This paper briefly traverses the different approaches to the law regarding caveatable and charging interests in residential building contracting in three Australian jurisdictions. In keeping with the 8 countries of Australia euphemism, each sovereign jurisdiction differs significantly with respect to the ways caveatable interests are treated within the residential contracting setting.

This writer is only venturing into 3 Australian jurisdictions and hazards to say that there may well be other key differences in the remaining 5 Australian jurisdictions that will alter the risk landscape for consumers. It follows that property owners will need to have regard to the apposite provisions in the relevant acts of parliament in the other States and Territories.

Victoria

Until the mid-nineties in Victoria, standard industry building contracts contained charging clauses that allowed the residential building contractor to lodge a caveat on owners property in circumstances where there was a dispute under the contract.

Caveats tended to be lodged when there was a dispute over payment but depending on the wording of the charging clause a very broad licence afforded to the caveator was often permitted in the contractual provision.

The charging clause in the building contract gave the contractor a caveatable interest. Once lodged on the title this had the potential to impact upon the property owners` ability to sell the property until the caveat was removed. So it was a significant encumbrance. Caveats sometimes remained on title until the end of a litigation ie months, years down the line.

When the Domestic Building Contracts Act was promulgated in the mid nineties, the legislation embargoed the builder from having the ability to lodge a caveat on the title, so the lodging of a caveat effectively became illegal.

This legislature introduced the embargo to better protect consumers from circumstances where the charge upon the land imposed significant restrictions upon the owner to deal with the land.

The apposite provision under the said Act is:

Domestic Building Contracts Act 1995 (VIC) Section 18:

• Contract does not entitle builder to put caveat on the title of building site land

• A domestic building contract does not give a builder an estate or interest in any land for the purposes of section 89 of the transfer of Land Act 1958.

The provision exercises an economy of language but its import is clear, builders cannot lodge caveats on the property owner’s title, period.

NSW

The Home Building Act 1989 (NSW) Section 7D also places some limits on the ability of a residential builder to lodge a caveat. But it has to be said the provision isn’t as pithy, as it were, as the Victorian counterpart and unlike the Victorian legislative provision cannot be considered to provide a blanket embargo as there are exceptions.

•  Interests in Land under contract

(1) A contract does not give the holder of a contractor licence or any other person a legal or equitable estate or interest in any land, and a provision in a contract or other agreement is void to the extent that it purports to create such an estate or interest.

(2) Accordingly, the holder of a contractor licence or any other person may not lodge a caveat under the Real Property Act 1900 in respect of an estate or interest prohibited by subsection (1).

(3) However, subsection (1) does not apply to a provision in a contract that creates a charge over land if–

(a) the land the subject of the charge is land on which the contract work is, or is to be, carried out, and

(b) the charge is in favour of the holder of a contractor licence who is a party to the contract, and

(c) the charge is created to secure the payment to the holder of the contractor licence by another party to the contract of money due under the contract, but only if a court or tribunal has made an order or judgment that such payment be made, and

(d) in the case of a charge over land under the Real Property Act 1900 –the party to the contract against whom the judgment or order is made is the registered proprietor of the land.

The court has a discretion to permit the lodging of a caveat in the aforesaid circumstances. In this writers` opinion, Section 7D cannot be considered to be unreasonable as it permits the lodging of a caveat once a judgment or order has been made by the Court. Presumably that would serve to prevent rapid sale of a property consequential upon an adverse judgment and an absconding by the owner with the proceeds of sale to prevent payment to the contractor.

ACT

The relevant legislation in the Australian Capital Territory is The Land Titles Act 1925 (ACT) which allows courtesy of Section 104 a person claiming an interest in land to apply to the Land Registrar to have a caveat be entered on that land. The threshold for the initial caveat being placed on the land in question is low under Section 104A(2) with the Registrar ‘not required to determine the validity of a caveator’s claim.’

The legislation does provide a process for a landowner who has had a caveat placed against their land to have that caveat removed. Specifically, Section 107 “Removal of Caveat” requires the landowner to request the Registrar-General to give notice to the caveator for its removal. Once received by the caveator, the caveator has 14 days to seek an order from the Courts that the caveat should remain. The onus at this stage is on to caveator to show that it should not be removed as there is still a serious issue to be tried (GR8 Constructions Pty Ltd v O’Donnell [2011] ACTSC 92 at [26]).

In weighing up these Australian Capital Territory legislative provisions, it is in the writers’ opinion that they ultimately disadvantage property owners. Firstly, the legislation provides very little barriers to any party claiming a registrable interest in land to have a caveat recorded. Secondly, despite the legislation providing a mechanism for landowners to eventually compel the caveator to make an application to the Courts, the caveat is often likely to remain in place so long as in the Courts’ opinion a serious issue to be heard still remains.

