21 March 2019

The (high)rise of building defects

Strata apartment living is the fastest growing form of property ownership across Australia with more than half of these apartments located in the greater Sydney area.

Alarmingly, recent research* has found that up to 85 per cent of these buildings built in NSW since 2000 have some form of building defect.

What does this mean for strata residents?

The recent controversy surrounding the Opal Tower in Sydney’s Olympic Park precinct highlights the seriousness of some of these defects, which leaves homeowners residence or investment in jeopardy. So, what are their rights?

“Under NSW law, all residential buildings less than six years old are covered by a statutory warranty scheme for major defects,” says Adrian Mueller, Partner and Senior Lawyer at JS Mueller & Co.

“Major defects claims can be made for up to six years and any non-major defects can be claimed for up to two years.”

Mueller says all owners who are still covered by these warranties have the right to pursue the developer and builder for rectification of building defects.

“However, buildings older than six years may have different warranty periods and homeowners should seek legal advice,” he says.

Building defects affecting strata levies

Mueller says strata levies are a critical and essential part of ensuring the value of a property is protected.

“The owners corporation has the statutory duty to ensure common property is safe and kept in good repair,” he says. Therefore, apartment owners in structurally unsafe buildings could face increased special levies.

“When a building defect is on common property the owners corporation should add the repair of the defect to the agenda of a general meeting for consideration and resolution.”

Mueller says the good news is that Opal Tower homeowners are covered under the statutory warranty scheme.

“The not-so-good news is that, until the issue is resolved, homeowners are forced to find alternative accommodation or live in unsafe conditions,” he says. “Possibly with a good chance of facing a hefty special levies bill.

Strata managers responsibilities to owners corporation

In unique situations such as the Opal Tower, strata managers can assist their clients by providing carefully considered and appropriate advice. 

“As strata managers are aware, the Strata Management Agency Agreement clearly defines the daily routine duties to be performed by a strata manager on behalf of a strata scheme,” says Shane Foley, Director of BIV Reports. “This document ultimately affords the strata manager some level of protection, so long as they do not act outside of this agreement. The above duties could be summarised as regular and routine common tasks, whereas managing a home owners warranty claim could be considered a special project.

“When receiving a new strata management directly after the initial period, the managing agent must ensure they comply with Section 16 of the Strata Schemes Management Act 2015 No 50 which requires them to obtain documents prescribed by the Act from the original owner or lessor. I suggest these documents be obtained as a minimum and, if possible, any other relevant documents should also be sought as these may be essential when instructing a third party.” 

As a home owners warranty claim could be considered a special project, Foley recommends that a specialist strata lawyer be engaged to undertake and coordinate the claims process while providing compliance with sections 189–215 of the Strata Schemes Management Act 2015 No 50 which pertains to building defect claims. Foley believes this approach mitigates any potential loss for the owners by outsourcing this project to a professional who specialises in building defects.

As this is a complicated area and if the detail of the process is not followed, it may result in delays and the inability for a claim to be successfully completed.

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REINSW thanks JS Mueller & Co for their contribution to this article.
*University of NSW City Futures Research Centre