Here is the reality; every construction in WA, including strata properties, will have some residual construction defects that need to be addressed. If properties were constructed 100% of the time with a zero-defect rate, the time and cost to construct would be prohibitive. But do you realise how wrong the position is for some strata properties?
The Good
The good, in Western Australia at least, is that WA Builders have a 6-year statutory warranty period, during which time they are required to remediate confirmed construction defects. Compared to some jurisdictions in Australia this is very positive and affords both Lot Owners and Strata Companies a degree of protection against construction defects that are not initially identified (or cannot be identified) at handover.
The 6 year period largely comes from the Legislation environment which supports the operation of the WA Building Commission. Be clear, the 6 year period is drop-dead and applies from the date of practical completion as determined by the Builder and formally submitted to the local Council. So if a Strata Company or Lot Owner does not submit a complaint to the WA Building Commission against the Builder within 6 years (to the day!) the opportunity to access the support of the WA Building Commission will be lost.
There are certain instances when the builder’s liability will extend beyond 6 years. In these situations, the option remains for Strata Companies to take direct civil action against the Builder and there are some successful precedents which indicate these actions can be successful. Independent legal advice is required to proceed down this path.
To provide balance, there are some quality Builders in Perth who stand by the quality of their product and will willingly return and remediate identified issues post-construction. In 2018, we had a well-known WA Builder return to remediate a roof frame on a property constructed in 2004!
The critical issue here is that Strata Companies need to undertake a full inspection of the common property to identify defects before the statutory defect liability period ends. Ignorance and apathy is no excuse especially when the Strata Company controls assets valued at many millions of dollars.
The Bad
The fact that there are construction defects in a new strata property is disappointing, but as mentioned above it is to some extent to be expected. The bad is the way some Builders respond to identified construction defects, even when the evidence is overwhelming. While some Builders respond proactively to identified issues and proactively work with Strata Companies to resolve these issues as quickly as possible, sadly this is not always the case. Some Builders take delaying, deferring, avoiding and obfuscating construction defects to extraordinary lengths. In some cases you can only assume that the primary strategy of some Builders is to bombard Strata Company Council Of Owners (“COO”) and their members with overwhelming detail, complexity and work with the end goal that many COO’s will give up on progressing the claim given the investment in time, money and energy to progress. There has been many a COO member who has simply resigned from the COO in frustration over these tactics.
Progressing a claim against a builder for construction defects is not for the faint-hearted and is a journey which may take some time. The alternative is of course that the Strata Company simply fund remediation of the construction defects themselves. Generally, neither option is palatable!
The Ugly
The grass sometimes seems greener when you look on the other side. Not when you look at NSW!
An article published on July 23, 2019, in https://www.lookupstrata.com.au/ By Helen Amanatiadis, from JS Mueller & Co Lawyers, is very interesting and an alarming picture of the NSW position. https://www.lookupstrata.com.au/nsw-how-to-establish-a-major-building-defect/ The conclusion is the most telling statement, “Unless a defect can be proven to be a major defect, an owners corporation will be out of time to claim for some very significant and costly defects if proceedings are commenced outside of the 2- year limitation period for minor defects. It is important to take steps to review the building for defects after the first 12 months from the date of issue of an occupation certificate and obtain legal advice on pursuing the builder and developer.” So the above demonstrates the grass is not always greener on the other side, particularly when it comes to construction defects on strata properties in NSW. An interesting position given the number of high profile defects identified in NSW strata properties in recent times.
The Wrong
So in WA we have an excellent system where Builders are required to return and remediate construction defects on new buildings for up to 6 years, despite the challenges this sometimes presents. But what happens if the Builder is not around to remediate the construction defects?
Once again, WA leads Australia. Builders are generally required to take out a Builders Indemnity Insurance policy prior to commencing a build. This policy, generally valued at $100,000 per Lot, can be claimed on to remediate construction defects if the builder cannot be located, is dead or bankrupt with the latter being the most common scenario.
So looking at the excellent high-quality single-level 4×2 homes many builders are currently delivering into the WA market for $200,000 – $300,000 this insurance provides these homeowners with considerable protection. However, what is fundamentally wrong is a strata development consisting of say 30 single level strata Lots in a four-level complex is not afforded any protection. That’s right, once the strata complex reaches 4 levels or more there is generally no requirement for builder’s indemnity insurance!
Remember, the Developer will essentially have no residual liability to the Strata Company or Lot Owners. The Builder, engaged by the Developer, carries the residual construction defect risk. If there are issues, the Builder funds remediation, not the Developer. If the Builder is bankrupt, the Strata Company and or Lot Owners can generally access up to $100,000 per Lot as long as the complex is three levels or lower. In the last 3 years, we have assisted a large number of Strata Companies access these insurance funds. If the Strata Company is over three levels the Strata Company is on its own, remember Diploma and Psaros.
The WA Government needs to act on making Builders indemnity cover relevant to strata properties. If a builder is required to take out $100,000 cover on a $200,000 residential build, why would there not be a similar cover of say $100,000 per strata Lot on every strata development?
Conclusion
The construction environment in WA affords property owners and strata companies considerable protection when compared to the position that exists in some other States in Australia. In the main, the construction product in WA is very good although, exceptions exist.
In WA we have the resources of the Builders Registration Board, the WA Building Commission, State Administrative Tribunal and Builders indemnity insurance. Not perfect, but not bad and better than other States.
But the woeful position in relation to inadequate Builders Indemnity Insurance on strata properties is simply unacceptable. The lack of any builder’s indemnity insurance protection on high rise strata development is disgraceful. Come on WA Government, with the considerable migration to strata community living expected over the coming years the time to act is now not once the horse has bolted.
Aug 2019
Build, Buy, Invest in property with confidence. Ph 9240 8855 Web: www.houspect.com.au/wa Email: strata@houspectwa.com.au