Conclusion

In order of hierarchy Victoria clearly affords the greatest level of consumer protection in light of the fact that there is blanket legislative embargo that prevents the lodging of a caveat by the residential builder on the land title. So Victoria is the gold standard.

NSW does not have a blanket embargo but there are hurdles, the main one being the Court is the body that is invested with the power to permit the lodging of a caveat in the above mentioned circumstances.

The ACT does not fair at all well when compared with the other jurisdictions as it provides much greater licence to given parties to lodge caveats on a property owners title.

If the ACT is intent on providing better consumer protection to property owners it would be well advised to harmonise the legislation on point with either NSW or Victoria. As it stands at the moment from a consumer protection point of view it leaves a fair bit to be desired.

Tsigereda Lovegrove, construction lawyer and practice manager at Lovegrove & Cotton has conduct of matters in Victoria, NSW and the ACT.

Lovegrove & Cotton Construction & Planning Lawyers

For thirty years, Lovegrove & Cotton have provided advice and represented property owners, builders, and building practitioners in building and planning regularisation matters. 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.

Disclaimer

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

Section 16 of the Building Act 1993 Vic (“the Act”) states that: “A person must not carry out building work unless a building permit in relation to the work has been issued and is in force under this Act.” In Victoria, a building permit is issued by a private or a municipal building surveyor. The building permit will contain the classification of the building, which is determined in accordance with Part A6 the National Construction Code (“NCC”), which describes the Building Classification system as follows:

“The NCC groups buildings and structures by the purpose for which they are designed, constructed or adapted to be used, assigning each type of building or structure with a classification. A building may have parts that have been designed, constructed or adapted for different purposes. In most cases, each of these parts is a separate classification. A building (or part of a building) may also have more than one such purpose and may be assigned more than one classification.” [1]

Note: Some structures and building types are exempt from the Building Permit requirement.

Building Classes

The NCC building classes are as follows:

Class 1:

(1) A Class 1 building is a dwelling.

(2) Class 1 includes the following sub-classifications:

1. Class 1a is one or more buildings, which together form a single dwelling including the following:
   1. A detached house.
   2. One of a group of two or more attached dwellings, each being a building, separated by a fire-resisting wall, including a row house, terrace house, town house or villa unit.
2. Class 1b is one or more buildings which together constitute—
   1. a boarding house, guest house, hostel or the like that—
      1. would ordinarily accommodate not more than 12 people; and
      2. have a total area of all floors not more than 300 m² (measured over the enclosing walls of the building or buildings); or
   2. four or more single dwellings located on one allotment and used for short-term holiday accommodation.

Class 2:

(1) A Class 2 building is a building containing two or more sole-occupancy units.

(2) Each sole-occupancy unit in a Class 2 building must be a separate dwelling.

This class may also include single-storey attached dwellings with a common space below, such as a carpark.[2]

Class 3:

(1) A Class 3 building is a residential building providing long-term or transient accommodation for a number of unrelated persons.

(2) Class 3 buildings include the following:

1. A boarding house, guest house, hostel, lodging house or backpacker accommodation.
2. A residential part of a hotel or motel.
3. A residential part of a school.
4. Accommodation for the aged, children, or people with disability.
5. A residential part of a health-care building which accommodates members of staff.
6. A residential part of a detention centre.
7. A residential care building.

Class 4:

Class 4 is a dwelling in a Class 5, 6, 7, 8 or 9 building if it is the only dwelling in the building.

A single domestic dwelling within a building of non-residential nature (that is, a Class 5 to Class 9 building). For example, a caretaker’s residence within a hospital.[3]

Class 5:

A Class 5 building is an office building used for professional or commercial purposes.

Class 6:

(1) A Class 6 building is a shop or other building used for the sale of goods by retail or the supply of services direct to the public.

(2) Class 6 buildings include the following:

1. An eating room, cafe, restaurant, milk or soft-drink bar.
2. A dining room, bar area that is not an assembly building, shop or kiosk part of a hotel or motel.
3. A hairdresser’s or barber’s shop, public laundry, or undertaker’s establishment.
4. A supermarket or sale room, showroom, or service station.

Class 7:

(1) A Class 7 building is a storage-type building.

(2) Class 7 includes the following sub-classifications:

1. Class 7a — a carpark.
2. Class 7b — a building that is used for storage, or display of goods or produce for sale by wholesale.

Class 8:

(1) A Class 8 building is a process-type building.

(2) Class 8 buildings include the following:

1. A laboratory.
2. A building in which the production, assembling, altering, repairing, packing, finishing, or cleaning of goods or produce for sale takes place.

Class 9:

(1) A Class 9 building is a building of a public nature.

