In response to growing community concerns about the conduct of residential property developers and controversies around building defects the ACT Government, after some years of consideration and input from the CFMEU, tabled the Property Developers Bill 2023 (ACT) (Bill) on 30 November 2023.
The Bill proposes several radical concepts such as personal liability for directors of corporate developers and rectification orders with retrospective application. While the Bill was introduced to crack down on ‘developers that do the wrong thing’, it has far reaching provisions that will impact all residential developers in the ACT. In fact, the Property Council of Australia has suggested that the Bill ‘will act as a deterrent to the creation of homes and lead to an increase in housing costs’. A significant question is whether the Bill will be picked up elsewhere in the country as Governments look to be seen to crack down on building defects.
There have been no signs of similar legislation being enacted in other jurisdictions. However, we expect State and Territory lawmakers will be keeping a close eye on the Bill to see if its objectives are achieved and public perception around residential property development improves.
Accordingly, this alert will summarise the key aspects of the Bill in anticipation of these never-before-seen concepts being proposed across Australia.
Key Concepts
Broadly, the Bill enshrines:
There are several unique concepts proposed by the Bill that warrant further explanation.
The Need for a Licence
The Bill itself does not impose the requirement for a licence. Rather, the Bill confusingly diffuses the requirements for a licence through related legislation including the Building Act 2004 (ACT) (BA) and the Planning Act 2023 (ACT) (PA).
The Bill merely deals with how to apply for a licence and how the licence is administrated. The key details are:
- licences will have 7-year terms, which will alleviate the need for regular renewals
- the ACT’s Planning Authority cannot accept development applications (DAs) for residential building developments unless the proponent for the development (or a related entity of the proponent) holds a licence that does not restrict them from undertaking the development
- oddly, due to how the Bill defines ‘residential building development’ for the purposes of the PA, licences will be required to be able to lodge DAs seeking subdivision or consolidation of land
- certifiers will not be able to consider residential building approval applications under the BA unless each person arranging for the building work to be carried out (or related entities of these people) hold licences that do not restrict them from doing so
- the Bill makes it an offence to enter into an off-the plan contract for the sale of residential land if the seller (or a related entity of the seller) does not have a licence, or has a licence that restricts them from entering into the off-the-plan contract
Accordingly, promptly obtaining a licence and understanding its place in related legislation is critical to future residential developments.
Applying for a Licence
To obtain a licence, a written application must be submitted to the ACT Property Development Registrar (Registrar) that must include the following:
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DETAILS
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INDIVIDUAL
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Example
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A ‘rating report’ (if requested by the Registrar)
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‘Rating report’ is defined in the Bill as a report prepared by a ‘rating entity’ which assesses the operational and financial capacity of the applicant to carry on a business as a developer. This presumably would include something like an iCert star rating report from Equifax. We anticipate that regulations will eventually enshrine a minimum rating to be satisfied (eg an iCert 2 gold star or 3 silver star rating). |
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Information evidencing the applicant is a ‘suitable person’
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The Bill lists several criteria that the Registrar must consider when deciding if an applicant is a suitable person. The criteria include the applicant’s character, history of compliance, ability to comply with the new law, operational and financial capacity (including past examples of undertaking developments, credit history and financial viability) and any history of insolvency. This information will take some time to prepare and will allow the Registrar to access vast and sensitive details of the applicant. The Registrar may also consider the same matters for an entity associated with the applicant or any key person of the applicant. |
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Concerningly, the decision to refuse someone a licence, refuse a renewal or impose a condition on a licence is not reviewable to the ACT Civil and Administrative Tribunal (ACAT).
Rectification Orders
A new meaning of ‘property developer’
Before examining the rectification order regime, it is important to note that ‘property developer’ is defined to include not only property developers in the traditional sense, but also landowners (which will include ordinary individuals) and builders. While this definition only applies to the rectification order regime, it is so broad that multiple parties can be considered as property developers for each project. This will likely create a confusing jumble of liabilities for all parties involved.
The regime
If the Registrar reasonably believes there is a serious defect in a residential building, or if residential building work was or is being done in a way that could result in a serious defect, the Bill allows the Registrar to issue a written notice to the property developer (Notice). Once a Notice has been issued and any response to the Notice has been considered, the Registrar can then issue a rectification order.
