Enhancing Community Living

Lessons learnt from the Opal and Mascot Tower sagas

Inside

Your rights as a property owner

Who is responsible when it comes to building defects

Avoid unexpected costs from building defects

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Introduction

The recent incidents at Sydney’s Opal and Mascot Towers, and Melbourne’s Spencer Street cladding fire have raised increased focus and debate around building safety and compliance for strata living. According to the Australian Bureau of Statistics, a significant increase in the construction of high rises has occurred over the last 30 years.

With more people adopting a strata lifestyle, it’s become crucial to shape community living the right way - from smart building design, through to the construction and management of our everyday living. This means gaining knowledge of how a strata property works, what your rights and responsibilities are, how you can protect your property and who can help navigate the world of strata living. That’s why we not only focus on delivering superior strata management services in every way we can, but are also dedicated to prioritising safety and compliance and enhancing community living.

2 PICA Group | Lessons learnt from Opal and Mascot tower sagas – July 2019 PICA Group | Lessons learnt from Opal and Mascot tower sagas – July 2019 3 Lessons from Sydney’s residential Who takes care of what in the building defects bond scheme? building, Opal and Mascot Towers Property developer Inspector Owners Corporation (OC) Allocates the money for a Provides an interim defects If the reports from these bond before the project begins report to the owners inspections reveal any defects, 2% building defects bond and inspection corporation within a the OC can cover the costs of Is NSW’s 2% building defects Appoints an independent year and a final defects correcting these defects from scheme – what is it? inspector from the strata report within two years of the bond bond scheme enough? inspector panel to oversee the completing building work According to this scheme, property developers must inspection and submit reports If no defects are found within set aside 2% of the contract price as a bond before an afterwards Ensures there is no these reports, the OC must In January 2018, the New South Wales government occupation certificate is issued for the building work. conflict of interest with the ensure the bond is returned to amended the Strata Schemes Management Act 2015 This applies to all multi-storied buildings that are purely Bears the costs of the interim developer’s project the developer (Act) which contains new laws related to building residential or mixed-use residential buildings under and final reports from the defects. The new laws introduced the building defects strata management. inspections and ensures their bond and inspection scheme to protect the interests of timeliness property owners in case the building developed defects The owners corporation can use the building bonds after construction. However, following the scale of to cover costs for rectifying defects identified in the damage from building defects such as the Opal Tower interim and final reports provided by the developer. case, the question of the hour is if the scheme is all it If the building has no defects, the bond can be is cut out to be? returned to the developer once the building work has been completed.

Mascot Towers Image by Damian Shaw

Is the building defects bond and inspection scheme enough? Opal Tower Image by Bates Smart It is a start, and a well-intended pre-emptive step from the New South Wales government. However, the million-dollar question is whether the 2% defects bond is enough to combat the effects of structural defects and security lapses in buildings or to cover the actual costs from damage to property and life. Here are a few considerations:

This bond may not be enough to cover costs The building defects bond scheme does not 1 of correcting core defects of a building that 4 cover defects in commercial buildings, which are not evident in the initial report but get appears to be a serious limitation of the magnified over time through wear and tear. Most of scheme. This may be an important factor in the case these buildings are constructed in haste for commercial of mixed-use properties. purposes and compliance may often be sidelined in the interest of profit. The bond scheme is associated with the 5 regulations that covers the appointment of With residential and mixed-use high-rise inspectors by developers. This is problematic – 2 buildings, the scale of damage to life and often the inspectors are not independent professionals property is compounded. Sometimes one kind who can provide unbiased reports. This highlights a of damage to the building’s exterior may affect the conflict of interest on the part of individuals involved in inside of the building or private property of owners, the building project. compounding expenses from repairs.

Inconvenience and stress to general life, 3 caused as a result of building defect related emergencies can be another factor worth noting. Residents are evacuated en masse, and without enough notice to take stock of the situation or plan their way around it.

