• Peter Merity

Strata Claims - The Opal


THE OPAL TOWERS OWNERS MAY HAVE DODGED THE BULLET. WILL YOUR CLIENTS BE SO LUCKY?

It is good news for the Opal Towers owners that the NSW State Government may have to step in and pay the cost of rectification of the building if the builder and the developer do not do so.

What happened with Opal Towers is that the Sydney Olympic Park Authority, a NSW State Government instrumentality, was the owner of the land in the development and the registered proprietor of the apartments until they were sold to homeowners. Because of that Section 3A of the Home Building Act 1987 (‘the Act’) made the Authority a developer and, under section 18 C, it is therefore liable for building defects in the development. This is not so however with all the other high rise developments in New South Wales over three storeys in height and there is no home owners warranty insurance covering them.

The normal developer of a high rise development builds the development, sells the units as soon as possible and distributes all the proceeds to its shareholders. Having done that, its purpose fulfilled, it ceases business and eventually is deregistered. Should action be taken against such a developer for defects in the high rise building, if there are no units left to sell, there are normally going to be no assets to satisfy any judgment.

The normal builder of a high rise development does not retain any assets in its structure and is, for recovery purposes, a corporation of straw. Even if it does have some assets, with insolvency rates of over 25% in the building and construction industry, chances are against any substantial sums being available to pay for the defects.

The normal situation is therefore that there is no one but the lot owners themselves to pick up the tab for defective building work.

Twenty years ago lot owners would have had the benefit of some $110,000.00 worth of insurance per lot. Then the insurance was totally removed from buildings over three storeys in height. Recent amendments to the Act provide that for contracts after 31 December 2017 the developer must lodge a building bond with the NSW Fair Trading equal to 2% of the contract price to cover the costs of rectifying defective building work. This is inadequate since the average cost of rectifying seriously defective high rise buildings is 67% of the contact price. This is nothing like the kind of insurance protection which previously existed.

We need to have high rise buildings again included in the home owners warranty insurance coverage provided by the State Government. Please ask to your local State Members of Parliament to make this happen.

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