Opal Tower e-book

Enhancing Community Living Lessons learnt from the Opal Tower saga Inside Your rights as a property owner Who is responsible when it comes to building defects Avoid unexpected costs from building defects

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Introduction The recent incident at Sydney’s Opal Tower and Melbourne’s Spencer Street cladding fire have raised increased focus and debate around building safety and compliance for strata living. According to the Australian Bureau of Statistics, the past 30 years have witnessed a significant increase in the construction of high rises. The numbers have almost tripled in less than a decade and will only get higher in the future.

As more and more people are choosing strata living, it becomes crucial to shape community living the right way – from good building design through to construction and management of our everyday living involving many stakeholders.

This means gaining knowledge of how a strata property works, what your rights and responsibilities are, how you can protect your property and who can help navigate the world of strata living.

That’s why we not only focus on delivering superior strata management services in every way we can, but are also keen on prioritising safety and compliance and enhancing community living.

Lessons from Sydney’s residential building, Opal Tower Opal Tower sparks inquiry: Is NSW’s 2% building defects bond scheme enough?

In January 2018, the New South Wales government amended the Strata Schemes Management Act 2015 (Act) which contains new laws related to building defects. The new laws introduced the building defects bond and inspection scheme to protect the interests of property owners in case the building developed defects after construction.

However, following the scale of damage from building defects such as the Opal Tower case, the question of the hour is if the scheme is all its cut out to be.

2% building defects bond and inspection scheme – what is it?

According to this scheme, property developers must set aside 2% of the contract price as bond before an occupation certificate is issued for the building work. This applies to all multi-storied buildings that are purely residential or mixeduse residential buildings under strata management.

The owners corporation can use the building bonds to cover costs for rectifying defects identified in the interim and final reports provided by the developer. If the building has no defects, the bond can be returned to the developer once the building work has been completed.

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Who takes care of what in the building defects bond scheme?

Property developer

Inspector

Owners Corporation (OC)

Allocates the money for a bond before the project begins

Provides an interim defects report to the owners corporation within a year and a final defects report within 2 years of completing building work

If the reports from these inspections reveal any defects, the OC can cover the costs of correcting these defects from the bond

Appoints an independent inspector from the strata inspector panel to oversee the inspection and submit reports afterwards Bears the costs of the interim and final reports from the inspections and ensures their timeliness

Ensures there is no conflict of interest with the developer’s project

If no defects are found within these reports, the OC must ensure the bond is returned to the developer

Is the building defects bond and inspection scheme enough?

It is a start, and a well-intended pre-emptive step from the New South Wales government. However, the million-dollar question is whether the 2% defects bond is enough to combat the effects of structural defects and security lapses in buildings or to cover the actual costs from damage to property and life. Here are a few considerations: This bond may not be enough to cover costs of correcting core defects of a building that are not evident in the initial report but get magnified over time through wear and tear. Most of these buildings are built in haste for commercial purposes and compliance may often be sidelined in the interest of profit.

The building defects bond scheme does not cover defects in commercial buildings, which appears to be a serious limitation of the scheme. This may be an important factor in the case of mixed-use properties.

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The bond scheme is associated with the regulations that covers the appointment of inspectors by developers. This is problematic – often the inspectors are not independent professionals who can provide unbiased reports. The certifiers involved in the building design and plan certification process are also privatised surveyors at best. This highlights a conflict of interest on the part of individuals involved in the building project.

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With residential and mixed-use high-rise buildings, the scale of damage to life and property is compounded. Sometimes one kind of damage to the building’s exterior may affect the inside of the building or private property of owners, compounding expenses from repairs.

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Inconvenience and stress to general life, caused as a result of building defect related emergencies can be another factor worth noting. Residents are evacuated en masse, and without enough notice to take stock of the situation or plan their way around it.

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What property owners in Queensland and Victoria should know Compliance and safety is a huge issue within the building and construction industry, with country-wide implications. So, there is much debate across Australian states regarding the gaps in regulation and how they should be addressed.

To prevent building defect-related mishaps in the future, the New South Wales government aims to come down hard on corrupt certifiers and audit at least 30 per cent of the buildings for non-compliance every year. The state has also authorised various agencies carry out investigations to get to the root of the problem, find the factors that could have caused the damage and identify non-compliant parties.

In the meantime, other Australian states are also closely monitoring the situation and gearing up to tighten their regulations. Here’s what property owners in Queensland and Victoria should know:

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The state of things in Queensland:

lapses in building and construction compliance are dealt with as early as possible so that Queenslanders safety is not compromised. In addition, the Government has enabled a Board of Engineers and Architects to conduct investigations into the professional conduct of those occupations and submit regular reports.

In the Sunshine state, the government has been taking certain proactive steps to ensure compliance within the building and construction industry.