4 PICA Group | Lessons learnt from Opal and Mascot tower sagas – July 2019 PICA Group | Lessons learnt from Opal and Mascot tower sagas – July 2019 5 The state of things in Queensland: The QBCC can conduct regular audits to ensure any lapses in building and construction compliance are In the Sunshine State, the government has been dealt with as early as possible so that Queenslanders taking proactive steps to ensure compliance within the safety is not compromised. In addition, the government building and construction industry. has enabled a Board of Engineers and Architects to conduct investigations into the professional conduct of The government conducted a comprehensive those occupations and submit regular reports. examination of the building and construction regulatory system in 2016 and introduced the Queensland With respect to cladding regulations, there have Building Plan (QBP) the following year. been sturdier strides. The idea was to tighten existing regulations around In October 2018, the Building Regulation 2006 compliance and introduce necessary reforms. was amended to ensure cladding replacement was Moreover, the regulations empower the Queensland prioritised in buildings across Queensland. The new Building and Construction Commission (QBCC) to laws state that building owners must register and investigate and take disciplinary action against non- comply with the combustible cladding checklist. They compliant building licensees. must have the necessary certification to prove their buildings are fire-safe with regard to cladding. In 2019, the Queensland government is set to make reforms around the independence of certifiers so that they are not unduly influenced by builders and developers. The QBP will strive to improve professional standards and ensure compliance of certifiers.

The state of things in Victoria: property owners and judge their loan eligibility and many are unwilling to do so. The loan does not also In 2015, the multi-storied Lacrosse building in guarantee lower interest rates. Melbourne caught fire due to inflammable cladding. Victoria state laws require compliance from builders Following this incident, the Victorian government and developers whenever there are new plans for overhauled its regulations around cladding and construction or renovation. Sadly, most of these banned the use of Aluminium Composite Panels mandates fall through the cracks. Compliance failures (ACPs) as cladding. and ineffective regulations are highlighted in accidents The 2017 report by Victorian Cladding Taskforce from building defects when it is usually too late. highlighted that more than 1400 Victorian buildings New South Wales laws have certain pre-emptive What property owners in Queensland and Victoria should know could have potentially unsafe cladding. Additionally, an provisions, such as the 2% building defects bond audit by the Department of Health and Human Services scheme, to keep non-compliance in check from revealed more than 1000 publicly-owned buildings and developers and builders to a certain extent. However, Compliance and safety is a huge issue within the building and construction industry, with at least eight hospitals that need their cladding to be Victoria does not have any similiar precautionary replaced due to non-compliance. Since then, incidents measures in place. So, developers have no such country-wide implications. So, there is much debate across Australian states regarding the continue to occur, including the recent Spencer street gaps in regulation and how they should be addressed. obligation to secure the building defect related costs tower fire in Melbourne. prior to construction. The reports highlighted that accidents from building By state law, builders are required to provide To prevent building defect-related incidents in the future, the New South Wales government aims to come down hard defects are usually a result of using sub-standard domestic building insurance to property owners. on corrupt certifiers and audit at least 30 per cent of the buildings for non-compliance every year. The state has also building materials and a lack of tighter regulations However, this warranty may not be enough. Builders authorised various agencies to carry out investigations to get to the root of the problem, find the factors that could have around compliance. only need to provide this insurance when the cost caused the damage and identify non-compliant parties. To ease the financial burden for owners who might of building work under the contract is more than $16,000, which includes all labour and material costs. In the meantime, other Australian states are also closely monitoring the situation and gearing up to tighten their have to tear down their buildings in order to facilitate So, property owners have limited claim to having regulations. Here’s what property owners in Queensland and Victoria should know: cladding replacement, the Victorian Government is offering tripartite loans. However, this means the local warranty or compensation for building defect right council is required to collect the financial details of from the beginning.