Rectification orders can specify:
- action to be taken to rectify the serious defect or possible serious defect;
- information to be given to the Registrar; and/or
- any other reasonably necessary thing to ensure rectification occurs.
It is an offence not to comply with a rectification order.
Timing and potential for retrospective application
Rectification orders can only be made before the latest of the following:
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EVENT
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TIMEFRAME
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Example
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If the Registrar becomes aware of the serious defect or possible serious defect within 6 months of the end of the 10-year period |
1 year after the Registrar becomes aware of the serious defect or possible serious defect |
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If the Registrar gives a Notice before the end of the 10-year period |
1 year after the Notice is given |
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In any other case |
The day the 10-year period ends |
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It is clear that the rectification orders regime can have retrospective application, meaning it can apply to both old and new buildings, potentially going back 10 years.
Multiple parties
The regime also deals with rectification orders given to multiple parties, which is appropriate given what we have highlighted above about the definition of ‘property developer’. Orders issued to two or more property developers apply to them jointly and severally, with the expectation being that the parties will apportion blame whilst rectifying the defect. However, this will create a plethora of liabilities and claims concerning the parties involved.
Personal Liability for Directors
This area of the Bill is the most controversial.
If the Registrar issues or intends to issue a rectification order to a corporate property developer that is deregistered, subject to a winding-up order or in administration, receivership or liquidation, the Bill allows the Registrar to hold the developer’s directors personally liable for the order.
Given the timeframes we have previously mentioned, this power creates several unfavourable circumstances for companies and their directors:
- a director could be held personally liable for a serious defect in a residential building that was built up to 10 years ago
- a director can be held personally liable whether or not they were a director of the company at the time the building was built, as the Bill specifically captures people who become directors after the residential building work has stopped
- there is an incentive for third parties to bury a corporate property developer in lawsuits in the hope the company will eventually meet the requirements for their directors to be held personally liable
It is considerable that the Bill allows the Registrar to pierce the corporate veil, a remedy typically only reserved for severe circumstances such as the company being used to evade a legal or fiduciary obligation.[1]
The Bill makes developers liable for the actions of others. Even though a defect may have been caused by a builder or its subcontractor, the developer can be held responsible to rectify the defect. Likewise, directors of development companies can be liable for the defects caused by others.
This component of the Bill will lead people to strongly consider becoming or remaining directors of corporate property developers. However, the fact is that many people will already be potentially captured by this component and there is very little that can be done to limit their liability.
Reverse Onus of Proof
The Bill inserts a presumption into the BA that any defect identified by an affected party, within the first two years of the building being completed, is a defect and able to be rectified unless proven otherwise. This places the onus of proof on the builder and/or developer to show that no defect exists. This is a remarkable concept that places the resident in a very powerful position in any claim or threat of claim for defect rectification.
Statutory Duty of Care
The Bill also inserts a statutory duty of care into the BA by allowing affected parties to claim damages from the builder and the property developer for any reasonably foreseeable loss or damage resulting from a defect. This duty only applies to residential building work carried out after the commencement of the new law.
Given that both the builder and the property developer can be added to claims for damages, we anticipate that claimants will add both to their claims to increase the chances of a payout.
It is unclear whether the duty has a time constraint like the defect presumption explained above. A conservative view suggests that the liability is not similarly restricted, and any claims would be subject to the Limitation Act 1985 (ACT).
Next Steps
The Bill is expected to be debated in the first half of 2024. Despite the lobbying efforts of industry bodies, it is unlikely that the Bill will be amended. It is expected the Bill will become law before the ACT election due in October 2024.
A New Wave of Residential Property Development Regulation
The proposed law promises to be one of the most aggressive interventions seen in the residential project space. We suspect lawmakers in other jurisdictions will be watching the debate, implementation, and reception of the Bill with great interest to see if similar schemes can be implemented. After all, community concern about residential property developers and building defects is not unique to the ACT.
Dennis Willcox Pty Ltd v Commissioner of Taxation (Cth) (1988) 79 ALR 267, 272 (Jenkinson J).