The government conducted a comprehensive examination of the building and construction regulatory system in 2016 and introduced the Queensland Building Plan (QBP) the following year.

With respect to cladding regulations, there have been sturdier strides in the state.

In October 2018, the Building Regulation 2006 was amended to ensure cladding replacement was prioritised in buildings across the state. The new laws state that building owners must register their buildings and comply with the combustible cladding checklist.

They must have the necessary certification to prove their buildings are fire-safe with regard to cladding.

The idea was to tighten existing regulations around compliance and introduce necessary reforms.

Moreover, the regulations empower the Queensland Building and Construction Commission (QBCC) to investigate and take disciplinary action against noncompliant building licensees.

This year, the Queensland government is all set to make reforms around the independence of certifiers so that they are not unduly influenced by builders and developers. The QBP will strive to improve professional standards and ensure compliance of certifiers.

The QBCC can conduct regular audits to ensure any

The state of things in Victoria:

collaborating with the Strata Community Association (SCA) to encourage building owners to contribute to the cost of removing unsafe cladding.

In 2015, the multi-storied Lacrosse building in Melbourne caught fire due to inflammable cladding.

Following this incident, the Victorian government overhauled its regulations around cladding and banned the use of Aluminium Composite Panels (ACPs) as cladding.

Victoria state laws require compliance from builders and developers whenever there are new plans for construction or renovation. Sadly, most of these mandates fall through the cracks. Compliance failures and ineffective regulations are highlighted in accidents from building defects, when it is usually too late.

The 2017 report by Victorian Cladding Taskforce highlighted that more than 1400 Victorian buildings could have potentially unsafe cladding. Additionally, an audit by the Department of Health and Human Services revealed more than 1000 publicly-owned buildings and at least eight hospitals that need their cladding to be replaced due to non-compliance. Since then, incidents continue to occur, including the recent Spencer street tower fire in Melbourne.

New South Wales laws have certain pre-emptive provisions such as the 2% building defects bond scheme to keep non-compliance in check from developers and builders to a certain extent. However, Victoria does not have any such precautionary measures in place. So, developers have no such obligation to secure the building defect related costs prior to construction.

The reports highlighted that accidents from building defects are usually a result of using sub-standard building materials and a lack of tighter regulations around compliance.

By state law, builders are required to provide Domestic Building Insurance to property owners. However, this warranty may not be enough. Builders only need to provide this insurance when the cost of building work under the contract is more than $16,000 which includes all labour and material costs. So, property owners have limited claim to having warranty or compensation for building defect right from the beginning.

To ease the way financially for property owners who might have to tear down their buildings altogether to instate cladding replacement, the Victoria government is offering tripartite loans. Engineers Australia is also

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Who does what when it comes to strata property building defects Since strata properties have multiple owners, they are most likely to be hard hit when there are losses from building defects. Learn how the different stakeholders can work together to prevent and solve problems arising from building defects.

In 2015, Engineers Australia’s findings highlighted that 85 per cent of strata units were defective on completion and insurance reports added that this raises repair costs by an additional 27 per cent.

Many experts claim that such building defects and their resulting losses are inevitable, considering many of the multistoried strata buildings have sprung up very quickly over the last few years. The fact that they’re built so quickly raises questions around their soundness and safety to hold up in the face of accidents. However, the responsibility and accountability lie with multiple stakeholders.

The onus on developers and certifiers: The present legal system provides developers with a wide berth regarding control over the inspection and certification process – but that is under scrutiny currently. As per the current legislation:

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Developers are mandated to set aside 2% of the projects costs as bond to cover any possible defects found in the building after it is completed

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As per the statutory warranty cover provided by the New South Wales government, developers and builders must respond to claims promptly and address any complaints from property owners.

They can appoint building inspectors and surveyors to inspect and provide reports. They must ensure the inspectors and certifiers have no conflict of interest in the building project.

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If found responsible for accidents from building defects, developers should take care of any costs for residents’ immediate displacement to ensure their safety and provide compensation for repairs as quickly as possible.

They should be aligned with the Australian safety standards and be accountable for any planning, design and compliance lapses. No matter how quickly they plan to complete their building projects, the safety of these buildings and their ability to meet Australian safety standards should never be compromised.

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The onus on property owners: As the property owner, your property is your asset and responsibility:

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Always be aware of the regulatory environment of your state, as well as your obligations regarding compliance and safety

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Make sure to keep your property and renovation records as well as insurance documents safe and handy in case of emergencies from building defects

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Keep track of important dates regarding compliance requirements such as registrations, report submissions, payments, and stay updated regarding state legislation changes

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Reach out to developers in time to highlight building defects within the statutory warranty cover period

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If the developer fails to respond to claims and complaints, owners can take the help of New South Wales Fair Trading to resolve disputes

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Conduct regular maintenance checks for buildings defects with your owners corporation and make timely repairs wherever necessary

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How to prevent unexpected costs from building defects The legislation and building compliance requirements can be somewhat complex to understand and manage, especially when there are so many stakeholders involved along the construction and property services chain. Here’s how strata property owners can prevent unexpected costs from building defects.

