Many building surveyors and accredited certifiers are either retiring or close to retirement. At our firm’s recent address at an annual industry conference, a noticeable theme was: “I have recently retired/I am retiring/when will you be doing the same?”

This is not surprising if you consider that the Building Act 1993 is now nearly 30 years old. This coincides with the duration of the private certification profession in Victoria. When you consider that most certifiers came out of local government, currently the industry contains a critical mass of 50 and 60 year old workers.

It thus comes as little surprise that Lovegrove & Cotton has recently been briefed to advise on implications that may flow from retirement such as limitation periods for law suits, law suit risks down the line, and matters such as run-off cover. We rarely received briefs on these topics in the past but they have now become necessities to consider when one is retiring.

All professionals regardless of whether they are lawyers or accountants have to grapple with retirement logistics and risk mitigation in vocational sunset. This can be a daunting process. Planning ahead adequately is paramount as it is not a case of simply “I’ll retire today and everything is sorted”. One has to get one’s ducks in a row in order to wrap up a professional career without being implicated by contingencies.

Some of the risks

Depending on the jurisdiction a building practitioner can be sued for past acts, errors or omissions for up to 10 years post the issuing of an occupancy permit. As we live in ‘the eight countries of Australia’, the limitation periods are not uniform; this 10-year limitation period is not always in play. A practitioner should take advice upon the length of the limitation period in their particular jurisdiction.

The most ominous risk for any practitioner is that they could be sued some years down the track and be drawn into legal proceedings. If they are not insured, they will have to fund the defence themselves and potentially be liable to pay out a settlement sum or a judgement.

The nineties and Camelot cover

In the nineties most Australian jurisdictions introduced legislation that provided long tail indemnity. Once a practitioner retired, they could be indemnified for past acts of negligence for a period of 10 years post issuance of the occupancy permit.

At the turn of the last century, long tail cover was removed as the insurance industry could not underwrite the risk; it was simply too expensive and the pay outs too costly. So the governments removed the requirement for long tail cover from the Ministerial Insurance Orders.

The time oft referred to as ‘Camelot’ was over.

Run-off cover

Most smaller law firms known to the writer procure run-off cover prior to retirement. They pay an annual premium for the years leading up to their retirement which provides insurance indemnification for possible acts of negligence yet to surface. This annual premium is typically paid for six years, but this depends upon the length of the limitation period.

Run-off cover is available for building practitioners and insurance brokers best positioned to shed light on cost and coverage. However, it is costly and building practitioners need to plan well in advance by way of provisioning a sum of money that can be drawn down from over the years to pay the premiums. Alas if there is a claim, the premiums will increase for run-off cover if indeed it is still available post claim acceptance.

Some practitioners ‘run bare’ and chance their arm. If their assets are in their own name, then of course those assets will be at risk. Running bare is a high-stakes gamble and one would be astonished if any lawyer ever recommended that course of action; for to run that risk would be akin to having a stone in a shoe for 10 years or so and true peace may be illusive.

Winding down activity

With retirement pending, many outfits take on less and less work while building surveyors issue fewer and fewer permits. 

We had client enquiry a few years back who stated: “I’ve still got a number of permits in the field but I don’t want to renew my registration”. The advice given was that the person did not really have much of a choice; you have to finish each permit remit. A failure to end cycle same could culminate in professional misconduct charges and open-ended liability as building surveyors need to issue occupancy permits to trigger the 10-year limitation period. There is also the option of migrating the projects, with the sanction of the Victorian Building Authority but other certifiers tend to be loathe to taking on projects mid-stream.

Practice mergers and practice assimilation

Some in the industry known to the writer have migrated their practices into larger concerns where they seek indemnities from the host bodies for possible past liabilities yet to surface. Assuming the new host remains solvent, professional indemnity cover is maintained and continues in perpetuity. These indemnities can provide sound protection for the retiree.

Succession planning

Other businesses with a critical mass of employees have succession planning systems where employees become partners and acquire a stake in the practice and the retiree is “stipend-ed” out as it were over a few years. Part of the negotiated exit will entail the indemnification of the retiree for past possible lapses of professional judgement.

Winding down permits

Building surveyors leading up to retirement cannot simply “close shop” if live permits are on foot. As stated above if one is intent on retiring at say 60 years of age then one will, well in advance, taper down permit activity. It would follow that for 2 years or so prior to retirement the pipeline of work would be such that work in progress would have a forecasted lifespan of less than 2 years.

Further understand that each occupancy permit issued within the 10 year period will have a 10 year liability tail.  So that if the final occupancy permit is issued at age 60 one will be aged 70 when the liability guillotine severs the limitation period. Be mindful however of the cladding amendment which provides for 15 years after the issuance of the occupancy permit.

Final thoughts

With an aging demographic, many professionals known to us will retire over the next ten years. This piece discusses some of the considerations to bear in mind regarding post retirement risk management. The word ‘some’ is used with deliberation because there are a number of other relevant issues. It follows that expert legal and accounting advice should be deployed when a building surveyor is coming ’round the twilight bend’; a head in the sand approach is fraught with risk.

Disclaimer

This article is not legal advice and discusses it’s topic in only general terms. Should you be in need of legal advice, please contact Lovegrove & Cotton Lawyers and our experienced lawyers will assist you based on the facts and circumstances of your case.

Lovegrove & Cotton Lawyers to the building industry

For thirty years, Lovegrove & Cotton have represented property owners, builders, building surveyors, and building practitioners in Melbourne, Canberra, Sydney and Queensland. Lovegrove & Cotton can help property owners and building practitioners resolve any type of building dispute. If you wish to engage the firm, feel free to contact us via our website, by emailing enquiries@lclawyers.com.au, or via phone at (03) 9600 4077.