If you are a building and construction industry participant (including a builder, developer, strata owner and land or apartment owner), you should be aware of a new Bill that has been passed in NSW – the Residential Apartment Buildings (Compliance and Enforcement Powers) Act 2020 (NSW) (Act) – which is set to commence on 1 September 2020

The Act is aimed at preventing developers from carrying out building work that may result in serious defects to the building, or that may result in significant harm or loss to the public or current or future occupiers of the building. 

The Act follows a rise in defects in apartment complexes in NSW, including notably the Mascot Towers and Sydney Olympic Park Opal Tower developments, both of which led to evacuations of residents.

The Act affects the process for applying for an occupation certificate and gives the Secretary of the Department of Customer Service (Secretary) expansive powers to investigate, monitor and enforce compliance with the Act. 

What Type of Building Work Is Covered?

‘Building work’ is broadly defined. It includes the physical activity associated with erecting a building, constructing a building, making alterations or additions to a building, and repairs, renovations or protective treatments to a building

The Act applies to building work:

  • in respect of ‘residential apartment buildings’ (Class 2 buildings under the Building Code of Australia (BCA)), including multi-story apartment buildings and single-storey attached dwellings with an underground basement or carpark. The Act does not apply to free-standing houses, terraces or town houses;
  • authorised to commence in accordance with a construction certificate or complying development certificate; and
  • yet to be completed, or completed within 10 years before a function is exercised under the Act (e.g. if the Secretary decides to take action under the Act in relation to the building work, or instigates an investigation in relation to the building work).

This means that residential building work on an apartment completed any time on or after 2 September 2010 could potentially be subject to the Act.

The Act does not apply to commercial or industrial buildings.

What Are the Key Changes?

Occupation Certificates

The Act establishes a scheme for developers to notify the Secretary of the intended completion of building work.

Before a developer can apply for an occupation certificate, it must first notify the Secretary:

  • within six to 12 months before it proposes to make the application (referred to as the ‘expected completion notice’); or
  • for building work that is expected to take less than six months, within 30 days of commencement of the work.

It must also notify of changes to the expected completion notice of longer than 60 days, within seven days of becoming aware of the change in circumstances. For instance, if the works are delayed for several months.

Note: There will be a six month transition period, during which the above requirements will not apply to a developer applying for an occupation certificate. Instead, the developer will need to notify the Secretary within 14 days of commencement of the transition period.

Powers of the Secretary

The Secretary has a range of powers which are extensive, including to:

  • stop an occupation certificate from being issued, including if the precondition of notifying the Secretary, as discussed above, is not complied with, or if it is satisfied by the Secretary that a ‘serious defect’ (see definition below) exists in the building;
  • investigate, monitor and enforce compliance with the Act (and Regulations), the Building Code of Australia, Australian Standards and approved plans;
  • investigate whether buildings have serious defects (including entering premises, building sites (sometimes without the need for a search warrant), and obtaining and seizing information and records);
  • open up, cut open or demolish building work, if it has reasonable grounds for believing that it is necessary to do so in relation to a violation of the Act or there is a serious defect in a building;  
  • issue stop work orders, where the Secretary is of the opinion the building work is, or is likely to be, carried out in a manner that could result in significant harm or loss to the public or occupiers of the building, or significant damage to property; 
  • issue building work rectification orders (which can require a developer to carry out or refrain from carrying out building work), where the Secretary has a reasonable belief that the building work was or is being carried out in a manner that could result in a serious defect. An owner of an apartment can also be required to give a developer access to comply with such an order;
  • if a developer fails to comply with a work rectification order, the Secretary may carry out the order itself (including to demolish the whole or part of a building), and claim the costs of doing so as a debt; and
  • issue compliance cost notices, requiring a developer to pay the Secretary’s reasonable costs or expenses incurred in exercising the Secretary’s powers under the Act.

What is a Serious Defect?

The Act defines serious defect to mean:

  • a defect in a building element attributable to a failure to comply with the performance requirements of the BCA, relevant Australian Standards or the relevant approved plans for the building work, or
  • a defect in a building product or building element that:
    • is attributable to defective design, workmanship, or materials, and
    • causes or is likely to cause:
      • the inability to inhabit or use the building or part of it, or
      • the destruction of the building or any part of it, or
      • a threat of collapse of the building or any part it, or
  • the use of a building product in contravention of the Building Products (Safety) Act 2017 Act (NSW);
  • a serious defect prescribed by the Regulations.

Who is a Developer Under the Act?

The definition of a developer under the Act is broad, and there can be more than one developer in relation to building work.

A ‘developer’ includes:

  • a person who contracts or arranges for, facilitates or causes (whether directly or indirectly) building work to be carried out;
  • the owner of the land at the time the building work is carried out (in relation to the erection or construction of a building (or part of it));
  • the Principal Contractor for building work;
  • the developer of the strata scheme; and
  • anyone prescribed by the Regulations (which are yet to be passed).

This means that, hypothetically, in relation to the construction of a new block of strata apartments the ‘developers’ could include:

  • the owner of the land;
  • the developer (for example, someone facilitating the work for the owner);
  • the head contractor (who will likely be the Principal Contractor); and
  • the owner of the strata scheme.

This is important, as a building work rectification work order (see below) does not need to be issued to all developers. Further, any of the developers can comply with the order, which will not affect the liability of the other developers to pay for or contribute towards the costs of such compliance. 

In practice, this means an owner who has received a building work rectification work order could engage a different builder to carry out the work that is the subject of the order, then sue the original Principal Contractor for the costs of doing so. Obviously, this will depend on which party was ultimately responsible for the serious defect or non-compliance with the Act.

Private Certifiers

There are also obligations on principal certifiers (or private certifiers) under the Act, including that a principal certifier must not issue an occupation certificate in contravention of a prohibition order under the Act. This supplements the new legislation that came into effect on 1 July 2020 governing private certifiers.

Penalties

Contraventions of the Act can result in significant penalties. There is also the potential for directors of companies (or persons concerned in the management of a company) to be personally liable, if the company contravened the legislation and the director or person knowingly authorised or permitted the contravention. The director or person may have proceedings commenced against it, and may be convicted of an offence, even where proceedings have not been commenced against the company or the company has not been convicted.

Key Takeaways

Applying for an occupation certificate will become a two-step process from 1 September 2020: 

  1. notifying the Secretary, within the required timeframe; and 
  2. making the application.

There is a further obligation to notify the Secretary of certain delays to the building works.

The Secretary has wide ranging powers to investigate and enforce non-compliances with the Act and the rectification of serious defects.

If you are engaging a Principal Contractor to carry out building work in relation to residential apartments, you will want to ensure your contract requires the Principal Contractor to comply with the obligations of a developer under the Act, especially given a “developer” can include the principal under a construction contract. You may also want to require the contractor to provide an indemnity, in the event that the Principal Contractor fails to comply with these obligations.

Watch this space! Once the Regulations are made public there will likely be further clarifications to the Act. If you need legal assistance related to building and construction work, our experienced lawyers can assist. Call 1300 544 755 or complete the form on this page.

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