Getting a building defect report – is it worth the bother?

This is a question we are often asked.

It is undoubtedly prudent to obtain a building defect report in order to understand the scope and cause of any defects (some which might not be apparent to the untrained eye).

However, any greater benefit in doing so can depend on the age of the scheme.

The benefit of a building defect report to a scheme less than six years old versus a scheme older than six years old

Assuming the defects exist in the scheme as a consequence of the initial construction of the scheme, the most significant benefit to any scheme less than six years old is the ability to identify defects and to allow the body corporate the opportunity to press the builder to address those defects.  This can take place in either of two ways (assuming the builder does not simply agree to rectify the defects voluntarily):

  1. By the body corporate bringing a claim against the builder of the scheme as a breach of contract. As most people will now be aware, as a consequence of the High Court case in Brookfield Multiplex Ltd v. Owners Corporation Strata Plan 61288 & Anor (“the Brookfield Case”), bodies corporate are unlikely to have any real rights to sue the builder of the scheme in negligence and therefore to bring any claim any time after 6 years after the scheme was constructed.   However, a body corporate can bring an action against the builder based on breach of contract within a period of six years after the works under the building contract are complete (and this date can be difficult to pinpoint sometimes, so we recommend Committees act quickly); alternately,
  2. By the body corporate reporting the defects to the Queensland Building and Construction Commission (“QBCC”) within the statutory notification period, so as to allow QBCC to issue a direction to rectify against the builder (and in terms of the timeframes that apply to lodgement of complaint with QBCC in respect of structural defects and non-structural defects, see our earlier Activated as follows Activated – 14 March 2017).

So for those reasons, it is critical that any scheme that is less than six years old urgently obtains a proper building defect report. If the scheme is under 12 months old, it is essential the report also captures non-structural defects as well (again see the above earlier Activated).

If the defects exist as a consequence of subsequent construction works to the scheme, then the six year period in which the body corporate could either bring a claim against the contractor who carries out those works and/or report the defects to the QBCC, would run from the date of completion of those works under that contract.

General benefits to all buildings

All buildings (including therefore any building both older than and younger than six years) can also benefit from obtaining a building defect report for the following reasons:

  1. If any defects are identified, the body corporate has an opportunity to address them. This is important for two reasons:
  • It removes the risk of any personal injury to any person in the scheme as a consequence of such defect (particularly where the defect presents as a safety risk), which injury the body corporate will likely be liable for; and
  • It removes the risk of consequential damage to common property and/or a lot, which consequential damage the body corporate will be liable for.
  1. It gives the body corporate an opportunity to preserve any indemnity it has under its building insurance policy.

As above, the body corporate is liable for consequential damage to common property and/or a lot as a consequence of any defect in the common property (and/or any part of any lot for which the body corporate is responsible).

However, many of the strata insurance policies contain an exclusion in the building insurance component which exclude cover for any loss/damage arising from any existing defect in construction and/or design.

Accordingly, the body corporate might have only limited cover (or no cover at all) under such building insurance component of the policy, where such defects exist.

Care should also be taken to ensure there is no similar exclusion within the public liability component of the insurance policy, as that would excuse the Insurer from providing cover in the event some personal injury occurred as a consequence of the defect.

A further and perhapsless intended benefit might arise where the building inspector fails to identify the defect.  In that situation it might give rise to a cause of action against the inspector (and therefore the benefit of any professional indemnity insurance policy held by the inspector), however the body corporate’s rights against the inspector can largely depend on the terms of retainer of any such inspector.  We recommend the body corporate obtain legal advice in respect of those terms of retainer, prior to signing them.

Of course, there is also the issue of the Committee’s Protection 

One significant factor in the Committee’s decision whether to obtain a building defect report in respect of the scheme is the Committee’s own protection.

Whilst Committee members enjoy immunity from personal liability (under section 101A of the Body Corporate and Community Management Act) for decisions made by the Committee, in order to obtain that immunity the Committee members need to have acted in good faith and without negligence.

Given the amount of discussion in the industry about building defects and particularly the effect of the Brookfield Case, it is at the least arguable that any Committee failing to obtain a building defect report (particularly where there is at least some evidence that some building defects exist) might amount to negligence and therefore remove the Committee member’s ability to rely on section 101A (such that the Committee member would become personally liable).

Let’s be clear, we are by no means saying it is negligent of the Committee, we are merely raising the point that some disgruntled lot owner faced with a significant special levy (as a consequence of rectification works a body corporate must carry out due to an existing building defect which was not picked up within the first six years of the life of the scheme, but could have been) might look to argue the point in the hope of having the Committee members pay that lot owners special levy (or even have the office bearer’s component of the strata insurance policy pay).

That then begs the question of whether the office bearer’s component of the strata insurance policy, would cover such a claim.  That will of course depend on the terms of the specific policy the body corporate holds. However, as with any insurance policy there is always a concern as to whether the insurance covers the claim, up until such time as indemnity for the claim is confirmed (although even then, the insurer still reserves the right to withdraw indemnity after that in some circumstances).

For all these reasons, Committees should ensure they obtain building defect reports in respect of any common property in the scheme and/or parts of any lot to which the body corporate is responsible, and as soon as possible so that any identified defects can be addressed.

Please let us know if we can assist any of your bodies corporate with any of the matters raised in this article?

Disclaimer:

The information contained in this article is of a general commentary nature only. The information contained within this article might not be accurate at the date it is published/received and/or might not continue to be accurate in the future. You should seek proper legal advice in respect of your individual circumstances. Active Law will not be responsible for any loss or damage caused by reliance on any information contained within this article.