Home own­ers: what to do about defects

It seems a straight­for­ward arrange­ment, a builder is con­tract­ed to build a res­i­den­tial build­ing. They build it and hand it over to its own­ers. Con­tract fulfilled.

But what if it isn’t that simple?

As with most prod­ucts, a build­ing can look great on the out­side but con­tain hid­den defects. The dif­fer­ence is that build­ing defects can have very seri­ous con­se­quences. When a builder skimps on their mate­ri­als or work­man­ship, or a build­ing is inad­e­quate­ly designed, the out­come is the poten­tial loss of thou­sands of dol­lars in indi­vid­ual invest­ment, or some­times more.

The recent defects dis­cov­ered in Sydney’s Opal Tow­er are a star­tling exam­ple of this. The own­ers of units in the tow­er are dis­cov­er­ing a truth that many oth­ers in Aus­tralia have not been unfor­tu­nate enough to have to con­sid­er — they need to be not only famil­iar with their rights, but be pre­pared to pur­sue them with claims for rec­ti­fi­ca­tion of defects, or compensation.

The Opal Tow­er case

Opal Tow­er is a res­i­den­tial tow­er in Sydney’s Olympic Park with 36 storeys above ground and 3 base­ment lev­els below ground. Res­i­dents moved in from August 2018, but by the end of Decem­ber 2018, they were being ush­ered out again in an emer­gency move.

Safe­ty con­cerns regard­ing the appear­ance of cracks in var­i­ous areas of the build­ing pre­cip­i­tat­ed the evac­u­a­tion. Reports soon reached the news, includ­ing pic­tures of chunks of con­crete lit­ter­ing carpets. 

The evac­u­a­tion and safe­ty con­cerns prompt­ed a spe­cial inves­ti­ga­tion. The Opal Tow­er Inves­ti­ga­tion final report, released on 19 Feb­ru­ary 2019, iden­ti­fied sev­er­al seri­ous issues in the tower’s con­struc­tion, most notably ​“the as-con­struct­ed hob beam/​panel assem­bly was under-designed, accord­ing to the Nation­al Con­struc­tion Code (NCC) and the Aus­tralian Stan­dard for Con­crete Struc­tures (AS3600), at a num­ber of loca­tions in the build­ing”. These beams were then sus­cep­ti­ble to ​“fail­ure by shear com­pres­sion and burst­ing”, the report laid out, made worse by a deci­sion to cut down on grout­ing between the hob beams and panels. 

Res­i­dents were out of the build­ing for months as they wait­ed for their apart­ments to be declared safe. It would not be a stretch to say many own­ers were left uncer­tain about the safe­ty of their units. So, what could the own­ers do about it?

What own­ers are enti­tled to

The evac­u­a­tion of an icon­ic new build­ing in one of Australia’s biggest cities has drawn atten­tion to build­ing prac­tices all over Aus­tralia, and many own­ers are turn­ing their minds to the ques­tion ​‘What would I do?’

Open­ing a tow­er that had major cracks only a few months lat­er would seem to give rise to straight­for­ward claims for breach of con­tract. For Opal Tow­er own­ers, the media cov­er­age has result­ed in some pos­i­tive out­comes, includ­ing cov­er­age of some costs while res­i­dents were forced to be out of the building. 

In gen­er­al terms, most build­ing own­ers have rights to require builders to rec­ti­fy defects or pro­vide com­pen­sa­tion under the defect lia­bil­i­ty pro­vi­sions in their con­tracts where those defects arise dur­ing the defect lia­bil­i­ty peri­od, usu­al­ly up to 24 months from the date of prac­ti­cal com­ple­tion (some­times it is less). Those con­tracts can­not lim­it the own­er’s rights under the rel­e­vant war­ranties implied by the Home Build­ing Act 1989 (NSW).

For con­tracts entered into from 1 Feb­ru­ary 2012, the statu­to­ry war­ran­ty peri­od for major defects is 6 years and for all oth­er defects it is 2 years. There is a 6 month exten­sion if a build­ing defect becomes appar­ent dur­ing the last 6 months of the statu­to­ry war­ran­ty peri­od. Own­ers need to bring their claims aris­ing from breach of those war­ranties, for rec­ti­fi­ca­tion of the defects or com­pen­sa­tion, with­in the time lim­its pre­scribed by the Home Build­ing Act.