6 PICA Group | Lessons learnt from Opal and Mascot tower sagas – July 2019 PICA Group | Lessons learnt from Opal and Mascot tower sagas – July 2019 7 Who does what when it comes to strata property building defects? The onus on property owners: As the property owner, your property is your asset and responsibility: Since strata properties have multiple owners, they are most likely to be hit hard when there are losses from building defects. Here’s how the different stakeholders can work together to prevent Always be aware of the regulatory environment Make sure to keep your property and renovation and solve problems arising from building defects. 1 of your state, as well as your obligations 4 records, as well as insurance documents, safe and regarding compliance and safety. handy in case of emergencies from building defects. In 2015, Engineers Australia’s findings highlighted that 85 per cent of strata units were defective on completion and insurance reports added that this raises repair costs by an additional 27 per cent. Keep track of important dates regarding Reach out to developers in time to highlight building 2 compliance requirements such as registrations, 5 defects within the statutory warranty cover period. Many experts claim that such building defects and their resulting losses are inevitable, considering many multi-storied report submissions, payments, and stay strata buildings have sprung up very quickly over the last few years. The fact that they’re built so quickly raises questions updated regarding state legislation changes. If the developer fails to respond to claims and around their soundness and safety to hold up in the face of accidents. However, the responsibility and accountability lie 6 complaints, owners can take the help of NSW Civil with multiple stakeholders. Conduct regular maintenance checks for and Administrative Tribunal to resolve disputes. 3 buildings defects and make timely repairs wherever necessary. The onus on developers and certifiers:

The present legal system provides developers with a wide berth regarding control over the inspection and certification process – but that is currently under scrutiny. As per the current legislation:

In NSW, developers are mandated to set aside If defects are found in a building that is still under 1 2% of the projects costs as bond to cover any 4 the statutory warranty period, developers and possible defects found in the building after builders must respond to claims promptly and it is completed. address any complaints from property owners.

Developers should appoint building inspectors If found responsible for building defects, 2 and surveyors to inspect and provide reports. 5 developers should take care of any costs for They must ensure the inspectors and certifiers residents’ immediate displacement to ensure their have no conflict of interest in the building project. safety and provide compensation for repairs as quickly as possible. They should be aligned with the Australian safety 3 standards and be accountable for any planning, design and compliance lapses. No matter how quickly they plan to complete their building projects, the safety of these buildings and their ability to meet Australian standards should never be compromised.

8 PICA Group | Lessons learnt from Opal and Mascot tower sagas – July 2019 PICA Group | Lessons learnt from Opal and Mascot tower sagas – July 2019 9 How to prevent unexpected costs from building defects 3. Know your legislative rights: 4. Protect your property with In addition to ensuring compliance, you must insurance be aware of your state laws – what provisions The legislation and building compliance requirements can be somewhat complex to understand When all is said and done, you must are in place in case of building defect related accidents have adequate insurance cover to protect your and manage, especially when there are so many stakeholders involved along the construction and who is responsible for what. The government has property from accidents. and property services chain. Here’s how strata property owners can prevent unexpected costs some precautionary provisions for building owners: from building defects. Know what kind of insurance cover your owners 1. 2% bond and inspection scheme: corporation has taken to cover what kinds of building Building defects that happen as a result of non-compliance can become a nightmare for property owners, the committee, According to the New South Wales Strata Building defects and repairs. While evaluating your building for residents, strata professionals, developers and the government. While there are public dissent and safety at stake, there Bond and Inspection Scheme formalised on 1 January insurance cover, excess and exemptions, often insurers are also huge costs from property damage, building renovations and maintenance delays. 2018, developers must allocate 2% of the contract price take many factors into account. They take a look at the as bond before an occupation certificate is issued for age of your building, the severity of defects, compliance Strata managed properties have common areas and shared amenities. So, accidents from building defects tend to impact the building work. If the reports from inspection reveal status, maintenance history, attitude of your owners and the community as a whole. It’s therefore important to know what could get heavy on your pocket in a time of crisis. defects, the owners corporation can use the bond money corporations towards rectification, among other things. Let’s discuss how you can prevent unexpected costs from building defects in your strata property. to correct these defects. If no defects are found upon inspection within the first two years of occupancy, the Other defects can happen over time, from wear and tear developer can reclaim this bond money. or harmful weather events, so ensure you take the advice 1. Inspect for defects: 2. Stay compliant and legally clear: from insurance experts so your property is adequately 2. Statutory warranty period: According to the Australian Bureau of Statistics, Non-compliance can happen at any stage; covered in case of unforeseen events. If your building inspection reports reveal defects within the number of apartment building high rises in right from development and planning to the stipulated period after completion, you can claim for the country has almost tripled in less than a decade. This building, pre- and post-building inspection, to certification compensation. As per NSW government regulations, if boom in such a short span of time has increased the risks and subsequent maintenance, if: you have entered a contract before February 2012, you plus put the integrity of these building under question. can claim compensation from your builder and developer • There are gaps and inadequacies in existing laws of for any big defects found within six years. If you entered A recent report by Shergold and Weir called Building the land the contract after February 2012, you have seven years Confidence claims that many high-rises have been • The regulations around design and development within which you can claim compensation. non-compliant with the Building Code of Australia at certifications are not followed some point. There are a range of issues related to • Inferior building material are used without safety- cladding, water clogging, mould, fire safety, unsound standard checks and warranty roofs, improper drainage, unregulated swimming • There is a dearth of competent manpower and pools and so on. decision makers • Certifiers, surveyors and inspectors are not Some of the more superficial issues such as painting, accredited or unbiased flooring and tiling may be possible to manage without • Reports submitted are inaccurate, incomplete or huge costs being incurred. In some cases, parts of inconsistent the property, such as swimming pools that need to be • Complaints are mishandled, and claims are not met redesigned as per state regulations, may not affect the structure and stability of the building per se. These are only some of the common cases leading to non-compliance. Sometimes, a combination of these However, certain problems such as cladding, drainage factors may lead to non-compliance of your strata systems and other structural design and construction property. It’s best to check that no compliance gap goes flaws may call for a complete overhaul at times. unnoticed and is dealt with immediately. Such corrections could cause you worry and cost you a great deal.

