Most new strata-title properties have defects

THE most comprehensive study ever of strata properties has found 85 per cent of new apartments in NSW are plagued by defects. The results of the two-year, federally-funded University of NSW study reveal major problems with compliance and management of multi-unit dwellings, which accounted for 75 per cent of properties built in Sydney in the five years to 2009.

Researchers surveyed 1550 strata owners, managers and peak bodies. Seven out of 10 owners reported building defects in their properties, with water leaks and internal and external cracks the most common.

Newer apartments were the worst, with 85 per cent of owners surveyed in buildings constructed since 2000 reporting defects. In three out of four cases, these were yet to be fixed. In most of these cases, the builder or developer controlled the strata scheme and was slow to act, or the builder was no longer operating and so could not fix the defects.

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The president of Owners Corporation Network Australia, Stephen Goddard, said the City Futures Research Centre study confirmed the conventional wisdom of the strata sector: new buildings in NSW will have defects. ''We do not live in a safe state, if that is the outcome,'' he said. ''Why have a building code if we can't comply with it 85 per cent of the time?''

Changes to planning regulation before the Sydney Olympics permitted private certification of buildings in a bid to speed up development times.

The report's lead author and research fellow at the centre, Hazel Easthope, said certification was ''not up to scratch'' between 1998 and 2004. Regulation was tightened in 2005.

''Compliance was not very good,'' she said. ''You hear stories of buildings being signed off without inspectors even going to the building.''

But Mr Goddard said the continuing state of compliance ''makes your blood run cold''.

''We have an absolutely inadequate process for certifying work, no adequate penalties for punishing falsified certifications,'' he said.

About 3 million Australians now live in strata-titled properties, including 1.2 million in NSW, where the form of home ownership was first introduced in 1961. Almost a quarter of people living in the Sydney metropolitan area live under strata title.

The report found parking, noisy neighbours and breaking by-laws were the biggest source of disputes. Managing schemes proved problematic for 39 per cent of strata owners, with the necessity of repairs and who should pay for them common sources of conflict.

Mr Goddard said the focus needed to shift from aiding developers constructing flats to helping people come to terms with living co-operatively within them. ''People do not understand strata title and its consequences,'' he said. ''They are told they have a certificate of title but they discover you can't do with it as they wish.''

Dr Easthope said strata was a new form of civic relationship, where owners found themselves in a legally binding relationship with their neighbours for the communal upkeep and maintenance of their property. ''Owners corporations are … like a small level of government but with very little support.''

The Governing the Compact City report, to be launched today by the Fair Trading Minister, Anthony Roberts, comes as the government undertakes its own review of strata law.

SMH

Pool warranties in doubt after trust fund drained

POOL warranties issued to thousands of Queensland homeowners are in doubt because the industry peak body administering them has drained millions of dollars from the trust fund used to pay claims.

Customers having pools built by members of the Queensland Swimming Pool and Spa Association (SPASA) each pay about $300 into the so-called "Watertight" fund for a six-year warranty to ensure that if the builder dies or goes bust their pools will be finished and subsequent defects rectified.

But The Courier-Mail can reveal that a significant proportion of almost $7 million paid into the fund over the past 10 years has been siphoned off into a loss-making training venture that has nothing to do with consumers.

SPASA Queensland itself is also in a financial crisis. It is set to call for emergency funding from members and is looking to sell its Newstead office building to stay afloat.

Chief executive Adrian Hart assured customers claims would be honoured, despite having less than $30,000 left in the trust.

"The fund is treading water at the minute but we haven't had, nor do we expect, much in the way of claims," he said.

Mr Hart, who took over in October, has hired lawyers to investigate what happened to the trust fund under the previous management.

Financial documents seen by The Courier-Mail show that at one point the trust had more than half-a-million dollars in the bank, but by the end of 2011 the fund's only significant asset was a $500,000 loan to SPASA Queensland used to buy the Newstead building.

Since 2002 the trust has collected $6.8 million from customers, from which about $1.2 million has been paid out in claims.

About $2 million was transferred in "grants" to NSPI Australia, a loss-making training organisation run by SPASA to help pool builders qualify for Building Service Authority licences. Some trust money was used to fund the operations of SPASA.

Under the trust deed the only specified beneficiaries are SPASA members' customers. 

couriermail.com.au

NSW builders better protected from indefinite insurance claims, but home owners lose some recourse

This would seem to be a common sense legislation amendment in our view.

