When Do Builders Lose the Right to Fix Construction Defects?

When construction defects arise, owners must decide whether or not to permit the original builder to fix them. Of concern is whether they are acting unreasonably by not allowing them to do so. This article will explore the case law in Australia and whether builders have a right to fix defects.

Di Blasio Constructions Pty Ltd

The Court explored the right to fix defects in the Di Blasio Constructions Pty Ltd case. Here, the Court found that the builder does have the initial right to fix defects if there is an opportunity to do so by the owner. An inadequate response from the builder will result in them losing this right. 

In this case, the owners of a strata development owners corporation claimed the building contractors Di Blasio Constructions (Di Blasio). The claim was due to a breach of the Home Building Act 1989 (NSW) warranties obliging the builder to do work with ‘due care and skill’.

The work by Di Blasio resulted in various significant construction defects, which continued to emerge over time. These defects included problems with: 

• the roof and guttering;
• fire safety measures; and
• waterproofing in bathrooms and exterior planter boxes.

The owners’ corporation engaged an expert to identify all the defects and the work required to remediate the issues and provided this to Di Blasio. However, the builder was reluctant to prepare a scope of work consistent with the expert’s opinion and continuously failed to provide appropriate remedies from 2008 – 2013.

When the parties began court proceedings, Di Blasio presented an affidavit containing an offer to carry out rectification work for $1.00, which the owners’ corporation had not acknowledged. Di Blasio claimed that the failure to consider this offer constituted a failure to mitigate their loss. Furthermore, they claimed that the owners corporation had acted unreasonably since they were ‘ready, willing and able’ to enter into that contract.

Legal Principles

The court identified several principles in coming to its decision, both in contract law itself and specifically concerning building contracts. Let us explore these below.

Contracts

If you suffer a loss due to a breach of contract, you must act reasonably to recover or minimise the loss. Accordingly, acting unreasonably means you will no longer be eligible to recover their loss. However, be aware that it falls on the other party to prove that you acted unreasonably. 

Furthermore, suppose your property is damaged as a consequence of the other party’s breach. In this case, you are entitled to recover the costs of reinstating the property so it matches the expectations of the contract.

Building Contracts

The owner must give the builder a reasonable opportunity to rectify any defects, even if this is not explicitly stated in the contract. This opportunity is to allow the builder to minimise damages.

One factor relevant to ‘reasonableness’ is whether the builder’s attempts to repair the defects in the past have caused the owner to lose confidence in the willingness and ability of the builder to do the work.

Court’s Decision

In the Di Blasio case, the Court found in favour of the owners’ corporation. Di Blasio claimed that the owners corporation acted unreasonably because they:

• did not pursue discussions concerning the scope of works to be done; and
• did not accept their offer of a $1.00 rectification contract.

However, the Court rejected those arguments and found that the owners’ corporation acted reasonably because:

• they took the reasonable step of engaging an expert in identifying the defects;
• they took the reasonable position that the builder should prepare a scope of works to remedy the defects identified, and that, subsequently, the builder’s response was inadequate;
• the expert’s report was reasonable and correctly identified the defects, which the builder was reluctant to accept; and
• the owners’ corporation no longer had confidence in the builder and wanted someone else to undertake the rectification work.

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Changes to the Law

Since the decision, section 18BA has been introduced to the Home Building Act 1989 in NSW. This change confirms that an owner must mitigate its loss. Furthermore, they must:

• make reasonable efforts to notify the builder of the breach within six months of it becoming apparent; and
• allow the builder reasonable access.

Despite the decision in the case, the changes to the Home Building Act (NSW) are builder-friendly. Additionally, they arguably impose broader obligations on the owner to mitigate their losses, than was required from the decision in the case and under case law. 

What Should You Do If Construction Defects Arise?

This case confirmed that where defects are found, owners must allow the original building contractor an opportunity to fix these defects. This opportunity will allow the builder to minimise the damages and costs it must pay. The court’s decision confirmed that, in some circumstances, it would not be unreasonable for an owner or owners’ corporation to stop a builder from returning to the property to rectify any defects. Owners should not outright reject offers by a builder to rectify defects without properly assessing the relevant circumstances particular to the matter. Owners should seek legal advice before rejecting a builder’s offer, as this will be a relevant matter a court or tribunal will consider.

Where defects arise, owners should ensure they consult the builder and give them chances to rectify the issue. For building contractors, be aware that you can lose your right to rectify a defect and minimise damages should your response be inadequate.

Key Takeaways 

Owners must be aware of their positive duty to mitigate their loss if they become aware of defective building works. Although there is the chance that an owner can lose confidence in the willingness and ability of a builder to do the work, they must assess a variety of considerations before rejecting the builder’s offer to rectify defects. Conversely, if a builder claims that an owner has acted unreasonably in not allowing them to rectify a defect, it is the builder’s responsibility to prove that claim. 

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