This article was written by Nicole Morris, Isolde Daniell, Chris Seaman and Jock Hamilton.
Further to our previous summary of the Design and Building Practitioners Act 2020 (NSW), we now provide an overview of the NSW government’s second limb of its building regulation reform package, the Residential Apartment Buildings (Compliance and Enforcement Powers) Act 2020 (NSW) (the Act).
The Act provides the Department of Customer Service with powers to manage building developments during the construction phase. The Act will limit defective buildings being on-sold to consumers and therefore limit the problems that would otherwise be inherited by apartment owners. The Act will commence on 1 September 2020.
We have been keeping an eye on the NSW government’s reforms into the building and construction industry. Changes to the regulation of buildings were most notably proposed in the Shergold-Weir ‘Building Confidence’ Report of February 2018, followed by the recent NSW Parliamentary Inquiry chaired by Mr David Shoebridge MLC (summarised here). This new legislation gives effect to some of those proposed reforms.
Completion of residential apartment building work
The Act will require a developer to notify the Department of Customer Service that it will be applying for an occupation certificate for the development at least six months prior to applying for that occupation certificate – essentially giving notice of expected completion.
This notice period provides the Department time to inspect the building prior to an occupation certificate being issued by the relevant council or private certifier. If the Department is satisfied there is a “serious defect”, the Department may issue a “prohibition order”, which will prohibit the relevant council or private certifier from issuing an occupation certificate for the building.
A “serious defect” includes a defect that is attributable to a failure to comply with the Building Code of Australia, the relevant Australian Standard or the approved plans. It also includes a defect that causes or is likely to cause the inability to inhabit or use the building, the destruction of the building or that causes a threat of collapse of the building.
Note that during the transitional cut-off regime for the period 1 September 2020 to 1 March 2021; a developer who expects to apply for an occupation certificate during this period must give notice during the 14 days from 1 September 2020. If the developer fails to give such notice within 14 days from 1 September 2020, the Department may make an order prohibiting the issue of an occupation certificate in relation to the building and (if relevant) the registration of the strata plan.
The Act also confers investigatory powers on the Building Commissioner to monitor and enforce compliance with the Act, the regulations, and the Building Code of Australia. This includes the power to investigate if buildings have serious defects.
In exercising this investigatory function, an authorised person may:
- direct a person to give information or records;
- direct a person suspected of having knowledge of required information to answer questions with respect to those matters;
- enter any premises (with or without a search warrant, however entry to residential premises will require a search warrant); and
- direct a developer to carry out building work at a specified time or in a specified manner.
The Act makes it an offence to obstruct the exercise of the powers above.
Rectification of serious defects
The Department may give a “building work rectification order” to a developer, which will require a developer to eliminate, minimise or remediate a serious defect or a potential serious defect.
Where a developer fails to comply with a building work rectification order, such conduct will constitute an offence, and will entitle the Department to do anything that is necessary or convenient to give effect to the terms of the order. The Department will also be entitled to recover the expenses of doing so, less any proceeds of sale, from the person who was required to comply with the order.
The Act also contemplates:
- Written undertakings by developers - the Department may accept a written undertaking from a developer regarding the carrying out of building work. Contravention of such an undertaking constitutes an offence.
- Stop work orders – the Department may give a stop work order to a developer if the Department is of opinion that the building work is (or is likely to be) carried out in a manner that could result in significant harm to the public, or occupiers of the building, or could cause significant damage to property. A stop work order may be made subject to conditions and may remain in force for up to 12 months. It is an offence to fail to comply with a stop work order.
- Orders from the Land and Environment Court – the Department may also apply to the Land and Environment Court for an order remedying or restraining a breach of the Act or any order under the Act.
- Investigations – the Department may investigate developers and former developers of residential apartment buildings, the carrying out of building work, and any other matters that may constitute a breach of the Act.
What does this mean for you?
Whereas some legislation in NSW upholds consumer rights by providing remedies for defective building work (for example, the statutory warranties under the Home Building Act 1989 (NSW) or the statutory duty of care under the recently enacted Design and Building Practitioners Act 2020), this legislation endeavours to protect consumers by preventing the building from being completed in the first place if ‘serious defects’ exist.
Developers will inevitably be seeking to allocate the risk that the Department could jeopardise completion of a build and industry participants will need to consider how that risk should be allocated in their construction contracts. Accordingly:
- where the builder will be responsible for ensuring that an occupation certificate is issued in respect of the building, it would be prudent for the developer to include such a requirement in the relevant building contract as a condition precedent to practical completion; and / or
- where practical, the parties might also consider including a notification regime in the building contract which aligns with the requirements of the Act. This could include for example, a requirement that the builder provide at least 6 months’ notice of the anticipated date of practical completion; so as to enable the developer to notify the Department of its intention to apply for an occupation certificate.
Regardless of the risk allocation, it will presumably be in all parties’ interests to proactively engage with the Department to mitigate the risk that the project may be extended.
 The Department can also issue a prohibition order if the developer has failed to provide the Department with the relevant “building bond”, as required under the Strata Schemes Management Act 2015 (NSW).