The NSW Government has passed new laws to address issues of non-compliance and serious defects identified in residential apartment buildings in a bid to boost community confidence in the construction industry.
The Residential Apartment Buildings (Compliance and Enforcement Powers) Act 2020 (NSW) (RAB Act) provides the Department of Customer Service with powers to direct rectification of apartment buildings in order to prevent or remove serious defects.
The RAB Act commences on 1 September 2020. The Act’s main features include:
- the ability for the Secretary of the Department of Customer Service to issue stop work orders in respect of residential apartment buildings;
- a process where the Secretary can issue building work rectification orders to developers if the Secretary has a reasonable belief that building work was or is being constructed in a manner that could result in a “serious defect”;
- a requirement for a developer to notify the Secretary in a prescribed form that it will be applying for an occupation certificate for a development at least 6 months, but not more than 12 months, prior to applying for that occupation certificate. There is also a requirement that the notice be updated within seven days of a developer becoming aware of a change in the anticipated application time for an occupation certificate of sixty days or more; and
- the grant of extensive investigation and enforcement powers for the Secretary’s authorised officers, including an authority to enter occupied premises and to undertake testing (including potentially destructive testing) of the building work.
The RAB Act applies to completed, current and future apartment projects (although there is a transitional period of six months for current projects during which modified notice periods apply). Importantly, the investigation and building work rectification order powers conferred on the Secretary may be exercised up to 10 years after an occupation certificate is or was issued. At this time a developer may no longer have any contractual rights against the builder of the apartments.
Timing Requirements and Key Obligations under the RAB Act
The required advance notice of an application for an occupation certificate provides the Department with time to investigate and inspect the building prior to an occupation certificate being issued. Under the RAB Act, an authorised person may:
- direct a person to provide information and/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 premises used only for residential purposes will require a search warrant); and
- direct a developer to carry out building work at a specified time or in a specified manner.
In order to ensure any serious defects are rectified before residents take possession of their apartment, the Secretary can issue a prohibition order to delay the issue of an occupation certificate. However, the Secretary can also issue such an order if it hasn’t received the required advance notice of an application for an occupation certificate or if the Secretary has not received a building bond under the Strata Schemes Management Act 2015 (NSW).
The Department may also 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.
What is a “serious defect”?
A “serious defect” includes:
- a defect in a building element attributable to a failure to comply with performance requirements under the Building Code of Australia, relevant Australian Standards or the relevant approved plans;
- the use of a building product prohibited under the Building Products (Safety) Act 2017 (NSW); and
- any defect likely to prevent habitation or use of the building for its intended purpose.
What does this mean for the construction industry?
For developers (and financiers) of residential apartment buildings obtaining occupation certificates is critical to achieving settlements of apartment contracts for sale. The RAB Act creates additional risks for a developer in the process of obtaining occupation certificates.
Developers must ensure that they give the required advance notice of application for an occupation certificate (and any necessary updates) for each occupation certificate they will be seeking in respect of an apartment development. As the apartment builder will best know the likely project completion dates and will often be the person responsible for obtaining the occupation certificates under an apartment building contract, developers should ensure that their apartment building contracts require the builder to give timely notices (and updates) to the developer of when applications for occupation certificates will be made. Developers will also need to have processes in place to pass on the details of those notices in the prescribed form to the Secretary. The builder notices will need to allow the developer sufficient headroom to enable the developer notices to be made in time.
There is also a real risk that the need for the Department to review the construction of at least a reasonable number of apartment building developments throughout the State will result in inspection related delays which will be exacerbated if any concerning circumstances are found or require further investigation. It is important that apartment building contracts also address this risk and make it clear that builders must comply with the inspection process and any directions and rectification orders made.
If you have any questions about how the Residential Apartment Buildings (Compliance and Enforcement Powers) Act 2020 (NSW) may affect your project or business, please contact a member of our national Construction and Infrastructure team.
Simon Ralton | Partner | +61 2 8248 3426 | email@example.com
Adam Wallwork | Partner | +61 2 8248 5825 | firstname.lastname@example.org
Luke Aiken | Partner | +61 2 9020 5706 | email@example.com