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Residential Focus

16 January 2019

#Property & Real Estate

Christine Jones

Published by Christine Jones

Residential Focus

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.

Author: Christine Jones

In the media

There are lessons to be drawn from the cracks that appeared in Sydney's Opal Tower, but they extend beyond building certification
The reasons for the cracked concrete that triggered the evacuation - twice - of residents from Sydney’s Opal Tower over Christmas and the New Year are unknown and will take time to properly establish. Opal is unusual; very few residential buildings in Australia have ever been evacuated due to construction defects, and fewer still because of structural cracking (10 January 2019).  More...

Opal Tower failure reveals “broken system”
Building defects aren’t unusual in Australian construction, but what the crumbling Opal Tower highlights is the vulnerability of builders and subcontractors of defective buildings and the lack of protections for consumers who buy them (9 January 2018).  More...

Apartment building bust picks up speed, with 'further falls' predicted
Australian construction trends are looking bleak as the number of building approvals fall by almost a third since last year — with the number of new apartment development plans halving (9 January 2019).  More... 

Master Builders: New home approvals at 5-year low as credit crunch bites harder
Building approvals figures for November 2018 published by the ABS today indicate that 15,465 new dwellings were approved during the month – a decline of 9.1 percent on October and almost one third lower than 12 months ago (-32.8 percent) (9 January 2019).  More...

When almost 1,700 construction businesses went bust in a year, people like Joe paid the price
Several large corporate collapses in the building industry are causing a world of pain for smaller contractors further down the chain. Now, with the property market busting in Sydney and Melbourne, things are about to get worse (23 December 2018).  More...

COAG misses opportunity to cut costs for consumers
The Green Building Council of Australia (GBCA) is disappointed that the Council of Australian Governments (COAG) Energy Council at its meeting this week deferred a critical decision on increasing the energy efficiency requirements within the National Construction Code (21 December 2018).  More...

New South Wales

NSW Government vows to 'throw the book' at dodgy building certifiers after Opal Tower fiasco
Up to 30 per cent of certification work will be audited every year in NSW as part of a crackdown on dodgy operators following Sydney's Opal Tower fiasco (30 December 2018).  More...

Undischarged bankrupt and banned NSW builder charged with making false and misleading statements to ASIC
The allegations relate to Mr Rixon lodging forms with ASIC to register companies and appoint directors without their consent or using fictitious director names and, upon registration of those companies, lodging forms with ASIC to register business names (19 December 2018).  More...

In practice and courts

Interim report on Opal Tower released
The NSW Government has released the preliminary findings of its independent investigation into Opal Tower, in an interim report prepared by Professors Mark Hoffman, John Carter and Stephen Foster.  More...

ABCC Alert: Review of the Building and Construction Industry (Improving Productivity) Act 2016
The formal report on the independent review of the Building and Construction Industry (Improving Productivity) Act 2016 (BCIIP Act) was tabled in Federal Parliament on Thursday 6 December 2018. The review concluded that a cautious approach should be taken to the question of amending the BCIIP Act and 2016 Code. A copy of the full report and recommendations, and the Australian Government’s response can be found on the Department of Jobs and Small Business website (14 December 2018).  More...  

ABCB: The WaterMark Point of Sale Feasibility Study (Summary Report) has been published
The Summary Report outlines the process, assessment approach, findings and recommendations of the feasibility study of point of sale regulation for the WaterMark Certification Scheme. The study, undertaken in 2018, was commissioned to consider the nature and extent of the ‘problem’ and to access the feasibility of, and provide recommendations for, possible point of sale options (11 December 2018).  More... 

NABERS: New waste rating for whole buildings
The NABERS waste whole building rating for offices is now available (13 December 2018).  More...

NABERS plans for 2019
Preparation for the inclusion of Commitment Agreements as a Verification Method for office buildings into the National Construction Code 2019 (18 December 2018).

Opal Tower – Information for residents and landlords: Fair Trading NSW
A fact sheet outlining rights and responsibilities for residents and landlords following the Opal Tower evacuations. Owners are covered by the statutory warranty protections. All residential or partially-residential properties that are four or more storeys and commenced construction after 1 January 2018 will be covered under the Strata Building Bond and Inspections Scheme (5 January 2019).  More...

BPB: Certification data reporting- CertAbility 'app-grade'
In early 2019 a web-based CertAbility app will replace the mobile version for more efficient data reporting (20 December 2018).  More...

BPB: Cert Alert newsletter issue 9
'Cert Alert' is your regular update on work by the Board, legislative change, events, training and consultation opportunities (20 December 2018).  More...

BPB Annual Report 2017-18
The Building Professionals Board's annual report for 2017-18 is now available (20 December 2018).  More...

Combustible Cladding Regulation
Under the new Regulations, owners of certain buildings with external combustible cladding are required to register their building with the NSW Government through the Cladding Registration portal. For buildings occupied before 22 October 2018, the deadline for registration is 22 February 2019. Owners of new buildings will be required to register their building within four months of the building first being occupied.  More...

New dates for Environmental Planning & Assessment Act Updates
Councils, certifiers and other industry practitioners have more time to implement some of the recent EP&A Act updates. Changes affect new provisions for building and subdivision certification, Local Strategic Planning Statements for councils in the Greater Sydney Region and Community Participation Plans. While most of the changes will commence on 1 March 2018, there will be a number of other changes that will involve further design and consultation.

