High Rise Residential Living

A SOLUTION TO THE PROBLEMS WITH HIGH RISE RESIDENTIAL APARTMENT BUILDINGS – MAKE SURE THE DEVELOPERS HAVE SKIN IN THE GAME

The recent furor with respect to the resignation of Mr David Chandler the Building Service Commissioner has brought to light again the unhealthy degree of power the developers have over this State and how difficult it will be to achieve better building standards by enforcement activity alone.

Once upon a time all owners of residential buildings received the protection of the House Purchaser’s Insurance under the Builder’s Licensing Act 1971 which insured them against defective and incomplete work performed by a licensed builder.

The insurance coverage arose when a fully licensed builder performed residential building work. Although a premium was payable by the builder it could be chased up retrospectively and was not necessary for the coverage to exist. Each residential building unit was given an insurance coverage equivalent to one half of the coverage given for a freestanding house. This meant that there was a quite substantial amount available to a body corporate to fix defects. The insurance was provided by the NSW State Government and underwritten by overseas reinsurers. The insurance was a first resort scheme where the owners applied to the insurer, the Builders Licensing Board, and were paid direct and the Board would then recover the payment from the builder responsible.

The State Government politicians eventually made it obvious that they could not be trusted to run such a scheme (the recent ICare scandal is nothing new) and the reinsurers were getting upset. As a result it was proposed that the insurance would be provided by commercial insurance companies and that it would be compulsory for a builder to insure in order to claim monies under a building contract. The problem is that, after the scheme was in place, the insurers refused to insure high rise unit buildings (I wonder why?) the government just acquiesced, and so the most expensive and technologically challenging structures, the high rise unit buildings, were the ones left uninsured.

As a band aid fix to an amputated leg, the developers of high-rise buildings are now required to pay a bond of 2% of the contract value, which is held in a trust. It is used to pay for the costs of rectifying any defects identified by an independent building inspector between 15 months and 18 months after the completion of the building work. This is substantially less than the coverage period provided by the Home Building Compensation Fund, which is up to six years for major defects. Any building rectification works should be completed within three years, and the unspent bond is refunded to developers. However, in very many cases the bond amount is less than the value of the rectification works required. The statistics would be interesting but I have been informed that when the problems are serious and structural, you are looking to about 68% of the contract value. Remember too that the 2% is not paid into an insurance fund, it is only to be used for the building in question. This is completely inadequate.

THE SOLUTION

The solution is to make good building practices in the interests of the developers. The way to do that is to ensure that they have “skin in the game” by requiring them to retain 20% by value of the block of units for six years after the occupation certificate is issued. They will then have an interest in ensuring that the units are built to a good standard, or at least good enough to be able to be trouble free for six years.

If you agree with me please approach your local Member of Parliament and/or your local government councillors to advocate reform along these lines.