10 PICA Group | Lessons learnt from Opal and Mascot tower sagas – July 2019 PICA Group | Lessons learnt from Opal and Mascot tower sagas – July 2019 11 1. Design flaws Building structure and design are the most obvious aspects of a building. Some building issues, such as cracks in the walls, chipped paint, roofing and tiling fixtures, etc. may be easily fixed.

Flaws in the foundational structures such as floors, walls, roof, pillars, elevators and more can, however affect the very stability of the building. Accidents can also happen if your building has inferior building materials or is not compliant with regulatory standards. Such problems may be deeper and harder to fix without tearing down the building entirely.

In January 2018, the New South Wales Government introduced the Strata Building Bond and Inspections Scheme as part Five common building defects to look of the Strata Schemes Management Act 2015. The law states that property developers must allocate two per cent of the building contract price to cover any defects found in the building after completion. The owners corporation can use these out for in your strata property funds to correct any building defects as early as possible.

2. Plumbing and drainage Defects may be inherent to the structure of the building or may happen over time. In multi-storied buildings, often the plumbing and drainage system is shared by multiple units and under common Here are some common building defects to look out for in strata properties. property. An issue in one part of the building can invariably affect other areas. If you find plumbing leaks, overflowing gutters and related drainage problems in your strata building, make sure to get it Living in a strata property has its perks, including dedicated and qualified professionals to take care of maintenance and professionally checked to see what the problem is, where it is located and how it impacts you and your neighbours. repairs of common property. However, if your building has defects from the outset, it can weigh heavily on your pockets and peace of mind. Common and shared fixtures are under strata purview, so these items are maintained and paid for by your strata management. However, if the problem lies inside your privately-owned property (lot) such as a leaking shower or faulty Let’s discuss some of the typical residential building defects you should look out for in your strata property, so you can faucet, it is likely you will need to fix them on your own dime. take the necessary steps to protect it. In October 2018, New South Wales made changes to drainage and plumbing laws. Make sure your strata managed property is compliant with these updates.

