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13 December 2012

13 December 2012. 1. Introduction. 2. Understanding HOW Insurance. 3. Defects and the Home Building Act 1989. 4. Legal Advice and Services. Defects, HOW and Strata. Defects, HOW and Strata. 1. Introduction. 2. Understanding HOW Insurance. 3. Defects and the Home Building Act 1989.

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13 December 2012

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  1. 13 December 2012

  2. 1 Introduction 2 Understanding HOW Insurance 3 Defects and the Home Building Act 1989 4 Legal Advice and Services Defects, HOW and Strata

  3. Defects, HOW and Strata 1 Introduction 2 Understanding HOW Insurance 3 Defects and the Home Building Act 1989 4 Legal Advice and Services

  4. Recent Changes to the Home Building Act 1989 (HBA) • Changes to the HBA were introduced in October 2011 • Application of Amendments • Some important exceptions • Some key areas identified by the Issues Paper for potential reform • Some of the issues under consideration in the Discussion Paper include: • Whether a maintenance schedule should be prepared by the developer • Whether defects should be a compulsory agenda item at the first AGM • Whether the law should set clear rules for voting on action regarding defects • Whether there should be any other changes made to the strata laws to more adequately deal with defects

  5. Defects, HOW and Strata 1 Introduction 2 Understanding HOW Insurance 3 Defects and the Home Building Act 1989 4 Legal Advice and Services

  6. Understanding HOW Insurance Since the HBA began on 1 May 1997 there have been 4 significant changes to the private insurance scheme, the latest as recently as 1 April 2009:

  7. Understanding HOW Insurance Since the HBA began on 1 May 1997 there have been 4 significant changes to the private insurance scheme, the latest as recently as 1 April 2009:

  8. Completion date • When are the Works completed? • What does completion of Residential Building works mean?

  9. Main documents to be lodged for Claim The insurers claim form lists the documents to be lodged. The main documents consist of the following: • The building contract • Builders certificates of HOW insurance • Value of the building works and details of progress payments • An accurate description of the defective or incomplete works. Unless the list of defects is short the Owners Corporation should obtain a report from a building consultant which sets out: • All the defects • Cause of the defect • The relevant provision of the Building Code or legislation which the been breach in the case of each defect • Scope of works for rectification of each defect • An estimated rectification cost • Any experts reports or photos

  10. Defects, HOW and Strata 1 Introduction 2 Understanding HOW Insurance 3 Defects and the Home Building Act 1989 4 Legal Advice and Services

  11. What is a defect? • The Owners Corporation has a mandatory duty to maintain the common property and repair any common property defects: s62 of the Strata Schemes Management Act 1996. This duty applies to the Owners Corporation even where the developer or builder is at fault. • The Oxford English Dictionary speaks of a defect in terms of “falling short” a blemish, flaw or imperfection. The Building Code of Australia says that a defect is any faulty workmanship which does not strictly complying with the requirements of the agreement. • One court said that that the word “defective” simply means workmanship, design or material, which is ineffective for the purposes for which it was intended. • Whether a complaint of a defect by an owner is in fact a defect is therefore not always easy to determine and will often require a judgement call most often based upon technical building expertise and building standards.

  12. What is a defect? • To assist in identifying defects the Department of Fair Trading has published a Guide to Standards and Tolerances. • When is a defect a defect? • Is it a defect when rectification work is actually carried out? • Or is a defect a defect only when a builder fails to rectify it during construction or at all? • If it is established that a defect does exist what is a builders obligation to rectify the defect under the contract? • Must the Owners Corporation rectify the defect at all costs? • Due to the complex nature of defining a defect, Owners Corporations should consult technical experts early.

  13. Essential elements of a defect claim A building defect claim requires proof of the following: • Liability • Damages Liability Liability against a builder, developer or other party must be proven in order for a claim to succeed. Liability is generally established by reference to: • the statutory warranties in the HBA • the specific requirements of the building contract including plans and specifications • the requirements of the certifying authority • the Building Code of Australia • the relevant Australian standards • “Good Building Practice”

  14. Statutory Warranties • Section 18B of the Home Building Act 1989 defines which warranties are implied in every contract to do residential building work. • The warranties or promises are ambiguous in their language. For example “proper and workmanlike” (section 18B(a) and “good and suitable” (section 18B(b)). • The ambiguity is there deliberately so that the court can consider on a case by case basis if a builder has not complied with the warranties.These warranties apply to: • The owner of the land for whom the works were performed [section 18B] • The immediate successor in title to the first owner [the second owner] except to the extent that the first owner enforced a statutory warranty [s18C] • Any later successors in title after the second owner except to the extent that the earlier successor in title enforce a statutory warranty [section 18C] • As successors in title, Owners Corporations and lot owners have the benefit of these warranties.

  15. Remedies • Damages • Orders that work be performed s48O of the Home Building Act 1989

  16. Defects, HOW and Strata 1 Introduction 2 Understanding HOW Insurance 3 Defects and the Home Building Act 1989 4 Legal Advice and Services

  17. Procedure to engage lawyers As from 7 February 2005, an owners corporation wishing to seek legal advice, obtain legal services or begin legal action must follow certain steps before a lawyer can be engaged. These steps are set out in ss80D and 230A of the Strata Schemes Management Act 1996 and Regulation 15 of the Strata Scheme Management Regulations.

  18. Tips for Strata Managers on how to Manage a Defect Claim Below is a summary [not exhaustive] of steps that should be taken in managing a defect claim:

  19. Kreisson Legal David GlinatsisSolicitor Director(02) 8239 6502david.glinatsis@kreissonlegal.com.au Kreisson LegalLevel 30, 201 Elisabeth St, Sydney NSW 2000P: (02) 8239 6500 | F: (02) 8239 6501www.kreissonlegal.com.au Helen AmanatiadisSenior Associate(02) 8239 6508helen.amanatiadis@kreissonlegal.com.au

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