Banking & Finance Alert: Financiers – what do the new design and building practitioner laws mean?

21 July 2020

Publications

It has been widely publicised that serious defects have been discovered in various new high rise residential developments, including the Opal and Mascot Towers developments. The defects identified have been so serious that many residents have been forced to evacuate their homes. The rectification cost associated with these defects is likely to be very substantial and beyond the reach of many owners. Uncertainty exists in relation to any legal remedies available to those owners in connection with any defects.

The NSW Government has responded in various ways including proposing sweeping powers to be granted to the Building Commissioner. On 11 June 2020, the Design and Building Practitioners Act 2020 (the Act) received assent. The Act commenced from the date of assent, except for provisions dealing with the registration and disciplining of design and building practitioners, which will commence from 1 July 2021, and provisions dealing with specialist work which will commence at a date to be determined.

The legislation forms part of the New South Wales Government’s response to the national Building Confidence—Improving the effectiveness of compliance and enforcement systems for the building and construction industry across Australia report, authored by Professor Peter Shergold, AC, and Ms Bronwyn Weir. The Building Confidence report found that the accountabilities of different parties were unclear and there were insufficient controls in relation to the accuracy of documentation. The report found that, particularly for design practitioners, there was a systemic failure to expressly require documentation to demonstrate compliance with the National Construction Code.

Implications for financiers and owners

The Act imposes a series of obligations on design and building practitioners. Failure to comply with any obligations will obviously adversely affect the relevant practitioner. However, practitioners who do not comply with their obligations will potentially prejudice the conduct and completion of a project as the issue of key certificates will depend on compliance with the Act.

While the supporting regulations are yet to be enacted, the Act already provides that a principal certifier who is responsible for issuing an occupation certificate for building work must not determine an application for an occupation certificate unless the principal certifier is satisfied that all compliance declarations required for the building work have been lodged in accordance with the Act.

It is therefore in the financier and owner’s interests to track compliance with the Act. Financiers and owners should:

  • have a clear understanding of who is responsible for delivery of design;
  • consider whether a principal design practitioner will be required in the event design will evolve during the course of construction (for example, pursuant to a design and construct contractual arrangement);
  • ensure compliance declarations are held for design variations;
  • obtain details of design and building practitioner registration – note the register maintained by the Secretary of the Department of Customer Services (the Secretary) is to be freely available on the internet for inspection by the public;
  • in assessing the suitability of practitioners, seek to ascertain whether a practitioner has been:
    • required to give any undertakings to the Secretary;
    • subject to any stop work orders;
    • convicted of any offences under the Act; or
    • received any warning notices from the Secretary;
  • ensure compliance declarations are only obtained from registered practitioners and are obtained at the appropriate time and in any event by the time any certificate is required to be obtained;
  • ensure all supporting documentation is provided when required.

    Financiers should ensure owners (or other persons on behalf of the owners) give notice of the intent to apply for an occupation certificate and otherwise provide financiers with copies of all documentation required in order for a certificate to issue. Owners should ensure they are contractually entitled to obtain the ‘contractor documents’ which a building practitioner is obliged to supply with their building compliance declaration as an occupation certificate cannot be obtained without these documents.

    Objectives of the Act

    The objectives of the Act include:

    • to require compliance declarations for regulated designs to be provided by registered design practitioners and principal design practitioners who provide designs for certain building work;
    • to impose obligations on registered building practitioners who carry out applicable building work to take all reasonable steps to provide building compliance declarations and to obtain compliance declarations for regulated designs;
    • to impose on building practitioners who do applicable building work an obligation not to carry out the work unless regulated designs have been obtained and compliance declarations provided;
    • to impose on building practitioners who do applicable building work an obligation to take all reasonable steps to comply with the applicable requirements of the Building Code of Australia;
    • to establish a duty of care owed by persons who carry out construction work relating to certain buildings to take reasonable care to avoid economic loss caused by defects arising from the work;
    • to establish a registration scheme for design practitioners, principal design practitioners and building practitioners who are subject to compliance declaration requirements and to establish insurance requirements for registered practitioners.

    The Act also enshrines in statute that a duty of care is owed for construction work to certain categories of owner.

    Design practitioners

    A design practitioner is a person who produces regulated designs.

    A regulated design means:

    • a design that is prepared for a building element for building work (ie fire safety, water proofing, load bearing function, part of the building enclosure (eg roof) and mechanical, electrical and plumbing services), or
    • a design that is prepared for a performance solution for building work (including a building element), or
    • any other design of a class prescribed by the regulations that is prepared for building work.

    A design practitioner must prepare a design compliance declaration for any regulated designs, including designs relating to a performance solution or a building element, which states whether the regulated design prepared for the building work complies with the requirements of the Building Code of Australia or any other applicable requirements prescribed by the regulations. Major variations to designs must also be declared as compliant before being provided to the builder.

    Only registered design practitioners will be able to issue a design compliance declaration and prepare or coordinate and supervise the preparation of a regulated design. Any practitioner who fails to make a declaration or who makes a declaration when they are not registered will face a maximum penalty of $165,000 as a body corporate or $55,000 in any other case. Any person who makes a declaration that the person knows to be false or misleading in a material particular could face a hefty penalty of up to $220,000, two years imprisonment, or both.

