you have any questions regarding the delayed adoption of NCC 2022, please submit an online enquiry.

RICS cost prediction professional statement, global first edition
This professional statement provides an overview of global best practice in cost prediction and the implementation of international construction measurement standards for cost management professionals. The standard becomes mandatory for RICS professionals and RICS-regulated firms on 1 July 2021. Read more here.

NABERS reminder: Auditors, supervisors, and trainers panel announced
Congratulations to the new panel selection for NABERS auditors, supervisors, and trainers, for October 2019-October 2022. Find the full list here.

NSW Land and Environment Court
26 February 2021 – design at the heart of new planning policy.
The Explanation of Intended Effect (EIE) for the Design and Place State Environmental Planning Policy (SEPP), proposes to consolidate and replace existing design-focused policies, including SEPP 65 and BASIX SEPP to ensure good design outcomes for any new major development. The EIE for the Design and Place SEPP is now on public exhibition for six weeks until March 31. For more information and to submit feedback, click here.

Have your say on changes to how building design and construction is regulated in NSW
The development of supporting regulations is the next step on delivering on this piece of the government’s building reform agenda, with the scheme commencing on 1 July 2021. The Design and Building Practitioners Regulation commences on this date. Read more here.

Guideline for construction noise
The NSW Environment Protection Authority is seeking feedback on a draft Construction Noise Guideline. Have your say by Monday 15 March 2021.

Conflicts of interest – savings and transitional arrangements
Clause 71 of the Regulation introduces savings provisions for certain conflict of interest situations where the certifier was appointed before 1 July 2020 and the work will be completed before 1 July 2022. The provisions relate to council-certified developments and to developments where the certifier gave advice on how to comply with the BCA deemed to satisfy provisions. For all the changes, access the Amendment Regulation here.

The draft Design and Building Practitioners Regulation 2020
The NSW Design and Building Practitioners Act 2020 provisions of the Act will commence on 1 July 2021. The draft Design and Building Practitioners Regulation includes registration schemes for design and building practitioners and engineers who work on multi-storey, multi-unit residential apartment buildings. The Government will finalise the Regulations in early 2021, ready to be implemented on 1 July 2021. Have your say here.

New mandatory standards for building rectification
The standard will be reviewed and updated prior to the 1 July 2021 commencement of the government’s game changing building reform agenda underpinned by the Design and Building Practitioners Act 2020. The first Practice Standard will initially apply to certifiers working on residential apartment buildings, where the majority of problems and complaints have been received. The Practice Standard for registered certifiers is available on the Fair Trading NSW website.

NSW Revenue: Land tax build to rent
The NSW Government is introducing a land tax discount for new build-to-rent housing projects until 2040 and a new Housing Diversity SEPP to provide more housing options, greater surety for renters, boost construction and support jobs during the COVID-19 recovery.

NSW Revenue: Extension to HomeBuilder grant
On 29 November 2020 the Australian Government Announced an extension to the HomeBuilder program until 31 March 2021. Read more here.

Building Information Modelling (BIM) for WHS management
What is the best practice and implications of using BIM in WHS management? Timeline of project and project completion: Mid 2021. Research submissions are now open.

Cases

SafeWork NSW v Easy Fall Guttering Pty Limited [2021] NSWDC 44
2) The appropriate fine for the s 19 offence is $300,000.00 and that will be reduced by 25 per cent to reflect the early plea.
CRIMINAL LAW – prosecution – work health and safety – duty of persons undertaking business – risk of death or serious injury.
SENTENCE – objective seriousness – mitigating factors – aggravating factors – plea of guilty – general deterrence – specific deterrence – capacity to pay – totality of sentence – appropriate sentence – parity.
OTHER – failure to notify SafeWork of a notifiable incident – failure to consult, co-operate and co-ordinate activities with other persons who had a duty under s 19(1) of the Work Health and Safety Act 2011 (NSW).
Crimes (Sentencing Procedure) Act 1999 (NSW); Fines Act 1996 (NSW).
Home Building Act 1989 (NSW); Plumbing and Drainage Act 2011 (NSW).

Owners Strata Plan 93810 v KCN Constructions Pty Ltd [2021] NSWSC 176
1) Judgment for the plaintiff against the first defendant for $739,969.
2) The first defendant is to pay the plaintiff’s costs of the motion filed 23 October 2020.
BUILDING AND CONSTRUCTION – proceedings settled by Deed of Settlement entitling plaintiff to judgment against the first defendant in the event that the defendant did not carry out certain remedial building works, in particular in relation to fire safety – deed included an undertaking by the first defendant to pay legal costs in three fixed instalments – where first defendant breached the deed – plaintiff accordingly entitled to judgment, Home Building Act 1989 (NSW).

McGowen v Commissioner of Fair Trading [2021] NSWCATAD 46
2) In substitution for that decision, the Tribunal grants the applicant an individual endorsed contractor licence in the category “general building work” under the Home Building Act 1989.
ADMINISTRATIVE LAW – building and construction – home building – experience – instrument.
Civil and Administrative Tribunal Act 2013; Administrative Decisions Review Act 1997; Home Building Act 1989.

Wang v Chief Commissioner of State Revenue [2021] NSWCATAD 45
The decisions of the respondent under review are affirmed.
ADMINSTRATIVE LAW – First Home Owner Grant – reversal of decision to authorise payment of grant – decision to require repayment – penalty – whether residence requirement met.
Administrative Decisions Review Act 1997; First Home Owner Grant (New Homes) Act 2000; Taxation Administration Act 1996.

