Many newly-constructed buildings across Australia are plagued with defects. This can lead to unexpected repair costs and influence insurance providers’ assessment of your property.
It’s estimated that 70–80% of newly constructed buildings in Australia suffer from at least one defect. Construction standards in Australia have taken multi-owned residential properties from exciting investments to purchases that can require long, complicated, and strenuous defect rectification processes.
Owners in new buildings have a period during which they can try to recoup damages from those responsible for the defective work. However, this involves prompt action to meet tight statutory warranty timeframes so that issues can be fixed by those responsible for the work. That is, ensuring the repair costs sit with the builder, developer, or engineer, and not the collective of new owners.
To help make the process less daunting and more straightforward, this guide provides helpful tips and best practice management for committees and owners as they move through a rectification process.
Defects can occur at every stage of the building and construction process. However, studies have shown that 50-60% of defects are caused by design issues or could have been prevented with better design. This means 40-50% of defects arise in the construction phase.
While knowing where defects are most likely to happen is helpful, understanding why they occur is the key to taking steps to prevent them. The root cause of defects in Australia is primarily attributed to two major categories: human error and organisational practices in building and construction.
Human error includes poor workmanship, incompetence, poor supervision, and lack of skills, knowledge, and motivation, which can lead to forgetfulness and carelessness.
Issues with organisational practices refer to operational matters between builders, developers, and property owners. Major problems include churn, such as key project managers leaving the job, lack of project control and regular changing of plans or minds. Furthermore, organisations with the lowest bid or cost-win mentality could offer owners cheaper prices, but often at the expense of quality.
What’s more, research shows a higher likelihood of defects when:
Statutory warranties set the periods that allow owners to bring an action against the builder or developer for defective work. They set periods, strict expiry dates that govern products and services, and the standard to which they are deemed suitable for the purpose. If a product or service becomes faulty or defective within a warranty period, the goods or service provider is generally liable.
Remember that the times to lodge legal action may vary between states and territories, so the warranty coverage of different locations may cause insurers to evaluate new buildings further.
If owners and committees miss the key periods set out by statutory warranties, they lose their ability to recover costs. After this, the defects and the damage costs become the responsibility of all owners. Below is an overview of the key timeframes you should know for your state.
Domestic Building Contracts Act 1995:
Domestic building insurance (if applicable):
Every building is unique, and there is no way to guarantee exactly how much time you have left on your statutory warranty unless an expert reviews your occupation certificates. Statutory warranties start from the date of ‘practical completion’, which can mean different things for different properties.
What takes place at the first annual general meeting (AGM) is key to helping facilitate a successful rectification process for building defects. This is usually called or held by the original owner, likely the developer or builder, and must be completed within a specific timeframe.
At the meeting, you’ll work through a statutory agenda and decide upon essential motions such as insurance and the election of your committee. Here, you will also have a motion to consider building defects and rectifications, appoint someone to inspect and review the building, and hand over construction-related documents. When these matters arise, the owners corporation or body corporate will have a chance to initiate and plan quotes, expert reporting, and building inspections into the budget.
Owners and committees should arrange for preliminary legal advice within the first AGM to understand the date of their occupancy certificate and address any defect issues soon after.
First AGM timeframes for new buildings per state
Owners must be proactive in getting the building inspected for issues straightaway. This is so that any or all defects can be captured and reported within the warranty period. Getting expert reporting right and meeting statutory timeframes is one of the most influential factors in successfully addressing your building’s defects.
Best practice diagnostics for owners and committees of newly constructed buildings include pricing in the budget, general building inspection reports, and precision reports. Precision reporting is technical reporting of all core building systems and should be planned for within the first AGM.
While initiating precision reporting upfront is expensive, it can save you and your community significantly in the long run and is the most thorough way to diagnose defects.
When general building inspection reports and precision reporting are complete, the committee should meet to discuss, work through, and review the recommendations. It is important to remember that precision reporting is highly technical and typically can’t be understood by people who aren’t experts in the field.
The committee should arrange for the reports’ authors to attend information nights where all owners can come and ask questions. The experts and authors can work through the reports and communicate the findings here.
Once a committee formally serves the identified defects to the original owner, builder, or developer, you’ll enter a negotiation phase. This stage focuses on agreeing on which issues are recognised as defects and how they can be fixed.
The negotiation process should work towards achieving a consolidated list of defects that each party has agreed upon. Part of the agreement to fix the defects will require the original owner to provide a scope of work detailing how they will make the rectifications, for example, whether they are going to fix the defects bit by bit or rip out the existing work and start again to do it properly.