    The Act contemplates that design may be delivered at different times, for example, by way of the popular method of construction under a design‑and‑construct contract, where many aspects of the design change after initial approval is obtained. This contractual arrangement enables flexibility and supports large‑scale developments. However, under this arrangement many key documents are provided for “just in time” compliance and are prepared by a range of parties at different times in the design and construction process. Recognising these complex contractual arrangements, the Act introduces the forward‑looking and optional concept of a principal design practitioner to support industry with compliance.

    It is intended that where multiple registered design practitioners provide declared regulated designs, these documents may be provided to one single principal design practitioner appointed in relation to the building work. The role of the principal design practitioner is not a mandatory role. A building practitioner may choose to appoint one in relation to building work, for example, to support with administrative efficiency or to keep track of the multiple declarations that are being developed for the project. However, if one is appointed, that principal design practitioner would bear the responsibility for ensuring all necessary design compliance declarations have been issued by suitably registered design practitioners. The principal design practitioner will be obliged to make a declaration known as the principal compliance declaration, which evidences this work.

    Building practitioners

    For the first time in New South Wales registered building practitioners will be required to declare whether building work complies with the requirements of the Building Code of Australia.

    The Act sets out who is taken to be a building practitioner. If one person agrees under a contract or other arrangement to do building work, then that person is taken to be the building practitioner under the legislation. Where more than one person agrees through contract or other arrangement to do building work, the building practitioner is taken to be the person who is the principal contractor for the work. The drafting of the Act intentionally places the obligation on one practitioner so it is clear who is responsible for issuing a compliance declaration.

    Registered building practitioners must obtain, rely upon and build in accordance with declared designs and issue a compliance declaration stating that the final building, including any variation, complies with the Building Code of Australia.

    A registered building practitioner is required to provide a building compliance declaration and other required documentation to a person for whom the building work has been done. The declaration needs to be made and provided before an application is made for an occupation certificate for the building work. The regulations may require the principal contractor to provide a list of all of their subcontractors who performed building work on site. Building practitioners will be notified of a person’s intention to apply for an occupation certificate.

    A building compliance declaration sets out a range of matters that the registered building practitioner must declare before finishing their work, such as whether the building work complies with the requirements of the Building Code of Australia, whether building work was built in accordance with each regulated design prepared by a design practitioner and whether a design compliance declaration was obtained for each regulated design. Building practitioners have an obligation to ensure compliance with declaration obligations.

    A building practitioner must not, except with reasonable excuse, carry out any part of building work for which a regulated design is to be used unless they have a design for the work. The design must, of course, be from a registered design practitioner and be accompanied by a design compliance declaration and the declaration must state that the design complies with the requirements of the Building Code of Australia and other applicable requirements.

    The Act offers a defence to building practitioners where they reasonably rely on and build in accordance with a regulated design and its declaration. This defence will apply if the designs and declarations were provided by a suitably registered and authorised design practitioner stating the design’s compliance with the code.

    The Act provides a broad regulation‑making power to prohibit the issue of certificates under relevant legislation unless compliance declarations and/or regulated designs have been provided to the issuer of the certificate. For example, this could include a construction certificate or complying development certificate under planning legislation or a strata certificate under strata legislation.

    Duty of Care

    The Act establishes a statutory duty of care that eradicates any uncertainty that may exist in the common law that a duty is owed to the end user and in respect to liability for defective building work. Any person who carries out construction work will have an automatic duty to exercise reasonable care to avoid economic loss caused by defects in or related to a building for which the construction work is done or arising out of that work.

    People who carry out construction work owe a duty of care to certain categories of owner. These owners include individual titleholders and subsequent owners of a building, including owners corporations and a community, precinct or neighbourhood scheme association. The duty deliberately does not extend to owners who are developers or large commercial entities, as the Government considered these entities to be sufficiently sophisticated and able to contractually and financially protect their commercial interests. Houses, multi-unit residential buildings and other buildings such as boarding houses, hostels, backpackers’ accommodation, residential parts of hotels, motels or schools all benefit from the duty of care provided for under the Act.

    The obligations imposed under the Home Building Act 1989 or the common law are not limited by the new duty provided by the Act.

    Concluding comments

    The Act certainly changes the landscape for design and building practitioners. Further changes will come as regulations are enacted. The objectives of the Act when considered in light of recent events are sensible. However, there will be a significant cost associated with implementing the requirements of the Act. Contractual arrangements between various parties, including financiers, will need to be reassessed and amended as appropriate as a result of the commencement of the Act.

    Our recent blog, ‘Retrospective and Future Responsibilities for Design and Building Practitioners: Who cares? – The Design and Building Practitioners Act 2020’, summarised this from a construction perspective.

     

    For further information, please contact:
    David Murray-Nobbs | Partner | +61 2 9225 2714 | dmurraynobbs@tglaw.com.au
    Jonathan Grunstein | Special Counsel | +61 2 9225 2621 | jgrunstein@tglaw.com.au
    or a member of our national Banking and Finance team.