Navigating Building Defects

The following document has been prepared by:
Maria Arturi – Director, Mia Property Manager

Reviewed by:
Urban Lawyers, construction & property lawyers.
https://www.urbanlawyers.com.au
chris@urbanlawyers.com.au; admin@urbanlawyers.com.au 

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This information has been prepared by Mia Property Manager to provide owners with general information on managing building defects. It covers common property defects and although most steps are still relevant for private defects, This information does not constitute legal advice and Owners Corporations and owners should consider seeking indepedent legal advice.


Private v Common Property Defects

Owners Corporations typically act on behalf of owners as it relates to common property defects.

Mia Property Manager will be able to assist you in determining whether a defect is private or common property based on the plan of subdivision.

If the defect is private property, the property owner must rectify it - either by pursuing the original contractor (builder, plumber, electrician etc.) or arranging their owner repairs.

Owners may have rights pursuant to their Contract of Sale.


What is a Defect?

In Victoria, statutory protections exist to protect both property owners and Owners Corporations from building defects.

Building works may constitute a building defect when they do not comply with one of:

• Building Contract
• Statutory Warranties as set out in section 8 of the Domestic Building Contracts Act 1995
• The Building Act 1993 or its Regulations
• The Building Code of Australia
• The Building Permit
• The Planning Permit


Defects Liability Period

For new buildings, the term defects liability period (or ‘DLP’) is commonly used.

The DLP is a fixed period of time (normally 12 months), starting from the date of practical completion, during which the contractor/builder has an express contractual right to return to the site to rectify defects, pursuant to the Building Contract**.

During the defects liability period, typically:
• the contractor has the right to return to the site to rectify defects or complete unfinished work;
• the principal (normally the original owner or developer) is entitled to continue holding security or retention funds, to secure the contractor’s obligations in respect of incomplete or defective work; and
• the superintendent continues to remain involved in the project.

**Note: The Owners Corporation is typically not privy to this contract nor is a party to this contract.


What can an Owners Corporation do during the DLP Period?

The Owners Corporation is typically not a party to the Building Contract.
The Owners Corporation has rights under the warranties contained in section 8 of the Domestic Building Contracts Act 1995 (Vic) (DBCA), as discussed below.


It is recommended that during the DLP, owners work with the principal to ensure that they are fully informed of any defects which may influence the principal’s decision to extend the DLP and also to return of retentions funds.
If the Owners Corporation is not satisfied that defects have been properly completed during the DLP it is recommended that the Owners Corporation advise both principal and builder of this to protects its rights under the DBCA.

Owners Corporation’s Right of Claim against the Builder
If the builders fail to rectify defects, the Owners Corporation can make a claim against the builder for a breach of the warranties contained in section 8 of the Domestic Building Contracts Act 1995 (Vic) (DBCA) as such warranties run with Property pursuant to section 9 of the DBCA.

The warranties provided by the Builder are:

(a) the builder warrants that the work will be carried out in a proper and workmanlike manner and in accordance with the plans and specifications set out in the contract;

(b) the builder warrants that all materials to be supplied by the builder for use in the work will be good and suitable for the purpose for which they are used and that, unless otherwise stated in the contract, those materials will be new;

(c) the builder warrants that the work will be carried out in accordance with, and will comply with, all laws and legal requirements including, without limiting the generality of this warranty, the Building Act 1993 and the regulations made under that Act;

(d) the builder warrants that the work will be carried out with reasonable care and skill and will be completed by the date (or within the period) specified by the contract;

(e) the builder warrants that if the work consists of the erection or construction of a home, or is work intended to renovate, alter, extend, improve or repair a home to a stage suitable for occupation, the home will be suitable for occupation at the time the work is completed;

(f) if the contract states the particular purpose for which the work is required, or the result which the building owner wishes the work to achieve, so as to show that the building owner relies on the builder's skill and judgement, the builder warrants that the work and any material used in carrying out the work will be reasonably fit for that purpose or will be of such a nature and quality that they might reasonably be expected to achieve that result.


