With media reporting that the alleged cost of the rectification of the infamous Sydney Mascot Towers could exceed $50 million, it is timely to look at the current law relating to building defects in a body corporate context.
Defects in the common property (i.e. in essence, anything other than the inside of individual apartments – for more information, see our recent article regarding how to read your scheme’s survey plan) should be of concern to owners in community titles schemes, particularly in relation to new buildings. Broadly speaking, the body corporate is responsible for maintaining the common property.
If there are defects in the common property, then unless the body corporate can successfully mount an action to have someone else such as the developer or the builder rectify the defects, then it is the body corporate that foots the bill for the rectification works. Ultimately, the sole source of income for a body corporate is the owners.
Defects in the common property
Often, committees will become aware of building defects without specifically looking for them (for example, if the roof is leaking into top floor apartments). However, a prudent committee will consider engaging a building inspector once a building is, say, three years old, and then subsequently on an annual basis for several years, to inspect the building and advise in respect of possible building defects.
It is important to identify building defects and take action as early as possible, as strict time limits apply to any rectification action initiated by the body corporate. If defects are suspected, then a professional building inspector should be engaged to inspect and provide a written report about the defects. In respect of common property, including common property utility infrastructure, it is up to the body corporate (not individual lot owners) to take action to address the defects.
The starting point from a legal perspective is that body corporate may have the benefit of the warranties in the construction contract between the builder and the original developer of the building. Under the body corporate legislation, the benefit of the warranties made by the builder to the developer in the construction contract is in effect assigned to the body corporate in respect of building works concerning the common property.
If the developer complied with its statutory obligations at the first annual general meeting of the scheme, then the construction contracts should be in the body corporate records and should be easily accessible to the committee. If they are not, then the developer has not complied with its statutory obligations at the first annual general meeting of the scheme.
The committee, with the assistance of legal advice, needs to review the construction contracts to consider whether the builder has breached any express or implied warranties. That will require a consideration of the terms of the contract, the plans and specifications for the building, and any relevant building standards and codes. The building inspector’s report and the relevant warranties will then inform a formal request made to the builder for the rectification of the defects.
Lodging a complaint
If the builder does not address the issues, the body corporate could lodge a complaint with the Queensland Building and Construction Commission (QBCC) seeking that the QBCC issue a direction to the builder to rectify the defective building work. Strict time limits apply in relation to that process – the body corporate must lodge a complaint as soon as possible but no later than 12 months after noticing the defect. The QBCC may be able to help with defects that are apparent within six years and six months from practical completion of the building. Shorter limits apply for non-structural defects.
If the issues were still unresolved, the body corporate might be able to issue proceedings in a court against the builder for breach of the terms of the construction contracts (remember the benefit of the warranties in those contracts is assigned to the body corporate under the relevant legislation). Once again, strict time limits apply and the conservative view is that any such proceedings must be issued within six years of the date that the relevant building works occurred. Obviously, it would be essential to obtain legal advice before embarking on such a process.
Defects in the unit – for new owners
If you are an owner in a new building and you bought your unit from the developer, the starting point in addressing defects within your unit is the terms of the contract pursuant to which you purchased the lot. If you obtained competent legal advice before entering in to the contract, and if your lawyer was successfully able to negotiate amendments to the contract on your behalf, then often the contract will contain what is known as a defect rectification clause, which requires the developer to rectify any defects that arise in the unit within a stated period from settlement, usually six or 12 months.
If the developer fails to comply with requests made under such a provision, you may have a right to pursue the developer for breach of contract.
If there is no such clause in the contract, or if the rectification period has expired, then you might have a separate ability to pursue the builder under the terms of the construction contract between the developer and the builder. Under the body corporate legislation, the warranties made by the builder to the developer in the construction contract are in effect assigned to individual owners in respect of building work that occurred in the unit. Also, you may be able to give a notification to the QBCC or issue proceedings against the builder as per the process explained above, but once again, strict time limits apply.
Do you have any questions?
As you can see, the rectification of building defects in community title schemes is not a simple process. The complexity of the process means that it is often necessary to incur significant costs in obtaining expert reports and manoeuvring through different legal and administrative processes before a tangible outcome can be reached.
Arguably there needs to be some legislative intervention in this area to better equip body corporates to quickly and efficiently obtain relief in respect of substantiated building defects.
If your committee or if you as an individual lot owner have any questions in relation to building defects, please contact Andrew Kyle at ABKJ Lawyers by email at firstname.lastname@example.org or call the Southport office on 07 5532 3199.
Read through more of our articles on Body Corporate Law.