Cascading deemed statutory trusts in the construction sector
Australian Small Business and Family Enterprise Ombudsman: 18 December 2018
Statutory trusts have been considered and proposed by a number of inquiries as a means of ensuring prompt progress payments to subcontractors, and ring-fencing payments in the event of insolvency of their contractor. The ASBFEO has considered the various arguments for and against cascading deemed statutory trusts and, on balance, supports their implementation in the construction sector.  More...

ACI Construction Briefs
A fortnightly communication highlighting key updates related to Australia's construction industry (26 November 2018).  More...

Cases

Garside v Carroll [2019] NSWCATAP 4
The application to adduce fresh evidence is refused.
The application for leave to appeal is refused and the appeal is dismissed.
PRACTICE AND PROCEDURE – Leave to appeal – substantial delay – inadequate explanation of delay – no substantial prospects of success – fresh evidence – evidence reasonably available at time or original hearing.
EVIDENCE – Dismissal of claim as evidence inadequate.
CONTRACTS – Finding of repudiation – no basis to set aside.
This appeal concerns home building proceedings HB 16/36627 (original application).

Long v Metromix Pty Ltd [2019] NSWCATAP 8
(1) A hearing of the application for legal representation is dispensed with pursuant to s 50(2) of the Civil and Administrative Tribunal Act 2013.
(2) Leave is granted to all parties to be legally represented.
PRACTICE AND PROCEDURE – Representation – applicable principles.
Civil and Administrative Tribunal Act 2013 (NSW); Civil and Administrative Tribunal Rules 2014 (NSW); Fair Trading Act 1987 (NSW); Home Building Act 1989 (NSW)

Edwards v Department of Fair Trading [2019] NSWCATOD 5
The decision under review is affirmed.  
PROFESSIONS AND TRADES – Licensing and regulation – whether a fit and proper person to hold a contractor licence – whether convictions should be ignored because of passage of time.
Home Building Act 1989 (NSW); Administrative Decisions Review Act 1997 (NSW).

Quigg v O’Leary trading as Building Habitats [2018] NSWCATAP 298
BUILDING AND CONSTRUCTION – Home building – owners contracted separately with builder, waterproofer and tiler – builder penetrated waterproofing while installing balustrade – waterproofer not called to undertake second stage waterproofing – responsibility of owners to arrange contractors – no error of law – decision not against the weight of evidence. 

Eden Co Construction Pty Ltd v Leed Engineering and Construction Pty Ltd [2018] NSWSC 1882
CONTRACTS - Termination - breach of term - summons seeking leave to appeal judgment for defendant in the Local Court - plaintiff engaged as subcontractor to undertake construction work - where clause of contact provided for procedure to terminate upon breach, including three-day notice period to allow for rectification of breach - plaintiff did not comply with safety policy and directions - where defendant terminated under common law - whether observance of safety policy essential condition or intermediate term - whether clause stipulating procedure for termination excluded common law right to terminate - summons dismissed.

McIntyre v DRW Constructions Pty Ltd; DRW Constructions Pty Ltd v McIntyre [2018] NSWCATCD 58
Costs – apportionment of costs – Calderbank letter – whether settlement offer unreasonably refused.  

Wassim Hijazi by his tutor the NSW Trustee and Guardian v SRY Constructions Pty Ltd; SRY Constructions Pty Ltd v Wassim Hijazi [2018] NSWCATCD 53
BUILDING AND CONSTRUCTION - Rectification of defects and completion of incomplete works - termination of contract - repudiation of contract - damages claim by home owner and by builder - variations - quantum meruit - preferred outcome.  

Wykes v MS & SJ Schols Pty Ltd; MS & SJ Schols Pty Ltd v Wykes [2018] NSWCATCD 50
HOME BUILDING – Residential building work – contract – whether fixed price or cost plus – whether written or oral – hybrid arrangement – whether sham – terms of contract – builder’s defects – quantum meruit.  

Pearce v Jamatt Constructions Pty Ltd [2018] NSWCATCD 44
CONTRACTS — Formation — agreement — battle of the forms – construction contracts. 

Moustapha v Nelson [2018] NSWSC 1816
EQUITY – Injunctions – interlocutory injunction – prima facie case – constructive trust claim based on the failure of a joint endeavour – where parties to the joint endeavour agree to share the proceeds of the sale of property – strength of proprietary claim.
EQUITY – Injunctions – interlocutory injunctions – balance of convenience – impact of delay in seeking injunctive relief – where proprietary relief sought at late stage in the proceedings – where the plaintiff failed to defend an earlier opportunity to assert their proprietary claim by application to extend caveat over the property.
PRACTICE AND PROCEDURE – Applications – freezing orders – whether purchasing expensive assets using money from a disputed fund is a relevant consideration in awarding a freezing order – no basis for order identified. 

Legislation

Gas and Electricity (Consumer Safety) Amendment (Gas Installations) Regulation 2018 (2018-757) — published LW 21 December 2018.

Hunter Water Act 1991 (NSW)

Conveyancing (Sale of Land) Regulation 2017 (NSW)

Contacts:
Christine Jones, Partner - Construction & Infrastructure (Dispute Resolution) 
T: +61 2 8083 0477 
E: christine.jones@holdingredlich.com

Divya Chaddha, Associate 
T: +61 2 8083 0457
E: Divya.Chaddha@holdingredlich.com

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 newsletter is accurate at the date it is received or that it will continue to be accurate in the future.

Christine Jones

Published by Christine Jones

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