 The recently unveiled NSW state government reforms to the Home Building Act aimed at pumping some adrenalin in the industry will benefit builders, developers and insurers, but leave home buyers with less recourse to pursue faulty workmanship claims.

The legislation reduces warranties offered to home buyers from seven years to two for non-structural defects.

It’s been argued that the bill will assist builders, developers and insurers of new houses and apartments by taking away the unrealistic expectation that builders are perpetually liable for wear and tear in homes they have constructed.

NSW Fair Trading Minister Anthony Roberts is correct to argue it is inappropriate to have a seven-year warranty period for painting and possibly the plastering.

The minister notes a result of a 2008 Supreme Court ruling and subsequent amendments to the act in 2009 that there was potential for a claim against home warranty insurance to be made at any time.

“In effect, this means that insurers face the real risk of unending liability for home warranty insurance claims,” he advises.

Some insurers are not releasing bank guarantees provided by builders as security against their home warranty insurance policies, and this means that builders, many of whom are small business owners, are continuing to pay interest on securities being held. This was affecting the ability of these builders to take on new jobs, as their capital was tied up.

But the proposed changes could make some legitimate claims practically impossible to pursue through the courts.

Many defects do not emerge in the initial two years of a newly constructed building.

Not only is time against the home buyers. As strata lawyer David Bannerman suggests, strata flat buyers could be particularly without remedy given that to launch a claim an apartment owners’ meeting needs approval to engage costly professionals in resolutions approved by the owners’ corporation at a time when possibly unsold apartments mean the developer has effective control of the decision making of the owners’ committee.

The legislation reduces warranties developers must offer home buyers from seven years to six for the more serious structural defects. Some states offer up to a decade for claims to emerge.

The bill allows for the practical completion of each building in a multi-building project to be considered independently.

Even the legal definition as to what’s structural and non-structural is not clear-cut.

At present "structural defects" are defined in clause 71 of the Home Building Regulation 2004, which provides that a structural defect is one that causes physical damage or prevents, or is likely to prevent, the continued practical use of the building or any part of the building. Every component of the external walls or roof, including weatherproofing, is considered to be a structural element of the building.

"Non-structural defects" are, by default, anything that does not fall into the just-mentioned definition. The bill does not propose any change to the current definition of "structural defect".

But some industry groups have strong views that the current definition was too wide and requires urgent revision, which the Fair Trading Department is still considering.

Roberts says the bill will “pump some adrenalin in the industry".

"We want to remove the dead hand of government off as many small tradespeople and builders as possible," he says.

Roberts says since 2002 only 7% of claims and notifications relating to structural defects were lodged six years after the issue of the insurance certificate and that data collected by Fair Trading’s Home Building Service since 2007 shows that more than 82% of complaints about structural defects are made within six years.

Claims data produced by the Home Building Service dating back to July 2007 shows that more than 80% of non-structural defect complaints are made within the first two years.

But NSW opposition spokeswoman Linda Burney says the opposition will be seeking to amend the bill.

“Whatever the reason that the government has put forward for this change it cannot be argued that it will maintain the current level of consumer protection,” she says.

“The reduction of the time frame within which a consumer can collect on a warranty is something that the opposition cannot support.

“While we agree that burdensome regulation and red tape in the construction industry is inappropriate, improvements on this front should not come at the expense of consumers,” Burney says.

One likely outcome of the bill is that builders and developers will no longer be able to use proportionate liability laws to shift responsibility to their subcontractors for warranty breaches.

Until 2010 it was considered that the provisions of the Civil Liability Act did not apply to statutory warranty claims under the Home Building Act. However, in July 2010 the Supreme Court allowed a builder to use the rules of proportionate liability to defend himself in a statutory warranty claim.

A significant amendment raises the threshold for home warranty insurance from $12,000 to $20,000.

Industry stakeholders have expressed concern that the $12,000 does not represent the increases in building and labour costs that have occurred since 2004.

It is suggested the requirement has had a negative effect on small to medium builders and tradespeople as in order to be eligible for home warranty insurance, builders and tradespeople must meet stringent prudential requirements.

Builders and tradespeople had also raise concerns about the cost, time and effort required to obtain home warranty insurance for small-scale building works

The bill will increase the threshold at which written contracts are mandatory from $1,100 to $5,100.

By Jonathan Chancellor

Property Observer