Kesuma v Gittany [2021] NSWCATAP 46
HOME BUILDING – work order, time to pay money.
Civil and Administrative Tribunal Act 2013; Home Building Act 1989.

The Owners – Strata Plan No 87265 v Saaib; The Owners – Strata Plan No 87265 v Alexandrova [2021] NSWSC 150
AGENCY – whether implied actual authority to enter building contract – where builder did not sign contract – where numerous documents signed in name of builder – whether builder authorised nephew to enter into contract on his behalf – no authority found from the circumstances.
BUILDING AND CONSTRUCTION – Home Building Act 1989 (NSW) – statutory warranties – whether defects part of lot property or common property.
CONSUMER LAW – misleading or deceptive conduct – causation or reliance – where home warranty insurance issued due to misleading representations made by insurance broker – whether representations sufficiently causative of loss to Owners Corporation.
EVIDENCE – tendency evidence – conduct – whether evidence of builder performing favours for friends characterised as tendency evidence of conduct regarding commercial development.

Holz v Newcastle City Council [2021] NSWLEC 1103
DEVELOPMENT APPLICATION – alterations and additions to an existing dwelling – exceedance of the floor space ratio development standard – adjoining a local heritage item – conciliation conference – agreement between the parties.
Environmental Planning and Assessment Act 1979 ss 4.16, 8.7; Land and Environment Court Act 1979 ss 34, 34AA, 39; Newcastle Local Environmental Plan 2012 cll 4.4, 4.6, 5.10.
State Environmental Planning Policy (Building Sustainability Index: BASIX) 2004.
State Environmental Planning Policy (Coastal Management) 2018 cl 5.
State Environmental Planning Policy No 55 – Remediation of Land cl 7.

Owners Strata Plan 93810 v KCN Constructions Pty Ltd [2021] NSWSC 176
1) Judgment for the plaintiff against the first defendant for $739,969.
BUILDING AND CONSTRUCTION – proceedings settled by Deed of Settlement entitling plaintiff to judgment against the first defendant in the event that the defendant did not carry out certain remedial building works, in particular in relation to fire safety – deed included an undertaking by the first defendant to pay legal costs in three fixed instalments – where first defendant breached the deed – plaintiff accordingly entitled to judgment.
Home Building Act 1989 (NSW)

X-Build Construction Services Pty Ltd v O’Rourke (No. 2) [2021] NSWCATAP 45
APPEALS – procedural fairness – hearing rule – decision on costs made at time appellant stayed from filing and serving submissions – denial of procedural fairness COSTS – party/party – rr 38 and 38A of the Civil and Administrative Tribunal Rules 2014 – special circumstances – Calderbank offer may be a special circumstance.

Amirbeaggi v Matrix Group Co Pty Ltd [2021] NSWCA 21
1) Refuse the application for leave to appeal from each of the judgments of Johnson J in the Common Law Division of 30 June 2020 and 29 July 2020.
APPEALS – leave to appeal – where primary judge refused leave to appeal to raise argument not dealt with by magistrate – whether argument made to magistrate – no error of primary judge in concluding not made.
Building and Construction Industry Security of Payment Act 1999 (NSW), s 25(1), (4); Home Building Act 1989 (NSW), ss 92, 94(1), (3).

Robinson v Hindmarsh Construction Australia Pty Ltd [2021] NSWCATAP 51
BUILDING AND CONSTRUCTION – Home Building Act 1989 (NSW) – statutory warranty – proceedings for breach – relevance of contract – identification of contract to perform residential building work – relevance to statutory warranties.

Ryan v Northern Tablelands Local Land Services [2021] NSWCATAD 36
CIVIL PROCEDURE – Civil and Administrative Tribunal – external appeal jurisdiction under s 68 of the Local Land Services Act 2013 – application to dismiss for want of jurisdiction – matters of fact and law relating to jurisdictional arguments require hearing – application for summary dismissal under s55(1)(b) of the Civil and Administrative Tribunal Act 2013 – proceedings not frivolous or vexatious or otherwise misconceived or lacking in substance.

FEV Mono Constructions Pty Ltd v Beattie [2021] NSWCA 18
CIVIL PROCEDURE – parties – removal of parties – where no cause of action pleaded or articulated in argument on behalf of second to fourth plaintiffs – whether to remove as parties under Uniform Civil Procedure Rules, r 6.29.
CIVIL PROCEDURE – pleadings – striking out – where most pleaded particulars of negligence covered by advocate’s immunity – where some pleaded claims possibly maintainable – whether to address advocate’s immunity on pleadings – whether to strike out entire statement of claim with leave to replead.

Legislation

Regulations and other miscellaneous instruments
Protection of the Environment Operations (General) Amendment (PFAS Firefighting Foam) Regulation 2021 (2021-80) – published LW 1 March 2021
Water Management (General) Amendment (Miscellaneous) Regulation 2021 (2021-91) – published LW 1 March 2021
Water Management (General) Amendment (Emergency Works Exemption) Regulation 2021 (2021-81) – published LW 26 February 2021

Disclaimer
The information in this publication is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavour to provide accurate and timely information, we do not guarantee that the information in this article is accurate at the date it is received or that it will continue to be accurate in the future.

Published by:

Divya Chaddha

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