Introduction to strata building defects

Navigating strata defects from a legal lens with Scott Chambers and Pamela Saroukos of Chambers Russell Lawyers.

In recent years, there has been a notable increase in media coverage of buildings plagued by strata defects. This has resulted in more owners corporations and bodies corporate seeking answers about how best to comply with their obligations and protect their rights.
The task of repairing many common building defects often falls to owners corporations and bodies corporate, because they occur in parts of the property (like common property, or shared services) that the owners corporation or body corporate must maintain.
Common building defects observed in strata buildings include defects in waterproofing, fire safety systems, structural elements, mechanical services, and hydraulic systems. While some defects may be observed early in a building’s life, many defects take time to manifest. In the early life of a building, it is commonly the case that many serious defects are not discovered unless proactive investigations are undertaken.

There are a number of benefits of embarking on a program of proactive investigation, including:

It provides a good foundation for owners corporations and bodies corporate to engage in constructive discussions with the original builder or developer to arrange repairs. In these kinds of discussions it is important for the owners corporation or body corporate to have a good understanding of the defects that are present, and how they should be repaired—often when poor results are obtained from such a process, it is because the owners corporation or body corporate does not have a good understanding of the real issues affecting the property.

If a good outcome cannot be achieved through such discussions, the owners corporation or body corporate will be much better placed to explore legal options with a lawyer. Most legal options are subject to strict time limits, and they often involve the investment of significant cost and time. Making decisions about these options, often under time pressure, is much easier with a good understanding of the true scale of the problem.

It places the owners corporation or body corporate in the best position to take steps to address serious defects (and associated risks) early. This may include the repair of defects to maintain the safety of occupants and the building, or deal with defects that are preventing the use of apartments.

In this article we provide an overview of how best to navigate building defects from a legal perspective, in particular:

Engaging experts in relation to strata building defects

Because many serious defects are often only discovered years after a building is completed—and perhaps in circumstances where time limits have passed and no claim can be pursued—it is important to conduct a thorough building audit with suitable and experienced experts, and do so early in the building’s life.
When engaging an expert, ensuring that they receive a detailed brief is crucial. This task is often undertaken by lawyers on behalf of an owners corporation or body corporate, to ensure that as much as possible of the expert’s work can be used if legal action becomes necessary.

However, there will often be cases where owners corporations or bodies corporate engage experts without lawyers. Where this is the case, some key matters that should be kept in mind include:

The purpose of the report should be outlined clearly in the expert’s brief.

In some circumstances, the owners corporation or body corporate may only wish to understand the nature of existing issues. This kind of report can be cost-effective, although it is likely to be very informal, and the use that can be made of it may be limited. On the other hand, if the report is intended to be used in potential legal action, it is important that this be made clear to the expert from the outset, as it has a significant impact on various factors, including how inspections are undertaken.

The extent of the investigations that are required should be made clear to the expert.

This can range from a full audit (involving inspections within all units and common areas) to a small sample inspection of a handful of units only. Inspections by some specialist experts may be focused on certain parts of the building, such as service risers. Some inspections may involve special access requirements, such as the cutting of access panels. How much of the property falls within the owners corporation or body corporate’s responsibility should be considered carefully—however in this regard generally it is better to err on the side of a more comprehensive inspection.

Experts often need to do further investigations or testing to properly identify defects, or to determine the appropriate repair.

What should happen in this case should be made clear in the brief—for example, should the expert provide a proposal for those investigations for further approval?

Similarly, if the expert comes across issues that fall outside their area of expertise, the brief should give them guidance on what to do.

This will usually involve the expert passing on those discoveries so that the owners corporation or body corporate can make decisions about engaging other experts.

Securing a favourable outcome in any building defect claim process often depends on the quality of the expert reports. Therefore, it is vital for owners corporations and bodies corporate to ensure that their experts are experienced and properly briefed and that their inspections and investigations are adequate.

Potential legal claims

There are a range of potential claims that will generally be available to owners corporations and bodies corporate for strata building defects. In each case there are time limits to take action.
Legal advice should be taken early so that the owners corporation or body corporate is aware of those time limits, and can put itself in a position to take legal action if a satisfactory outcome cannot be reached by negotiation in time.
In most cases, there will be multiple ways to claim the cost of rectifying defects from the people or companies involved in the original construction of the building (or to require them to do repairs). These claims generally involve the builder, but in some cases can include sub-contractors, developers, and others. The available claims usually arise under legislation, but might also be based on the common law. They differ between states and territories.
The relevant time limits will generally expire relatively early in the life of a building. If proceedings are not commenced (or the relevant action taken) by the applicable limitation date, the owners corporation or body corporate will lose those rights.
Because of the serious consequences of failing to take action in time, and due to the complex range of potential claims that might be pursued, owners corporations and bodies corporate should always take legal advice relevant to their particular circumstances. The following broad overview covers only a limited selection of issues across the various Australian jurisdictions:

