High Court decision on building defects leaves some strata property owners cold

According to the Strata Community of Australia (SCA) in a media release published on their website last month, a recent High Court decision between a serviced apartment strata scheme and its builder (Brookfield Multiplex) found that strata property owners have no rights against builders (and others) in the tort of negligence for defective building work.

This decision could have far-reaching implications, according to Strata Community Australia (NSW) President, Greg Haywood, who said it will impact on many owners corporations by extinguishing any rights to sue in negligence for defective building work in commercial, retail or industrial complexes.

Any rights that did exist were between the developer and the builder in the first place, and later between the developer and the first unit owners who purchased into the complex, as the SCA explained.

Following concerns expressed over the possibility that strata owners of residential strata properties could be similarly affected, the SCA (NSW) is calling on the NSW Government to urgently introduce legislation to preserve rights for these consumers.

Implications for owners and buyers of commercially-oriented strata properties

The SCA helped to explain how individuals who purchased these types of properties in the first instance (generally off-the-plan) were in a position to bargain for any items they wished to have addressed under warranties for defective work. However, if they did not strike a reasonable bargain at this point, they could not complain about defects later (through the owners corporation’s rights), nor could any subsequent owner – even if problems caused by defective building work or negligence failed to become apparent until some years after building completion and first-time possession by individual unit owners.

“What this means for owners of some established strata properties is the lack of ability to seek any redress now for building defects caused by substandard building materials or workmanship in the property construction phase. This could be very disappointing news for many strata property owners, especially owners of properties that have already changed hands since their original sale either off-the-plan or as a ready-for-occupancy proposition. Some older commercial buildings are just starting to show evidence of significant problems now, and the cost of remediation works for emerging issues will fall wholly and squarely on the current owners corporation,” said Wayne Costin, founding director of Strata Engineering Solutions, leading building remediation specialists with offices in NSW, VIC, QLD and SA. Wayne Costin is a Fellow of the Institution of Engineers Australia, and a Life Member of the Association of Consulting Engineers Australia.

“For first-phase buyers into one of these affected strata developments, whether purchasing strata properties off-the-plan or completed, it is more important than ever to obtain an independent professional assessment of the quality and fitness-for-purpose of building workmanship and materials prior to taking formal possession of any unit. Owners should act before the developer has totally left the scene,” Wayne continued.

Getting an independent building defect report prior to any first-time strata unit possession

“The advantages of getting an independent building defect report for first-time buyers of any strata property are two-fold. Firstly, there is immediate opportunity to seek redress from the property developer over the any remediation works that might be required for the strata-related buildings and amenities to perform reliably and cost-efficiently over a satisfactory number of years. This helps to prevent the time-bomb effect of a defect being hidden to begin with, and at some later stage exposing the fullness of structural or aesthetic problems and liabilities for owners.”

“Secondly, there is the peace-of-mind advantage for all strata owners in being able to on-sell their properties at any time in future with the assurance of a satisfactory building health report provided by independent professional engineers. It is a definite value-add for prospective buyers to know for certain there are no hidden building defects that could suddenly manifest in problems and cause owners to face unforeseen major costs. On the other hand, if this independent investigation had revealed any significant defect, prospective buyers could assure themselves of the cost of any remediation work being considered in the evaluation of sinking fund forecasts or any future provision for special levies,” Wayne said.

Strata Engineering Solutions ready to help

“The consequences and potential implications of this High Court finding are so broad and far-reaching, there is likely to be concern on the part of many strata property owners, owners corporations and strata managers for some time to come. However, where any building defect, forensic investigation, or requirement for building remediation is of any concern, the engineering team at SES is always ready to help. We are members of the Strata Community Australia and follow the interests of strata building developers, owners and managers very closely,” Wayne said.