Building non-compliance or defect-related accidents tend to become a nightmare for property owners, the strata committee, residents, strata managers, developers and the government. While there is public dissent and safety at stake, there are also huge costs from property damage, building renovations and maintenance delays.

Strata managed properties have common areas and shared amenities. So, accidents from building defects tend to impact the community as a whole. It’s therefore important to know what could get heavy on your pocket in a time of crisis.

Let’s discuss how you can prevent unexpected costs from building defects in your strata property.

1. Inspect for defects:

2. Stay compliant and legally clear:

According to the Australian Bureau of Statistics, the number of apartment building high rises in the country has almost tripled in less than a decade.

This boom in such a short span of time has increased the risks and have put the integrity of these building under question.

Non-compliance can happen at any stage right from development and planning to building, pre- and post-building inspection, to certification and subsequent maintenance, if:

A recent report by Shergold and Weir called Building Confidence claims that many high-rises have been noncompliant at some point. There are a range of issues related to cladding, water clogging, mould, fire safety, unsound roofs, improper drainage, unregulated swimming pools and so on.

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Some of the more superficial issues such as painting, flooring and tiling may be possible to manage without huge costs being incurred. In some cases, parts of the property such as swimming pools that need to be redesigned as per state regulations may not affect the structure and stability of the building per se.

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There are gaps and inadequacies in existing laws of the land The regulations around design and development certifications are not followed Inferior building material are used without safetystandard checks and warranty There is a dearth of competent manpower and decision makers Certifiers, surveyors and inspectors are not accredited or unbiased Reports submitted are inaccurate, incomplete or inconsistent Complaints are mishandled, and claims are not met

These are only some of the common cases leading to non-compliance. Sometimes, a combination of these factors may lead to non-compliance of your strata property. It’s best to check that no compliance gap goes unnoticed and is dealt with immediately.

However, certain problems such as cladding, drainage systems and other inherent design and construction flaws may call for a complete overhaul at times. Such corrections could cause you worry and cost you a great deal.

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3. Know your legislative rights:

4. Protect your property with insurance

In addition to ensuring compliance, you must be aware of your state laws – what provisions are in place in case of building defect related accidents and who is responsible for what. The government has some precautionary and provisions for building owners:

All said and done, you must have adequate insurance cover to protect your property from accidents.

1. 2% bond and inspection scheme: In January 2018, the New South Wales government amended the Strata Schemes Management Act 2015 (Act) to introduce this scheme. Your developer must allocate 2% of the contract price as bond before an occupation certificate is issued for the building work. If the reports from inspection reveal defects, the owners corporation can use the bond money to correct these defects. If no defects are found upon inspection within first two years of occupancy, the developer can reclaim this bond money. We recently wrote this article to discuss the scope and efficiency of 2% bond scheme – have a read and share any questions you may have.

Other defects can happen over time from wear and tear or harmful weather events, so ensure you take the advice from insurance experts so your property is adequately covered in case of unforeseen events.

Know what kind of insurance cover your owners corporation has taken to cover what kinds of building defects and repairs. You may want to also contact your builder for insurance regarding any building defects that are inherent to the structure of the building.

2. Statutory warranty period cover: In case your building has defects that lead to damage of property and life, you can claim for compensation. This warranty cover states that if you have entered a contract before February 2012, you can claim compensation from your builder and developer for any structural defects found within 6 years. If you entered the contract after February 2012, you have 7 years within which you can claim compensation.

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5 common building defects to look out for in your strata property Defects may be inherent to the structure of the building or caused due to wear and tear over time. Here are some common building defects to look out for in strata property.

Living in a strata property has its perks – you have dedicated and qualified professionals to take care of maintenance and repairs of common property. If your building has defects from the outset, it can weigh heavily on your pockets and peace of mind.

Let’s discuss some of the typical residential building defects you should look out for in your strata property, so you can take the necessary steps to protect it.

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1. Design flaws Building structure and design is the first and most obvious aspect of a building. Some building issues such as cracks in the walls, chipped paint, roofing and tiling fixtures, etc. may be easily fixed.

Flaws in the foundational structures such as floors, walls, roof, pillars, elevators, etc., can however affect the very stability of the building. Accidents can also happen if your building has inferior building materials or is not compliant with regulatory standards. Such problems may be deeper and harder to fix without tearing down the building entirely.

