Call to close errant developers’ loopholes
The Australian 12:00am January 14, 2019
Sam Buckingham-Jones
More than 1350 construction companies in Australia went into administration in a 12-month period, a figure experts say highlights how some are used to avoid liability, leaving unit owners and body corporates exposed.
In the wake of the fallout from the Opal Tower fiasco, in which more than 300 people were evacuated on Christmas Eve after cracks appeared in the Sydney building, construction industry veterans have called for proposed reforms to be fast-tracked.
According to the Australian Securities & Investments Commission’s most recent insolvency statistics, 1354 construction companies entered external administration in the year to September 2018.
The previous year, to September 2017, there were 1506, and 1647 for the 2016 period.
In NSW, owners can take the builder and developer of an apartment block to court under the state’s statutory warranties, which are two years for a minor defect and six years if it is structural and major. There are similar legal avenues against builders in other states. There are, however, few legal avenues against companies that are bankrupt.
“The consumer bears the burden of the cost. And the system is failing them,” said Chris Duggan, from Strata Community Association NSW.
Paul Jurdeczka, a residential construction dispute and strata lawyer from Chambers Russell Lawyers, said the most successful claims are made in NSW through statutory warranties in the Home Building Act.
“However, if (the developer and builder) are deregistered or have been through administration, then they cannot be sued,” he said. “Many developers will be ‘special purpose vehicle’ companies established just to deal with a project, and wound up as soon as possible after the last sale, once the profits are disbursed.”
Mr Duggan said starting legal action was expensive and defects needed to be identified, which takes time. Two years, he said, was not long to prepare a case.
Likewise, changes that have disadvantaged owners happened over time, but included insurers leaving the Homeowners Warranty insurance market.
“I think that was probably the tipping point, and we haven’t seen the system catch up,” he said.
“Overlaid with that is the combustible cladding, electrical wiring that was found to be faulty. All of these have been overlaid on to this system, while this Opal (Tower) case has been highlighted as a failure of the system.”
A strata bond scheme, which forces developers in NSW to put aside 2 per cent of the contract value of the work to be used by owners if there are defects, is too small and is borne by owners through higher apartment prices, Mr Duggan said.
“Time will reveal how that plays out,” he said.
Some residents of Opal Tower in Sydney’s Olympic Park are due to start moving back into the tower in coming days, while dozens face a wait of up to six weeks for remedial work to be done.
Experts from the design engineer, WSP, a third-party firm, Rincovitch, and the government’s independent investigators have all cleared the building as structurally safe.
The Strata Committee, however, has urged residents not to move back in until their own engineers, from Cardno, have completed their analysis.
On Saturday, there was a three-hour meeting between owners and the builder, Icon. The builder has offered to continue compensating residents until at least mid-this week, and talk to them on a case-by-case basis.