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The high stakes of high rise

15 January 2019

#Construction & Infrastructure

The high stakes of high rise

As land in our cities gets scarcer the trend towards high-rise living is unlikely to reverse. And with this come some unique challenges, as we have seen recently with the Opal Tower in Sydney.

Over the past 25 years, the number of occupied apartments in Australia has increased by 78 per cent to 1,214,372 dwellings. By 2016, 38 per cent of all occupied apartments were found to be contained within blocks that were four or more storeys in height, whereas in 1996, less than one in five shared this characteristic. 

In any construction there are defects, but in large residential developments defects are frequently replicated across lots, which can mean significant rectification costs. The most common complaints with new apartments concern waterproofing, with roofs, balconies, wet areas and planter boxes. Where structural failure is suggested, such as in the Opal Tower, the magnitude arises not from replication but from the threat of collapse where multiple residences are arranged vertically. Here, not only could the rectification costs be significant, but consider also the cost of alternative accommodation.

Around the country, one thing affected buildings have in common is the prospect of lengthy legal action to determine liability and quantum.

We outline some of the nuances in the liability and insurance positions for high rise residential projects between the eastern states:

Queensland

In Queensland, building contractors owe statutory warranties under the Queensland Building and Construction Commission Act 1991 (Qld) (QBCC Act) to owners and subsequent owners of certain buildings. These statutory warranties go generally to the quality of materials and workmanship used in construction. The statutory warranties have a broad application to the construction of detached dwellings but are more limited in the way they apply to residential units in a multi-storey residential buildings the construction of which will generally be subject to a commercial contract under which the builder will usually owe a range of contractual warranties to the owner/developer.

However, the Queensland Building and Construction Commission does have a broad power to direct a builder to rectify any building work (including building work in residential units) in circumstances where the Commission is of the opinion that building work is defective. A direction to rectify cannot be given more than six years and six months after the building work was completed.

In the event that the builder fails to comply with a direction to rectify then with regard to the cost of rectification, similar to the position in NSW, the Queensland Building and Construction Commission’s Queensland Home Warranty Insurance Scheme does not provide any assistance in respect of the construction of buildings that are over three storeys.

New South Wales

In NSW, both the builder and the developer owe statutory warranties under the Home Building Act 1989 NSW and are liable for defects. For works carried out under contracts entered into before 1 February 2012, a seven year warranty period applies to all defects, while for works carried out under contracts entered into after 1 February 2012, a six year warranty period applies for major defects and two years for any other defects. The time limits are calculated from completion of the works.

Insurance is unlikely to assist if the building has a rise of more than three storeys, as the builder is not required to obtain insurance under the Home Building Compensation Fund (which in any event would only be triggered if the builder is dead, disappeared or insolvent). Policies of insurance taken out by the owners corporation after completion typically exclude loss or damage from defective workmanship or design.

Buildings with a rise of more than three storeys where building contracts were entered into after 1 January 2018 will fall under the strata building bond and defect inspection regime, where the developer has two per cent of the construction cost at risk for the cost of defect rectification for the first two years post completion.

Victoria

In Victoria, the construction of residential towers (or residential components of mixed-use developments) is regulated by both the Building Act 1993 (Vic) (Building Act) and the Domestic Building Contracts Act 1995 (Vic) (DBC Act). 

Section 8 of the DBC Act implies construction warranties into every domestic building contract. These warranties generally deal with the quality and standard of the work and run with the building to the benefit of subsequent owners.

Clause 136(2) of the Building Act provides that a builder must not carry out or manage or arrange the carrying out of domestic building work under certain major domestic building contracts unless the builder is covered by domestic builders warranty insurance. In 2003, the minister made orders that the insurance policy must, among other things and as a ‘last resort’, indemnify the building owner for loss or damage resulting from:

  • non-completion of the domestic building work
  • defective work in breach of, amongst other things, the DBC Act and the relevant domestic building contract.

Later amendments by the minister provide that a builder who carries out domestic building work under a major domestic building contract for the construction of a multi-storey residential building (that is, a building that contains two or more separate dwellings and has a rise of above three storeys) is exempt from the obligation to hold domestic building warranty insurance.

There is no limitation period for the recovery of damages for death or personal injury arising out of or concerning defective building work. However, a claim for loss or damage arising out of defective building work cannot be brought more than 10 years after the date of issue of the occupancy permit or, if no permit is issued, the date of issue of the certificate of final inspection of the building work (as relevant).

Authors: Christine Jones, Stephen Burton, Scott Schlink & Jordan Barling

Contacts:

Sydney
Christine Jones, Partner 
T: +61 2 8083 0477 
E: christine.jones@holdingredlich.com

Brisbane
Stephen Burton, Partner 
T: +61 7 3135 0604 
E: stephen.burton@holdingredlich.com

Melbourne
Stephen Natoli, Partner
T: +61 3 9321 9796
E: stephen.natoli@holdingredlich.com

Scott Schlink, Senior Associate
T: +61 3 9321 9939
E: scott.schlink@holdingredlich.com

Disclaimer
The information in this publication is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavour to provide accurate and timely information, we do not guarantee that the information in this publication is accurate at the date it is received or that it will continue to be accurate in the future. We are not responsible for the information of any source to which a link is provided or reference is made and exclude all liability in connection with use of these sources. 

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