12 PICA Group | Lessons learnt from Opal and Mascot tower sagas – July 2019 PICA Group | Lessons learnt from Opal and Mascot tower sagas – July 2019 13 3. Roof damage 4. Insulation and cladding Another common building defect is when issues arise with roofing. Roofs are prone to all kinds of damage over time. Recently, there have been legislative updates in the states of New South Wales, Victoria and Queensland regarding the They can be affected by bad weather, falling trees, or faulty design and negligence. ban on the use of Aluminium Composite Panels (ACP) and other metal panels as cladding for insulation because they could cause fires in buildings. Often, damaged roofs can lead to other larger problems within the building. If your building is new, but your roof is causing you trouble, chances are it has design and structural problems. Either way, it is important to stay on top of the problem by New South Wales requires all buildings occupied before 22 October 2018 to be registered online by 22 February 2019 carrying out regular inspections and timely repairs. and all new buildings to be registered within four months of occupation. Queensland calls for body corporate committees to register building details on behalf of building owners and provide a completed cladding checklist by 29 March 2019. Like plumbing and drainage systems, your strata management will cover damaged roofing that is shared by multiple units or are common property. In Victoria, the government is reinforcing the seriousness of this issue across the state while also offering a tripartite loan to help building owners who need to demolish their buildings for cladding compliance.

5. Electrical wiring and fire safety Faulty wiring poses a grave risk for building safety. They can cause freak fires from short circuits. If you see any exposed wires, malfunctioning plug points or power trips in your building, have them immediately inspected and replaced.

Make sure your building has functional, visible and adequate number of fire extinguishers, fire alarms and signage. While buying electrical appliances for your home, ensure they meet Australian standards or are star-rated for safety and energy saving.

Dealing with common building defects as they occur is the best way to avoid serious accidents, emergency evacuations and in the worst-case scenario loss of life and property.

14 PICA Group | Lessons learnt from Opal and Mascot tower sagas – July 2019 PICA Group | Lessons learnt from Opal and Mascot tower sagas – July 2019 15 Protect your property and your pocket Your responsibilities As a property owner living in a strata property, before making improvements to your lot or proposing changes to common property, you should check your by-laws to ensure any works done won’t affect your insurance premium. Why you should get your apartment building insured This is because the insurance premium is likely to increase either because your lot is now higher-value than other lots or because you’ve improved the common property for your own benefit.

Like maintenance, in a strata property there are some things which are required to be insured by the owners If you don’t let your strata committee or body corporate know, the complex may be underinsured. If this happens corporation, while others are your responsibility. Here’s a list of what your committee or body corporate is and you need to make a claim, you’ll be liable for the shortfall, so it makes sense to inform them and ensure your responsible for insuring: insurance policy is up to date.

• Common property and assets, such as plant and equipment, fences, for their full replacement value Please note: You may be responsible for any increase in the premium that has resulted because of the • The costs related to replacing insured buildings, taking away debris or the hiring of an architect improvements to your lot. You’re also responsible for your own contents insurance to cover items like carpets, curtains, light fittings, general possessions, and air conditioning equipment. • Public risk insurance for at least $20 million for a single event

Please note: if your strata property is underinsured, you may be liable for the shortfall.

You may consider additional insurance coverage that’s not compulsory, such as: • Office bearers’ liability for committee members. • Fidelity guarantee against the misuse of funds. • Machinery breakdown insurance • Voluntary workers insurance to cover those doing work on behalf of the strata committee or body corporate without pay • Building catastrophe for events like cyclones, bushfires, etc.

16 PICA Group | Lessons learnt from Opal and Mascot tower sagas – July 2019 PICA Group | Lessons learnt from Opal and Mascot tower sagas – July 2019 17 About us

PICA Group is a leading property services company managing the largest strata management portfolio in Australia.

Founded more than 70 years ago, PICA Group is one landscape, delivering a full range of services for a variety of Australia’s leading property services companies with of property types including residential, commercial, more than 200,000 lots under strata management. resorts, and mixed-use facilities. To best service our local communities, we have a number of subsidiary businesses As a market leader in strata management, PICA located across the east coast of Australia. Group plays a significant role in the Australian property

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18 PICA Group | Lessons learnt from Opal and Mascot tower sagas – July 2019 PICA Group | Lessons learnt from Opal and Mascot tower sagas – July 2019 19 www.picagroup.com.au

The information provided is a general guide only, and is not intended as a substitute for legal advice. The company disclaims all responsibility and all liability for any expenses, losses, damages and costs which might be incurred as a result of the information provided by the company. Last updated July 2019.