Buildings defects can cause much angst from owners, it may give rise to disputes with builders and, depending on the particular defect(s), may require significant expense to rectify. This article touches on what constitutes a defect and provides a brief overview of remedies available and limitations which may apply.
There is a common misconception that all new buildings have a warranty. This is not true although there may be specific warranties given by particular contractors. The main protections provided are in respect of residential buildings and are set out in the Domestic Building Contracts Act 1995. These apply to the owners in respect of their lot and to the Owners Corporation for common property.
Defective Building Works
Building works are defective if they do not comply with:
- the building contract;
- the statutory warranties in section 8 of the Domestic Building Contracts Act 1995 (DBCA) for domestic (residential) works;
- the planning permit;
- the building permit;
- the Building Code of Australia/National Construction Code;
- the Building Act or its Regulations;
- relevant Australian Standards;
- good building practice generally.
If there are defective works, it may be possible to make a claim against the builder for rectification or the cost of remedying the defective works.
For domestic buildings, there are statutory warranties as set out in the DBCA which require building works are carried out:
- in a proper and workmanlike manner;
- in accordance with plans and specifications;
- in accordance with and comply with all laws and legal requirements;
- with reasonable care and skill;
- so that the home will be suitable for occupation on completion;
- materials supplied will be good and suitable for purpose;
- new materials are used unless identified and specified in the contract.
A home is any building intended for residential purposes and includes apartments.
If a builder is in breach of a section 8 warranty:
- the works can be considered defective or non-compliant;
- the owner can seek a remedy for defects to the lot;
- the Owners Corporation can seek damages for defects to common property;
- the damages are the costs for the works to be rectified to produce conformity.
If a claim is made against a builder for defective works, the action must be commenced within 10 years of the issue of the certificate of occupancy or final completion.
Defective building works are not usually covered by the building insurance. If a claim is made on the insurance held by the Owners Corporation, and is attributable to defective building works, the claim will generally be rejected by the insurer. This includes both the cost of rectification and the damage arising from the defect. For example, if there is a water leak into a building caused by defective building works, remedying the cause of the leak and consequent damage are excluded from the building cover held by the Owners Corporation.
Domestic building warranty insurance applies to domestic building works where the residential rise of the property is three storeys or less. A builder is required to take out a policy in favour of the landowner from the date the certificate of occupancy is issued or the practical completion of the works.
The cover provided runs for six (6) years for structural and two (2) years for non-structural work. The policy is taken out by the builder in favour of the owner of the land. The policy is available to any subsequent purchaser of the lot for the coverage period. This form of insurance is a last, not first resort. It requires the owner to pursue the builder for any defect. The policy cover will come into operation if the builder is dead, disappeared or insolvent.
If an Owners Corporation wishes to pursue a builder for defective works and legal action is necessary, commencing the proceeding requires the passing of a special resolution as set out in section 18 of the Act. In respect of an owner’s lot, it is a choice of an owner to pursue the builder. For the Owners Corporation to pursue defects in owners lots it is providing a service to members and requires approval by special resolution. If there are defects to common property and owners lots usually one proceeding is undertaken with the Owners Corporation and parties who wish to participate joining together. In such circumstances two special resolutions would be passed, to authorise litigation and the provision of a service to members being the carriage of litigation. Lot owners may then opt in to any proceeding undertaken.
A lot owner is always able to make their own claim against a builder for defects to the lot and is not obliged to join in with the Owners Corporation in a common proceeding. If an owner elects not to join any common proceeding, he or she will not be able to obtain a benefit of a judgement other than in respect of common property.
If action is taken against the builder but the full cost of rectification is not recovered, the Owners Corporation will be required to fund the shortfall applicable to common property. Owners will be required to fund any shortfall in respect of a lot.
To identify the cause of defects, and to provide appropriate evidence should it be necessary to pursue a builder, it is necessary to obtain a VCAT compliant report which can involve considerable expense in preparation. Litigation will involve further expense and may take some time to be finalised.
In determining whether to pursue a builder, an Owners Corporation is strongly recommended to seek advice from a legal practitioner experienced in the area to determine the appropriate manner of proceeding.