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The dreaded D for DEFECT

Buildings defects can cause much angst from owners. And as defects be significantly expensive to rectify, it is little wonder why building defects lead to disputes with builders.

For owners, there is a common misconception that all new buildings have a warranty. This is not true, although there may be specific warranties given by particular contractors.

The main protections of residential buildings are set out in the Domestic Building Contracts Act 1995. These apply to the owners in respect of their lot and to the Owners Corporation for common property.

What are building defects?

Building works are defective if they do not comply with:

If building works are defective, it may be possible to make a claim against the builder for rectification or for the cost of remedying the defective works.

For domestic buildings, there are statutory warranties set out in the DBCA which require building works to be carried out:

A home is any building intended for residential purposes and this includes apartments.

If a builder is in breach of a section 8 warranty:

If a claim is made against a builder for defective works, the action must be commenced within 10 years of the issue of the certificate of occupancy or final completion.

If an Owners Corporation wishes to pursue a builder for defective works and legal action is necessary, commencing the proceeding requires the passing of a special resolution as set out in section 18 of the Act.

In respect of an owner’s lot, it is a choice of an owner to pursue the builder. For the Owners Corporation to pursue defects in owners lots it is providing a service to members and requires approval by special resolution.

A lot owner is always able to make their own claim against a builder for defects to the lot and is not obliged to join in with the Owners Corporation in a common proceeding.

If action is taken against the builder but the full cost of rectification is not recovered, the Owners Corporation will be required to fund the shortfall applicable to common property.  Owners will be required to fund any shortfall in respect of a lot.

What you should know first

To identify the cause of defects, and to provide appropriate evidence should it be necessary to pursue a builder, it is necessary to obtain a VCAT compliant report which can involve considerable expense in preparation.

Litigation will involve further expense and may take some time to be finalised.

What about insurance?

Defective building works are not usually covered by the building insurance. If a claim is made on the insurance held by the Owners Corporation, and is attributable to defective building works, the claim will generally be rejected by the insurer. This includes both the cost of rectification and the damage arising from the defect.

For example, if there is a water leak into a building caused by defective building works, remedying the cause of the leak and consequent damage are excluded from the building cover held by the Owners Corporation.

In determining whether to pursue a builder, an Owners Corporation is strongly recommended to seek advice from a legal practitioner experienced in the area to determine the appropriate manner of proceeding.

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