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Apartment owners left with no protection
Date
October 9, 2014
Jimmy Thomson, Flat Chat columnist
Comment: In the wake of the High Court ruling buyers are being warned to get legal advice
before purchasing new units.
Photo: Rob Homer.
The decision handed down on Wednesday by the High Court that builders do not have a duty of care
to people who buy their apartments is a devastating blow to the apartment industry as a whole, and to
unit owners and prospective buyers in particular.
The decision that the owners corporation in a 22-storey building could not sue the builder to recover
the cost of fixing defects in common areas exposes the paucity of consumer protections for apartment
buyers.
As reported in this story, there is now no recourse for apartment owners who don't qualify for home
warranty insurance (if their buildings are more than three storeys high) and may have failed to get
defects rectified by their developer.
It's the third get out of jail free card in less than six months handed to dodgy builders. Earlier this year
state parliament approved changes to the Home Building Act which seriously restricts the time frame
in which certain defects can be claimed.
And the 2 per cent defects bond that was to have been part of proposed strata law reforms will not now
come into force until 2016, if at all.
The High Court ruling basically says that because developers have the expertise to choose their
builders and apartment buyers have the expertise to choose their developers, and there are existing
safeguards, owners are not "vulnerable" in a legal sense.
That means the builders do not have a "duty of care" to apartment buyers who, if they fail to get
defects rectified by developers, are left with no recourse but to fix them at their own expense.
Stephen Goddard, a leading strata lawyer and chairman of the Owners Corporation Network, the main
advocacy group for apartment owners' rights, told Fairfax Media the State Parliament needed to step in
to address a "gaping hole in consumer protection" for residential apartment owners.
A recent survey by the UNSW Built Environment Department showed that about 85 per cent of new
apartment buildings contained defects.
Changes to the Home Building Act that are due to come into force in December will redefine major
defects as anything that means the building (or part of it) is uninhabitable or literally falling down
around you. You'll have six years to claim for these defects (provided you haven't been killed by
falling masonry in the meantime).
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Anything else, including issues that can take years to emerge will be considered minor defects,
meaning owners' corporations have only two years in which to make a claim.
The problem is, you could be well into your two-year window before your block's first annual general
meeting is even held.
As a result owners in new buildings are being advised by strata managers and lawyers to insist on a
full defects survey the minute they take over the running of their buildings.
You have to feel sorry for the decent quality developers who are often unfairly tarred with the same
brush as chancers who specialise in cheap and cheerless slums of the future.
But another leading strata lawyer Colin Grace, who represented the owners corporation in the High
Court case, warns all prospective buyers to get legal advice about their consumer protection before
buying new units.
"The High Court decision has removed the rights of owners corporations in commercial buildings and
residential buildings to make a building defect claim in negligence," he said.
"Anyone who owns or is considering owning a residential or commercial apartment, will be affected
by these changes."
He said that all commercial and residential investors should obtain independent legal advice on their
rights, including the possibility of having no claim at all to rectify building defects.
You'll find more about the whole issue of defect claims on flat-chat.com.au. And defects will
certainly be a hot topic at Flat Chat Live - our version of Q&A - which takes place in Sydney on
Saturday, October 25. Click here for more details and links to the official program.
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