In all jurisdictions in Australia, owners corporations and bodies corporate may have claims against various parties involved in the construction of their buildings under the Australian Consumer Law. The time limit to pursue these claims will generally start to expire some time around 6 years from the completion of the building, although it may be possible to pursue such claims later, depending on the circumstances. The same time limit would apply to a claim in the common law of negligence, which might also arise in any jurisdiction in Australia, although generally only in very limited circumstances.

 In New South Wales, owners corporations will generally have rights under the Home Building Act 1989 against the builder, and often the developer, as well as rights under the Design and Building Practitioners Act 2020 (against various parties). The time limits to take legal proceedings begin to expire from as early as 2 years after completion of the building (in the case of a claim under the Home Building Act 1989 for “non-major” defects). Most other claims will expire around 6 years from completion of the building, although claims under the Design and Building Practitioners Act 2020 might be able to be commenced later (depending on when defects were first discoverable on reasonable inspection). A number of pieces of legislation also allow certain government bodies to issue orders for defects to be repaired, which are generally not exercised if the time limits under the Home Building Act 1989 have passed. As noted, an owners corporation may have rights under the Australian Consumer Law against various parties, or in the common law of negligence.

 In Queensland, most apartment buildings will not have protection under the State’s statutory warranty regime (although some smaller developments may). Most bodies corporate seek to resolve defects through the Queensland Building and Construction Commission (QBCC) dispute resolution processes. A claim must be lodged with the QBCC within 12 months of the body corporate becoming aware of the defect, provided that it is also lodged within either 12 months of the completion of the work, or 6 years for certain more serious defects (such as water ingress and structural integrity). Otherwise, as noted, a body corporate may have rights under the Australian Consumer Law against various parties, or in the common law of negligence

In Victoria, owners corporations will generally have the benefit of statutory warranties under the Domestic Building Contracts Act 1995 against the builder. Legal proceedings for a breach of those warranties must generally be pursued within 10 years from completion of the work (although in some cladding cases this time limit may be 15 years). Such a claim must generally be preceded by an application to Domestic Building Dispute Resolution Victoria. Claims against various parties may also arise under the Australian Consumer Law, or in the common law of negligence, as discussed above.

 In the Northern Territory, bodies corporate for residential buildings up to three storeys will generally have rights under the “consumer guarantees” in the Building Act 1993. These guarantees can be enforced by application to the Commissioner of Residential Building Disputes. Such an application must be made within 1 year from completion of the building for “non-structural” defects, or 6 years for “structural” defects. Otherwise a body corporate may have rights under the Australian Consumer Law against various parties, or in the common law of negligence, as noted above.

In Western Australia, the Building Commissioner can generally consider complaints regarding defective building work against builders up to 6 years after the completion of the work. As discussed above, strata corporations may have claims against various parties under the Australian Consumer Law, or in the common law of negligence.

In South Australia, community corporations may have the benefit of the statutory warranties implied by the Building Work Contractors Act 1995 against the builder. Such a claim must generally be brought within 5 years after completion of the building. A claim for breach of the warranties can be pursued in the Magistrates Court for repair orders. Claims might also arise against the builder under the Planning, Development and Infrastructure Act 2016, subject to a 10 year limit from completion of the building.

In the Australian Capital Territory, most owners corporations will have rights to sue for breach of the statutory warranties in the Building Act 1993 against builders (although some older buildings will only have these rights if their building is, generally speaking, 3 storeys or less). These claims must generally be pursued within 6 years of completion of the work, regardless of whether the defects claimed are structural or non-structural (although there is a 2 year warranty period for non-structural defects, it is important to note that it does not set the time limit to commence proceedings). The Construction Occupations Registrar has powers to order builders and some others to undertake repairs, which, broadly speaking, can be exercised up to 10 years after completion of a building. Owners corporations may also have claims against various parties under the Australian Consumer Law, or in the common law of negligence, discussed above.

Additional matters that should be taken into account on a national level include:

Most (but not all) jurisdictions in Australia impose additional 10 year limitation periods for defects claims. It is arguable that this limit can operate instead of shorter time limits in some jurisdictions (as is the position in Victoria). In some cases (such as New South Wales and the Australian Capital Territory) this is an additional “long stop” limit that is only relevant if an earlier limit has not already passed. Claims under the Australian Consumer law may or may not be affected by these 10 year limits (and the answer to that question could differ based on whether the defendant is a corporation or an individual).