A ​“major defect” means:

(a) a defect in a major ele­ment of a build­ing that is attrib­ut­able to defec­tive design, defec­tive or faulty work­man­ship, defec­tive mate­ri­als, or a fail­ure to com­ply with the struc­tur­al per­for­mance require­ments of the Nation­al Con­struc­tion Code (or any com­bi­na­tion of these), and that caus­es, or is like­ly to cause: 

(i) the inabil­i­ty to inhab­it or use the build­ing (or part of the build­ing) for its intend­ed pur­pose, or 

(ii) the destruc­tion of the build­ing or any part of the build­ing, or 

(iii) a threat of col­lapse of the build­ing or any part of the build­ing, or 

(b) a defect of a kind that is pre­scribed by the reg­u­la­tions as a major defect, or 

(c) the use of a build­ing prod­uct (with­in the mean­ing of the Build­ing Prod­ucts (Safe­ty) Act 2017) in con­tra­ven­tion of that Act.

A ​“major ele­ment” of a build­ing means: 

(a) an inter­nal or exter­nal load-bear­ing com­po­nent of a build­ing that is essen­tial to the sta­bil­i­ty of the build­ing, or any part of it (includ­ing but not lim­it­ed to foun­da­tions and foot­ings, floors, walls, roofs, columns and beams), or 

(b) a fire safe­ty sys­tem, or 

(c) water­proof­ing, or 

(d) any oth­er ele­ment that is pre­scribed by the reg­u­la­tions as a major ele­ment of a building.

Oth­er types of claim 

There are oth­er caus­es of action that may be avail­able to build­ing own­ers for defects in their building. 

For exam­ple, claims for neg­li­gence and claims for mis­lead­ing and decep­tive con­duct can be made in some cases. 

There also time lim­its for bring­ing these types of claims. Gen­er­al­ly, the time lim­it is 6 years from the date the cause of action accrues. You should seek advice on what that means for you, because it has a par­tic­u­lar legal mean­ing that can be dif­fer­ent from case to case. 

Rec­ti­fi­ca­tion or com­pen­sa­tion in the rel­a­tive short terms is one thing — what about the ongo­ing effect of a build­ing with sus­pect con­struc­tion? What the impact on the val­ue of the prop­er­ty or in terms of lost income for those own­ers whose ten­ants were evac­u­at­ed? For Opal Tow­er own­ers it has been report­ed they may band togeth­er to seek com­pen­sa­tion in rela­tion to loss of val­ue and income as a con­se­quence of the faulty build­ing, how­ev­er, whether such a claim is made remains to be seen.

Who is responsible?

Own­ers should take a range of enti­ties into con­sid­er­a­tion when pur­su­ing com­pen­sa­tion. Many enti­ties are involved in cre­at­ing a build­ing, so pin­ning down the right one (or sev­er­al) is impor­tant. Of course, the builder and devel­op­er and are usu­al­ly the first to be con­sid­ered. How­ev­er, there are also sub-con­trac­tors, Local Coun­cils, pri­vate cer­ti­fiers, design­ers and oth­er spe­cial­ists all involved in the process of build­ing con­struc­tion. Each can in some cas­es be liable if there are defects in your building. 

Con­clu­sion

It is rea­son­able to expect build­ings to be con­struct­ed with integri­ty. When cracks appeared in Opal Tow­er, more peo­ple than just the res­i­dents were shocked. How­ev­er, it is not only large-scale devel­op­ments that can be affect­ed by defec­tive mate­ri­als, design or work­man­ship. It can hap­pen in any building. 

If you are in the unfor­tu­nate posi­tion of hav­ing to deal with defects, it is essen­tial to become informed about what to do, make a deci­sion about tak­ing appro­pri­ate action to pro­tect your rights and your invest­ment, and to do it before the time to do so expires.