New Duty of Care for Owners of New Apartments

New legislation addressing defects and a lack of accountability in residential buildings

The Design and Building Practitioners Act 2020 (NSW) (D&BP Act) is a game-changer for owners corporations. The Act, which is already partially in force, and due to come into full effect on 1 July 2021, is part of the NSW Government’s response to some of the issues related to poor design and construction of residential buildings.

Building defects in residential buildings have been well-publicized in recent years. A report written by Deakin University’s Nicole Johnston and Griffith University’s Sacha Reid* found 97 per cent of buildings in New South Wales had at least one type of defect.

Based on an analysis of 212 building audit reports, the authors of the study found that water penetration and fire-protection defects were the most common.

The Sheargold Weir Report, titled Building Confidence, investigated the shortcomings in the implementation of the National Construction Code (NCC) and the compliance and enforcement systems for building and construction standards. The Government has addressed many of their recommendations in the D&BP Act.

A new retrospective statutory duty of care

Once the Act is in full effect, there will be a new statutory duty owed by design and building practitioners and professional engineers to exercise reasonable care to avoid economic loss caused by defects – shifting the burden from the owners corporation, who are generally the entities responsible for rectifying the defects, back to the building professionals.

Economic loss includes not only the cost of rectifying defects, including damage caused by defects, but also the reasonable costs of providing alternative accommodation where necessary and is owed to each owner of the land, including owners corporations as well as to each subsequent owner of the land. This is a departure from the standard legal position that a builder does not necessarily owe a subsequent owner a duty of care to avoid economic loss.

The duty is imposed on building practitioners retrospectively (for loss that became apparent within the 10 years immediately prior to 11 June 2020), meaning designers and builders on completed projects will now also be subject to this duty of care.

This new duty of care will exist in conjunction with the statutory warranties in the Home Building Act 1989, however, this legislation will make claims able to be brought after the statutory warranty limitation periods under the Home Building Act have expired.

Regulated designs

The Act also introduces regulated designs for fire, waterproofing, structural elements and services and designs prepared for a performance solution under the Building Code of Australia (BCA). Designers will need to provide a declaration that the design complies with the BCA and be adequately insured.

A ‘Regulated Design‘ can only be prepared by a registered design practitioner or a registered principal design practitioner. “Regulated Designs” which are designs that are considered and critical such as waterproofing, fire safety systems, an internal or external load‑bearing component of a building.

Registration of practitioners and compliance declarations

The Act requires that all parties involved in the design and building process be sufficiently qualified under the competency they are responsible for, accountable and adequately insured. The registration systems are set out in The Design and Building Practitioners Regulations 2020 (NSW) which were released in April 2020.

Professional Engineer Registration System

A registration regime for Professional Engineers provides that engineers are to have the right qualifications and level of competency to ensure the work carried out under a particular class of registration is within the practitioner’s competence.

Design and Building Practitioners Compliance Declaration System

A registration regime for Design and Building Practitioners will require design practitioners such as architects, electrical engineers, fire safety, drainage, geotechnical, structural engineers and so forth, to be registered and declare that designs and building work is compliant with the Building Code of Australia and other relevant standards before building work can start. Declared designs will need to be lodged on the NSW Planning Portal. Builders must declare the building work will be constructed in accordance with complaint designs and the BCA prior to an occupation certificate being issued.

When applying for an occupation certificate, the new regulatory system requires written notice of the intention to apply to be provided to each registered building practitioner who did work on a building as well as written notice that the relevant application has been made. These notices must be given with timeframes to be specified under the forthcoming regulation. A maximum penalty of $22,000 applies if a party fails to comply with this notice requirement.

Enforcement

The D&BP Act gives the Secretary of the Department of Customer Service grounds to take disciplinary action against a registered practitioner, including imposing fines or suspending registration.

It also introduces new powers of investigation for authorised officers and enforcement powers which include the ability to issue stop-work orders where works are in breach of the Act (with penalties up to $330,000 for bodies corporate and $110,000 for individuals for non-compliance) and initiating court proceedings.

As the new regulatory system will be retrospect (for loss that became apparent within the 10 years immediately prior to 11 June 2020), owners corporations should consider whether the new statutory duty of care under the DBP Act is available for any defective works claims.

If you have any questions, contact your S+ Strata Manager.