A claim against the Builder for a breach of the warranties can be made within 10 years of the date on which the occupancy permit was issued pursuant to section 134 of the Building Act 1993 (Vic).

Decision to Take Legal Action
The decision whether to take legal action against a contractor for unresolved building defects is often a difficult one and it is recommended that legal advice is sought.

As a starter, a lawyer that has been engaged to pursue the contractor will often prepare and send a letter of demand to the contractor. This letter will demand the contractor to attend the property to rectify the defects.

If urgent works are required, the builder should be put on notice that the works will be carried out and the builder should be given an opportunity to inspect the defects. The builder may engage its own expert in determining whether it is a building defect.

If the contractor refuses to rectify the defects, the Owners Corporation essentially has two options in relation to the breach of warranties:

• Take legal steps to hold the contractor liable; or
• Carry out the necessary rectification works and elect not to pursue the contractor who carried out the building works.

The Owners Corporation should also consider commercial realities such as the cost of taking legal action versus the cost of fixing the defect.


Domestic Building Dispute Resolution Victoria (DBRV) Application

Before commencing VCAT proceedings, the Owners Corporation must lodge an application against the Builder with the DBDRV in relation to the dispute regarding the defects.

It is preferable, but not necessary, that the DBDRV application is lodged after an expert report has been obtained.

The DBDRV shall conduct a conciliation between the parties in an attempt to resolve the dispute. If the conciliation is unsuccessful in resolving the dispute with the Builder, a certificate of conciliation will be issued by the DBDRV entitling the Owners Corporation to commence proceedings against the Builder in VCAT.

A special resolution of the Owners Corporation may be required to commence legal proceedings in VCAT.


Expert Reports

Prior to commencing formal legal proceedings against the Builder, it is recommend that the Owners Corporation engage an appropriately qualified building consultant/expert to inspect the Property and prepare a VCAT compliant expert report which:

(a) identifies the extent and nature of the defects in the apartments and the common property;
(b) provides a scope of rectification works for the defects; and
(c) provides a costing for the scope of rectification works.

It is preferable that a lawyer prepares a formal brief to any expert as all instructions given to an expert must be provided to the other party if the matter becomes litigious and there are strict requirements as to how the expert report must be prepared.


Claims Under Domestic Building Insurance (DBI)

Domestic Building Insurance may be available to some owners. Such insurance is offered by VMIA and typically exists for developments under 3 storeys. DBI should be included in your contract of sale. Please refer to the Product Disclosure Statement issued by your insurer. 

DBI only comes into effect if the builder dies, disappears or becomes insolvent.

You can check the VBA Register of Building Practitioners to determine the status of the builder.

You will also need to establish that the defects occurred during the policy period, typically, within 6 years from the date of the certificate of occupancy.


Potential Claim against the Licensed Plumbers

Action may be taken directly against plumbers where they provide a Certificate of Compliance for their work and the defect arise from defective plumbing or electrical works.

If the expert report confirms that some of the defects arise from defective plumbing works, a complaint can be lodged against the licensed plumber who carried out these plumbing works with the Victorian Building Authority. This will require the licensed plumber who carried out the works to be identified.

Following the lodgement of a complaint with the VBA, a VBA Inspector will undertake an inspection and issue a rectification notice to the licensed Plumber if he concludes that there are plumbing defects present. The licensed plumber must undertake the rectification works within 28 days or appeal the rectification notice.

If the licensed plumber fails to comply with the rectification notice or appeal any such notice, a claim can be submitted to the licensed plumber’s warranty insurance.

Such warranty insurance would respond if the defect arose within a 6-year period.

Conclusion

Navigating building defects is complicated.

There are many other considerations that have not been discussed in this document and which are important to consider when dealing with building defects. As such this document is not intended to be a comprehensive document.
  

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