Is Defect Free
Construction achievable for strata title buildings in NSW?
What is strata title and why is it popular?
NSW Fair Trading says that waterproofing, fire safety and
structural defects are the ‘holy trinity’ of building
complaints it receives from apartment owners, in new
multi-storey apartment buildings.
NSW Fair Trading has made reforms to home building laws,
and proposes reforms to the strata title law to deal with
the problem of building defects.
Engineers Australia says that it is the ‘price and
program’ culture which dominates the building industry today
which leads to poor building practices. It cites a Federal
Government report (2012) that estimates that 85% of strata
units in NSW are defective at completion. Engineers
Australia proposes a fully prescribed system of
certification for every branch of a project to restore the
traditional ‘quality of the products’ culture.
The reforms proposed by both NSW Fair Trading and
Engineers Australia are complementary.
These reforms are now law under the new strata titles law
which will commence on 1 July 2016.
The new strata title law
reforms for building defects
There are six reforms for building defects contained in
the new strata law. This is an outline, with my comments:
- Encourage defects to be dealt with early: The
new strata title is that defect rectification be a
compulsory agenda item at AGMs for the first two years,
to focus the minds of the owners to do something about
defects early on, rather than wait until it is too late
to claim compensation because they have become wear and
tear or lack of maintenance issues.
My comments No longer will owners be able to
ignore defects, and on-sell new home units to
unsuspecting purchasers within the first two years.
Purchasers will be able to find out about the defects
identified by owners and by building inspectors when
they obtain a Strata Inspection Report which reports
upon the records of the owners corporation.
- Provide for an independent defects report:
The new strata title is that the owners corporation
engage an independent expert to prepare a defects report
within 12 to 18 months after the building is completed.
The developer/builder must agree upon the expert and pay
their fee. The report is not binding, but can be used by
My comments There is no guidance on what detail
is to be included in the report. The classification of
the defect: as a serious defect or as a cosmetic defect;
as urgent or non-urgent; and a scope of works and cost
estimates for repair; could all be usefully included.
- Require a bond be paid by the developer: The
new strata title is that 2% of the contract amount for
the building is held by a third party. The new strata
title is to apply to high rise strata buildings, to
encourage early rectification of defects and to not
leave the owners corporation empty handed if the
developer/builder ceases to trade.
My comments 2% is a low amount, given that
Engineers Australia quotes rectification costs as up to
27% of building costs. The new strata title needs a
workable scheme for dispute resolution.
- Restrict the right of developers to vote on
defects matters: The new strata title removes the
right of developers (and their associates) to vote at
meetings on building defects issues. This right to vote
exists for unsold lots, and also in proxies given by
purchasers (often for 12 months).
My comments This new strata title prevents an
obvious conflict of interest.
- Provide for a maintenance schedule: The new
strata title is for the developer/builder to prepare an
initial maintenance schedule for the common property for
the owners consideration, to be made available at the
initial annual general meeting.
My comments This works for the developer/builder
because it gives the opportunity to identify maintenance
issues, to distinguish them from defects. This also
works for the owners corporation when considering the
defects agenda item and in setting up its capital fund
- Improve the disclosure of information about the
building to the owners corporation: The new strata
title expands the existing requirement to provide
building plans, by adding a building manual and a
My comments This will assist in the preparation
of the defects report.
Engineers Australia proposed
reforms to the certification process
These proposals are contained in a Submission by Engineers
Australia to the NSW Government in June 2013, as part of the
Strata Review consultative process. These have not been
incorporated into the new strata title law.
- A certification process: The proposal is that
the governance body for each discipline will nominate
specific requirements for a structure to be certified.
The requirements will cover all aspects of design and
site supervision through DA, CC and final certificate.
My comments This will assist the builder because
the process of certification will support their
allocation of responsibility for defects claims.
- The disciplines: The proposal is that these
disciplines provide certificates of compliance or
adequacy: Architect, Structural Engineer, Civil Engineer
& Stormwater, GeoTech Engineer, Mechanical Engineer,
Fire Engineer, Building Hydraulics, Acoustic Engineer,
Lift Engineer and Energy.
- Professional Indemnity Insurance availability:
The certification process proposals would address PI
claims which are arising because of an inadequate
framework or controls or validations. In time, they
would attract more capacity into the PI market and
increased levels of competition.
The path forward
The new strata title law for defects reports, bonds,
building plans and better dispute resolution will identify
the areas of concern for owners and the means to deal with
The Engineers Australia proposals would assist the
developer/builder in meeting its responsibility for defects
rectification to the owners corporation by creating clear
lines of responsibility with the disciplines. The
descriptions on the certificates would assist in identifying
the causes of the defects.
Serious consideration should be given to creating a Strata
Buildings Defects Ombudsman, in the same way as the
Financial Services/Credit Industry, the Telecommunications
Industry and the Energy & Water Services Industry all have
Will these proposals achieve defect free construction in
strata buildings in NSW? No. But one can confidently predict
a significant reduction in building defects if the proposals