Legal Q & A Your legal questions answered

By
14/01/2016

Q: This year I bought an apartment as an investment property, in an area in NSW which has experienced very heavy storms. If my property experiences water damage due to building defects, can you explain how the current laws would work? In what circumstances could the developers avoid being held responsible for the damage? 

A: This question holds relevance for a number of strata owners. In a study published by City Futures Research Centre, UNSW, May 2012 (Governing the Compact City: Easthope, Randolph and Judd), surveyed strata owners reported that water leaks were the most commonly experienced strata building defect: 42% internal water leaks, 40% water penetration from outside, 25% guttering faults, 23% defective roof coverings, and 22% defective plumbing. 

Urgent steps to take 

For many properties built under contracts dated from 1 February 2012, there will only be a two-year statutory warranty period in which to commence legal proceedings against developers or builders for the majority of building defects. Schemes should carry out investigations in the two years from the date of a building’s occupation certificate to identify any building defects, notify the developer/builder, commence litigation, and notify any homeowners’ warranty insurer of  the defect.

For such properties, a developer or builder can avoid being held responsible for building defects that result in water damage, unless those defects are catastrophic, if Court or Tribunal proceedings haven’t been commenced within two years from the date of the occupation certificate for the building (or within 2.5 years from the date of the occupation certificate where the defect is first noticed 18 months to two years from the date of the occupation certificate). Owners should consider taking the following steps:

• Seek urgent legal advice in relation to action against the builder, developer and home warranty insurer.  Failure to take action could result in a loss of rights 
• Notify the home warranty insurer, if home warranty insurance exists
• Notify any home contents policy insurer, but be warned that virtually all home contents policies don’t cover for damage caused by building defects
• Ensure the owners corporation has an action plan.

Statutory warranty periods

On 15 January 2015, the legislation which provides consumer protection 
for strata owners underwent significant retrospective changes with the effect that for many defects where a building was constructed under a building contract entered into on and from 1 February 2012, the statutory warranty period that developers and builders must provide was reduced from six years to two years.

For buildings that were constructed under a building contract entered into before 1 February 2012, the statutory warranty period is seven years. Caution must be exercised because it is sometimes difficult to identify whether buildings were constructed under a building contract that pre-dates 1 February 2012, or a ‘split-contract’ with a portion of building works undertaken under a post 1 February 2012 contract (hence attracting the shorter warranty periods). 

‘Major defect’?

‘Major defects’ in waterproofing can attract a six-year warranty period, however, to satisfy this criteria the defect must cause, or be likely to cause: 
• the inability to inhabit or use the building or part of the building for its intended purpose; or
• the destruction of the building or part of the building; or
• a threat of collapse of the building or any part of the building.

The majority of waterproofing defects won’t satisfy this criteria, therefore owners need to be aware of the tight two-year timeframe to identify and investigate defects and commence litigation proceedings in a Court or Tribunal.  Where a defect becomes apparent during the last six months of the warranty period, a six-month extension is applied.  Be aware that you won’t be granted an extension if you ought reasonably to have been aware of the breach before the last six months of the warranty period. 

Summary

Owners should ensure that their scheme is taking the above actions within the two-year warranty period to avoid losing rights against developers or builders.


The legal experts:

• David Bannerman is the principial of Bannermans Lawyers
• Ben Robertson is special counsel at Bannermans Lawyers.


 

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