The NSW Government have passed new laws to address waning public confidence in the construction industry due to non-compliance and serious defects identified in a growing number of residential apartment buildings.
From 1 September 2020, the Residential Apartment Buildings (Compliance and Enforcement Powers) Act 2020 (NSW) (RAB Act) gives the Department of Customer Service (Department) powers to proactively investigate and rectify serious defects in residential apartment buildings. Serious defects include:
- defects due to non-compliance with the Building Code of Australia, relevant Australian Standards or the approved plans; and
- defects causing or likely to cause the inability to inhabit or use the building, the destruction of the building or threatens the collapse of the building.
The aim is to limit defective buildings being on-sold to consumers and the issues and costs of rectification to be inherited by purchasers.
Key features of the regime include:
- Notice Requirement: developers must notify the Secretary of the Department (Secretary) 6 – 12 months before applying for an Occupation Certificate for a building (OC). Buildings expected to be completed within the first 6 months of commencement of the RAB Act must be notified within 14 days of commencement.
- Broad Investigative Powers: once notified, the Secretary is empowered to monitor, investigate, inspect and test the building work before an OC is issued.
- Enforcement / Remedial Powers: if the Secretary considers building works were or are being constructed in a way that could result in serious defects, the Secretary can issue developers:
a) Prohibition Orders to block the issue of an OC and even registration of a strata plan of subdivision. The Secretary may also issue prohibition orders if:
i. the developer has not given the requisite notice or amended notice to the Secretary of when it expects to apply for an OC; or
ii. building bond required under s207 of the Strata Schemes Management Act 2015 (NSW) has not been given to the Secretary;
b. Stop Work Orders for up to 12 months; and
c) Building Rectification Orders with room to recover costs associated with such orders.
- Penalties apply: serious penalties apply for failing to comply with various provisions of the RAB Act. For example, a breach of a stop work or building rectification order could result in penalties for corporations up to $330,000 with an additional $33,000 for each day the breach continues. While developers have the right to appeal to the Land and Environment Court within 30 days of an order being made against it, the appeal will not stay the operation of an order unless the court otherwise directs.
- Wider definition of ‘developer’: it includes any person who arranges for, facilitates, or otherwise causes (directly or indirectly) residential building work to be carried out, as well as landowners and principal contractors.
- Past and Present and mixed use too: the regime extends beyond residential buildings to mixed-use developments that include a residential component, and applies to present developments, as well as those completed within the last 10 years.
- Personal liability: if a company contravenes the RAB Act, each director or persons with management control of that company are taken to have contravened the same provision(s) if they knowingly authorised or permitted the contravention. Those individuals may be proceeded against and convicted whether or not the company has been proceeded against or convicted under the RAB Act.
What this means for developers
Obtaining OC and registration of the strata plan are condition precedents for completion of off-the-plan unit sales. The broad regulatory powers granted to the Secretary now means developers will be forced to ensure building work is free of serious defects before applying for an OC. The potential for significant delays to completion should not be underestimated. Developers are encouraged at this time to:
- Review existing / proposed works to determine if an OC for such works will fall within the 6-month transitional period. If so, notice will need to be given to the Secretary within 14 days of commencement of the RAB Act;
- Review existing developments for potential serious defects and take steps to resolve these now to avoid delays arising following investigation by the Secretary;
- Review contracts and dealings with contractors and consultants to ensure compliance with the new regime and to properly allocate risk protection for defect rectification works;
- Review Sunset Dates under existing off-the-plan Contracts to ascertain if extensions are permitted in the circumstances, and if so, consider when and how much more time is required.
The RAB Act is just one part of the reforms to the building industry to be implemented by the NSW Government. Whether you are a homeowner, owners corporation, property developer or building or design practitioner, these reforms will have some effect on your rights and obligations. If you have any questions on how this might affect you, please contact our office today.