In January 2018, the New South Wales government introduced the Strata Building Bond and Inspections Scheme as part of the Strata Schemes Management Act 2015. The law states that property developers must allocate two per cent of the building contract price to cover any defects found in the building after completion. The owners corporation can use these funds to correct any building defects as early as possible.

2. Plumbing and drainage In multi-storied buildings, often the plumbing and drainage system is shared by multiple units and under common property. An issue in one part of the building can invariably affect other areas.

If you find plumbing leaks, overflowing gutters and related drainage problems in your strata building, make sure to get it professionally checked to see what the problem is, where it is located and how it impacts you and your neighbours.

Common and shared fixtures are under strata purview, so these items are maintained and paid for by your strata management. However, if the problem lies inside your privately-owned property (lot) such as a leaking shower or faulty faucet, it is likely you will need to fix them on your own dime.

In October 2018, New South Wales made changes to drainage and plumbing laws. Make sure your strata managed property is compliant with these updates.

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3. Roof damage Another common building defect is when issues arise with roofing. Roofs are prone to all kinds of damage over time. They can be affected by bad weather, falling trees, or faulty design and negligence.

Often, damaged roofs can lead to other larger problems within the building. If your building is new, but your roof is causing you trouble, chances are it has design and structural problems. Either way, it is important to stay on top of the problem by carrying out regular inspections and timely repairs.

Like plumbing and drainage systems, your strata management will cover damaged roofing that is shared by multiple units or are common property.

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4. Insulation and cladding Recently, there have been legislative updates in the states of New South Wales, Victoria and Queensland regarding the ban on the use of Aluminium Composite Panels (ACP) and other metal panels as cladding for insulation because they could cause fires in buildings.

New South Wales requires all buildings occupied before 22 October 2018 to be registered online by 22 February 2019 and all new buildings to be registered within four months of occupation. Queensland calls for strata committees to register building details on behalf of building owners and provide a completed cladding checklist by 29 March 2019.

In Victoria, the government is reinforcing the seriousness of this issue across the state while also offering a tripartite loan to help building owners who need to demolish their buildings for cladding compliance.

5. Electrical wiring and fire safety Faulty wiring poses a grave risk for building safety. They can cause freak fires from short circuits. If you see any exposed wires, malfunctioning plug points or power trips in your building, have them immediately inspected and replaced.

Make sure your building has functional, visible and adequate number of fire extinguishers, fire alarms and signage. While buying electrical appliances for your home, ensure they meet Australian standards or are star-rated for safety and energy saving.

Dealing with common building defects as they occur is the best way to avoid serious accidents, emergency evacuations and in the worst-case scenario loss of life and property.

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Protect your property and your pocket Why you should get your apartment building insured Like maintenance, in a strata property there are some things which are required to be insured by the owners corporation, while others are your own responsibility. Here’s a list of what your committee or body corporate is responsible for insuring: •

Common property and assets, such as plant and equipment, fences, etc. for their full replacement value

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The costs related to replacing insured buildings, taking away debris or the hiring of an architect

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Public risk insurance for at least $20 million for a single event

Please note: if your strata property is underinsured, you may be liable for the shortfall.

You may consider additional insurance coverage that’s not compulsory, such as: •

Office bearers’ liability for committee members.

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Fidelity guarantee against misuse of funds.

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Machinery breakdown insurance

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Voluntary workers insurance to cover those doing work on behalf of the strata committee or body corporate without pay

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Building catastrophe for events like cyclones, bushfires, etc.

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Your responsibilities As a property owner living in a strata property, before making improvements to your own lot or proposing changes to common property, you should check your by-laws to ensure any works done won’t affect your insurance premium.

This is because the insurance premium is likely to increase either because your lot is now higher-value than other lots or because you’ve improved the common property for your own benefit.

If you don’t let your strata committee or body corporate know, the complex may be underinsured. If this happens and you need to make a claim, you’ll be liable for the shortfall, so it makes sense to inform them and ensure your insurance policy is up to date.

Please note: You may be responsible for any increase in the premium that has resulted because of the improvements to your lot. You’re also responsible for your own contents insurance to cover items like carpets, curtains, light fittings, general possessions, and air conditioning equipment.

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About us PICA Group is a leading property services company managing the largest strata management portfolio in Australia.

Founded more than 70 years ago, PICA Group is one of Australia’s leading property services companies with more than 200,000 lots under strata management.

landscape, delivering a full range of services for a variety of property types including residential, commercial, resorts, and mixed-use facilities. To best service our local communities, we have a number of subsidiary businesses located across the east coast of Australia.

As a market leader in strata management, PICA Group plays a significant role in the Australian property

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www.picagroup.com.au The information provided is a general guide only, and is not intended as a substitute for legal advice. The company disclaims all responsibility and all liability for any expenses, losses, damages and costs which might be incurred as a result of the information provided by the company. Last updated February 2019.