Building Defects in Apartment Buildings: You don’t have to fight the battle alone
By Justin Cotton, Director, Lovegrove & Cotton – Construction and Planning Lawyers
If you are a private apartment owner in a residential building administered by an Owners Corporation, there is a good prospect at some time you will become aware of building defects that affect either the common property, or your private lot (apartment).
Provided that the building is not more than 10 years old following completion (heralded by the issue of an Occupancy Permit) and if the defects can be attributed to poor builder workmanship or design, then a legal action can be commenced against the relevant building practitioners (eg a Builder, Architect or Engineer).
It is critical that a comprehensive building consultant report is obtained first to identify the nature and probable causes of the defects, and the best options to rectify the problems. The limitation period to commence the building action (normally at VCAT) is 10 years from completion (pursuant to the Building Act 1993).
A frequently encountered building defect with apartment buildings is that of the inadequately waterproofed or “leaky” balcony. Water entry can then occur into apartments, and quite possibly a neighbouring Unit rather than the one to which the balcony connects. This can then lead to disputes between private Owners and not only water entry into your apartment, but possibly someone else’s.
The nature of residential apartment complexes is that a problem encountered in one part of the building is likely to be discovered in another part, or throughout the building. There will likely be building defects (poor workmanship or materials) affecting private and common property throughout the building.
As a consequence it is nonsensical to expect a private lot owner to “go it alone” like Custer’s last stand in taking on the Builder or Developer. Nor should they have to run up against an obstinate Owners Corporation Manager who insists that private lot owners fight their own battles. This is not how such building defect cases are run in Victoria.
In fact the way these building defect cases are generally run is by having the Owners Corporation (as a collection of the private lot owners acting in concert) as the first plaintiff or applicant in regard to any defects sourced in or affecting the common property. The proceeding then also includes those private lot owners who wish to join the proceeding as affected owners who become co-plaintiffs / co-applicants, so that the legal case is effectively run as a “class action”.
The rationale for this is quite simple. The Owners Corporation is effectively the owner of the common property and responsible for administering the same, and therefore only the Owners Corporation as a collective whole has legal standing to sue for defects that affect (or arise in) the common property. Whereas only the private lot owner of an apartment has legal standing to sue for compensation for defects located in their private lot or affecting the same.
Pursuant to section 4 of the Owners Corporation Act 2006 (“the OC Act”), the Owners Corporation is responsible to manage and administer the common property and also “to repair and maintain” the common property and the chattels, fixtures, fittings and services related to the common property or its enjoyment.
This responsibility is for the Owners Corporation, not the Manager. The OC Manager is only an agent assisting the Owners Corporation (in an administrative capacity) and should not be making binding decisions on behalf of the Owners Corporation. Therefore the Manager has no right to tell lot owners that the Owners Corporation will not be taking legal action against the Builder or developer for building defects.
Decisions for the Owners Corporation are made at Annual General Meetings (AGMs), Special General Meetings (SGMs) and at Committee meetings (see section 108 of the OC Act regarding who can call a Committee meeting).
The duty to repair and maintain the common property (as opposed to private property) that is held by the Owners Corporation may include also the need to take legal proceedings for compensation to rectify defects in the common property, ie that are defects arising out of or affecting common property parts of the development.
One example could be a decision by an Owners Corporation (“OC”) within 10 years of completion of building works to take legal action against the original Builder for construction defects that have led to cracking and delamination of cladding to the outside walls of the building, or for defective roof plumbing caused by the Builder’s plumbing contractor.
Depending on the length of time that has passed, the Builder could potentially have a defence that alleged building defects are not caused by the works of the Builder or its subcontractors, but are instead “maintenance” or “fair wear and tear” issues that the OC is responsible for rather than the original Builder.
A common defensive tactic by a Builder or Developer in this situation is to allege a lack of maintenance over the intervening years since completion on the part of the Manager or individual lot owners. They will seek copies of related Owners Corporation records over the years and allege “inadequate maintenance” without properly specifying what the Owners should have taken it upon themselves to do by way of maintenance.
Another tactic commonly encountered is where the Developer retains Unit ownership and therefore Owners Corporation membership, and attempts to stall or shut down any recovery action against the Developer by voting against such measures.
In order to commence legal action against any party, either with or without some affected private Lot Owners, an Owners Corporation must obtain a special resolution of votes approving the legal action at a meeting of the OC. This special resolution must be obtained and duly recorded in writing before the legal action is commenced. A special resolution is 75% or more of the votes based on lot entitlement (see section 18 of the OC Act).
Pursuant to section 74 of the OC Act a Special General Meeting can be called to deal with defined or specific issues. This can be convened by a lot owner nominated by other owners whose lot entitlements total at least 25% of all lot entitlements for the land affected by the OC. Or the SGM could be convened by the Manager of the OC acting on the authority of the Committee or that of lot owners whose lot entitlements total at least 25% of all lot entitlements.
If any private lot owner has concerns about the behaviour of the OC Manager or their decisions about potential building defects, there will be a complaints procedure available under the Rules of the Owners Corporation. Also refer to the OC Act (see s152 and the following sections) in regard to resolution of complaints or disputes by either an internal dispute resolution process or by an external complaint process to Consumer Affairs Victoria (see s160 of the Act).
This dispute resolution process can lead to a conciliation or mediation between, for example, concerned lot owners (or an owner) and the OC Manager and potentially any other lot owners.
Since late April 2017 the domestic building litigation landscape has changed somewhat in Victoria, with the advent of an organisation known as Domestic Building Disputes Resolution Victoria (or “the DBDRV”).
Since that time VCAT will no longer accept an application to resolve a domestic building dispute between an Owner (or Owners) and the Builder, unless the parties have first lodged an application to the DBDRV for a conciliation of the dispute. This requirement will also apply to Owners Corporation building disputes in Victoria.
In practice, this process has been promoted as “free, fast and fair” but while the jury is out on “fair”, and it is arguably “free” if parties elect not to use lawyers, it is not “fast” currently due to the influx of applications and the backlog this has created. It is not uncommon to encounter a delay of up to 3 months from lodgement of an application to the DBDRV and the appointment of a conciliation officer.
Once one of the parties obtains a certificate from the DBDRV that says the dispute is not suitable for conciliation, or a certificate that says that conciliation was attempted and was unsuccessful, then the parties are free to instead file a conventional application to the Building & Property List at VCAT.
Once at the Tribunal, the process becomes a building litigation and the parties will generally use lawyers, but there will be further attempts at mediation before the case proceeds to a final contested Hearing.
For further advice or assistance in relation to building law matters including construction disputes and building regulation, do not hesitate to contact a legal team with expertise in this area.
Lovegrove & Cotton Lawyers to the building industry
For thirty years, Lovegrove & Cotton have represented builders, building surveyors and building practitioners in Melbourne, Canberra, Sydney and Queensland. Doyles Guide ranks Kim Lovegrove as one of the leading construction lawyers in Australia. Justin Cotton, likewise, is a leading Australian construction lawyer and widely respected in the building fraternity as evidenced by his recent elevation to Chairperson of the HIA Industrial Relations and Legal Services Committee, and member of the Regional Executive Committee, for HIA Victorian Chapter. Lovegrove & Cotton can help practitioners resolve any type of building dispute and are preeminent in the area of building practitioner advocacy. If you wish to engage the firm, feel free to contact us via our website or by emailing email@example.com.