Some jurisdictions have provisions which allow the extension of certain time limits, either generally or for specific reasons or periods.

Various forms of mandatory defects insurance, or fidelity fund schemes, exist in almost all jurisdictions around Australia. With the notable exception of Queensland, these schemes will generally only provide cover if the builder is insolvent (or in certain other limited circumstances). Such insurance schemes only cover smaller buildings (broadly speaking, only buildings of up to 3 storeys). The time limits applying to claims under these policies are complex and vary between jurisdictions, as do the limits of cover and exclusions. Those time limits are often very short—for example in Queensland a claim must be lodged within 3 months of noticing a defect (as well as within the applicable cover periods, the shortest of which is 6 months from completion of the work).

New South Wales has a “building bond” scheme. Certain newer buildings may have access to a small amount of funding for repair of defects through a complex staged process. Broadly this scheme is not designed to cover the cost of repairing defects, and instead is designed to encourage builders and developers to repair defects (in order to have the bond returned to them). Some very new buildings in New South Wales may have access to so-called “decennial” insurance policies—specific legal advice should be taken in this regard.

In some jurisdictions (such as Queensland, Western Australia, and Tasmania) owners corporations and bodies corporate have statutory “subrogation” rights, that can allow a contractual claim to be pursed against the builder. These kinds of claims are subject to significant doubt. Determining the time limits to pursue such claims can be complex. Similar claims might arise at common law or in equity, although such claims are untested in Australia at the time of writing.

Alternative dispute resolution processes for owners corporations and bodies corporate

Taking legal action for building defects can be time-consuming and costly. Indeed, proceedings are often rightly seen as a last resort where an owners corporation or body corporate has not been able to reach a commercial resolution of its issues.
Whilst proceedings will sometimes be the only alternative left, the owners corporation or body corporate should proactively seek to discuss their issues with builders and developers early on to ascertain whether defect complaints can be resolved. If a more structured process is sought, parties may be able to mediate the dispute formally with the assistance of an independent third party.

Most jurisdictions have a form of government-facilitated alternative dispute resolution process for building defect disputes. Most (but not all) of these regimes are outlined above. The scope, limitations, and benefits of those regimes varies greatly.


Broadly speaking, where an owners corporation or body corporate has viable litigation pathways it is best advised to participate in dispute resolution processes, and take steps to protect or advance its potential civil claims, in parallel. 

 

Chiefly this is because government dispute resolution processes generally provide either limited or no appeal pathways in the event of an unsatisfactory outcome, at which point the owners corporation or body corporate may need to rely on its legal rights to pursue a civil claim.

Strata insurance claims: navigating policies and building defects coverage

As noted above, most jurisdictions in Australia require some form of insurance for building defects, however generally this is limited to smaller buildings, and in almost all cases (with the exception of Queensland) will only provide cover in the event that the builder becomes insolvent (or certain other events happen). As noted, such insurance is subject to various important limitations, exclusions, and time limits.
Owners corporations and bodies corporate are also generally required to hold various insurance policies, in particular policies that cover their building against damage. Generally speaking, these insurance policies will not provide cover for the cost of repairing defects in the original construction of the building. They may also contain exclusions that mean that they do not cover other losses caused by unrectified defects. This can leave owners corporations and bodies corporate exposed to liability claims, and can give rise to complex insurance disputes.
Owners corporations and bodies corporate also have duties to disclose various things to their insurers, which will generally extend to disclosing the existence of defects. This can lead to difficulties in obtaining insurance, increased premiums, or higher excesses. Often the insurer will want to see that defects are repaired, whether or not the owners corporation or body corporate is responsible to fix them—generally this is because the insurer will be providing cover for damage to the building as a whole, and not just those parts that the owners corporation or body corporate is responsible for.

Conclusion

Building defects are a fact of living in the built environment. However, it is beneficial for owners corporations and bodies corporate to take a proactive approach to observe and manage defects when they arise. In summary:

Enter into an early dialogue with any person that may be liable for rectification or compensation to see if a commercial resolution can be achieved.

Enter into an early dialogue with any person that may be liable for rectification or compensation to see if a commercial resolution can be achieved.

Be clear in briefing experts so that any report received fits its intended purpose.

Obtain legal advice early on to avoid the risk of any rights expiring. Legal advice will also help to ascertain whether any alternative processes may be beneficial, or whether any insurance cover may be available.

The material in this article is general commentary only and should not be relied upon. It is not a substitute for legal advice. If you require legal advice in respect of these matters, please contact Chambers Russell Lawyers by email at info@chambersrussell.com.au .