Negotiating with the original owner to get the defects fixed during this period can take many forms. While some are amicable and straightforward, others are more hostile and involve strenuous litigation. Reaching and agreeing upon the scope of works and repairs is one of the most significant hurdles of the rectification process and will require legal guidance.
As a professional negotiator, your lawyer can assist in de-escalating the conversation and keeping the agenda in control. When all parties agree to the defects that must be fixed, your lawyer must draw up a deed that reflects the agreed-upon scope of work and repairs.
Entering negotiations for defects without a lawyer isn’t recommended because of the power of contractual obligations and how this could adversely impact you. For example, the original owner or builder might agree to fix your defects, but they might also try to contract out obligations for the rectification work.
Lawyer support will also play a key role if the original owner, the developer, builder, or others refuse to respond or participate in the conversation. When the original owner doesn’t cooperate, your lawyer will start any necessary pre-litigation steps, like a letter of demand, or begin the litigation process altogether.
Even when you’re in the ideal position of having the original owner cooperate and agree to fix the reported defects, your lawyer may need to start proceedings because your statutory warranty period is running out. Here, you’ll start proceedings so that your ability to recoup the defects from the original owner remains valid, or you will contractually negotiate an extended warranty period with all parties.
While negotiating with the original owner to get defects fixed, your lawyer can help:
Once your defects and the scope of work have been agreed upon, whether via litigation or negotiation, the committee and owners must appoint an independent third party to certify the repair work. This is to check that the work is performed correctly and in accordance with the agreement.
This step is often court-ordered when the rectification process has gone through litigation. The independent third party is a contractor, an engineer, an architect, or a similarly qualified building expert who reports to the owners.
While appointing an independent third party to report to the owners corporation or body corporate is essential, it’s another added expense. Defect rectification processes are often long, highly stressful, and expensive. The mental, physical and psychological impacts can be huge, and a cost-benefit analysis should be undertaken.
For example, your defects might be worth $250,000, but the legal fees may be $150,000. Rather than arguing or pursuing litigation for the foreseeable future, owners and the committee may vote to raise a special levy or fee and undertake the repair work instead from a licensed contractor.
Owners and committees have a legal requirement to maintain common property, which means once certain defects are known, they have a legal obligation to fix them and meet the statutory minimum requirements. This may even dictate the time allowed to correct the defects, as a tribunal could set the period.
To help address the issue of building defects, there is a notable shift in state legislative frameworks to hold builders and developers accountable and give owners more protection. This helps give owners corporations or body corporations enhanced rights to claim for defective building work that traditionally wasn’t legally covered.
When it comes to defects, expert help is key. It is essential to seek legal advice when interpreting the Acts and Regulations in your state, given the pace at which legislation changes. Below are some government resources to help you navigate the building defect complaints and dispute resolution processes per state.
The right strata, owner corporation, or body corporate manager can make a massive difference in how owners and committees experience the defect process. They can act as a key trusted advisor and provide best practice guidance.
For managers to successfully deal with a rectification process, it comes down to whether they have the resources and support to properly allocate enough time to manage a defect rectification process. Defect processes can consume around 75 per cent of a manager’s time. Look for a management company that can provide support at scale.
For example, at PICA Group, newly constructed buildings are strategically allocated across management portfolios, so no manager becomes overburdened with defects. Moreover, we have a 1:1 strata manager to assistant ratio to manage the administration tasks associated with defects effectively.
Much of the work you’ll need your strata manager to undertake in the defects process will sit outside your management agreement and be billed as additional fees and costs. It is worthwhile having an upfront conversation with your strata manager and all owners to understand the billing and work process of the manager regarding the defects.
If you’re wondering how to select a defects specialist or whether your current strata management company is the one, don’t be scared to ask them directly about their experience, and whether they have the processes in place to deal with it.
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While new buildings often promise fewer maintenance issues than older ones, they are not immune to defects, especially those stemming from poor workmanship. This is a common issue that can affect the physical structure and value of a building, making it costly, disruptive, and legally complex to fix.
Committees and owners must manage building defects properly. Acting promptly and understanding statutory warranties will make for more successful rectification processes and protect your property’s value.
Good professional and legal advice throughout the rectification process is essential. Your strata manager can provide support and guidance through the rectification process and advice to help you decipher your statutory warranty to fix and claim back costs from defects in new buildings.
This article is edited by Lauren Shaw Regional General Manager and Licensee-in-Charge on August 2025.