(2) Class 9 includes the following sub-classifications:

1. Class 9a — a health-care building including any parts of the building set aside as laboratories, and includes a health-care building used as a residential care building.
2. Class 9b — an assembly building including a trade workshop or laboratory in a primary or secondary school.
3. Class 9c — a residential care building.

Class 10:

(1) A Class 10 building is a non-habitable building or structure.

(2) Class 10 includes the following sub-classifications:

1. Class 10a is a non-habitable building including a private garage, carport, shed or the like.
2. Class 10b is a structure that is a fence, mast, antenna, retaining wall or free-standing wall or swimming pool or the like.
3. Class 10c is a private bushfire shelter.

Regulation 13 of the Building Regulations 2018 (Vic) (“The Regulations”) states that: “if there is any doubt as to the classification of a building under the BCA, the relevant building surveyor must classify the building as belonging to the class it most closely resembles”.

Building Notices and Building Orders

Both municipal building surveyors and private building surveyors have powers to issue:

• S37 – Building Directions. This “means a direction to fix building work given under Division 2 of Part 4 of the Act.
• S106 – Building Notice. A building notice “starts the conversation between building owners and the Building Surveyor about what issues need to be addressed to make their building safer”.
• S111 – Building Order. “After a Building Surveyor has considered representations raised by the owner in response to a Building Notice, the Municipal Building Surveyor may consider it necessary to issue a Building Order”. [5]

Exceptions to the Issuing of Notices and Orders

Schedule 3 of the Regulations provides some exemptions for building work and buildings. The main exception is when a building falls into a Class 10a and:

“a) has a floor area not exceeding 10 m ² ; and

b) is no more than 3 m in height or, if situated within 1 m of a boundary, is no more than 2.4 m in height; and

c) if appurtenant to a building of another Class on the same allotment, is located no further forward on the allotment than the front wall of the building to which it is appurtenant; and

d) if it is not appurtenant to a building of another Class on the same allotment, is the only Class 10a building on the allotment and is set back at least 9 m from the front street alignment and at least 2 m from each side street alignment; and

e) is not constructed of masonry.”

There are a number of other exemptions to the requirement of a building permit, including a buildings demolition (if within the allowable specifications), or the repair, renewal or maintenance of an existing building (subject to the nature of the work). Details on this can be found in the VBA Building Practice Note: “Building Permits and Other Exemptions BP 01 | When is a Building Permit required”.[6]

Conversion of Use

That which can also culminate in the issuance of a Building Notice or a Building Order is the change of use of a building. There are instances where this could be the use of a Class 10 building (non-inhabitable shed) to the use of a Class 1 (domestic residence). For example, if there is illegal conversion of the use of a shed into a primary residence. Anecdotally, the prevalence of this type of conversion increased during COVID.

While converted sheds and shipping containers are increasing in use, the determination of whether they are truly “buildings” is something addressed by the broad definition of “building” in s3 of the Act, which reads as follows:

“building includes any structure, temporary building or temporary structure and also includes any part of a building or structure”

Interestingly, there is another exemption in the regulations which covers buildings which are “unclassifiable”:

(5) “Any building that is not of a Class listed in clauses A6G2 to A6G11 of the BCA Volume 1 and clauses A6G2 to A6G11 of the BCA Volume 2.”

The Victorian Building Authority (“VBA”) Building Practice Note – General GE-04 Definition of Building makes a recommendation that: “only a structure which can be classified under the NCC should be regarded as a building, as Schedule 3 of the Regulations exempts unclassifiable buildings from all parts of the Regulations.“ [6]

How does this exception work in practice?

The classification of a building is determined by it’s “use or intend use”. In practice, this paints with a very broad brush. In the case of Chen v Kevin McNamara & Son Pty Ltd [2012] VSCA 63, it was said that:

“If that structure is unable to classified, then the objects of the Building Act 1993 set out in section 4 and the goals of the Code, namely to protect people and property, require that regard be had to the constituent components of the structure, to see if they are individually classifiable.” [para 27]

The case concerned a dispute over whether an underground structure, intended to be used for water storage, was within the definition of 10b “a retaining wall” or a “swimming pool”, and therefore domestic building. It was decided that it was neither, and therefore not a Class 10b structure.

Broad Powers of Building Surveyors

Under section s106 of the Act, a municipal building surveyor or a private building surveyor may cause a building notice to be served on a owner of a building if the surveyor is of the opinion that:

“The building, land or place or building work on the building, land or place is a danger to the life, safety or health of any member of the public or of any person using the building, land or place or to any property”. This is regardless of any exception, subject to s107 of the Act.

This section in conjunction with the s4 purpose as described above demonstrates the difficulty of a “non-classifiable” argument under Sch 3 of the Regulations.

Conclusion

In conclusion, section 16 dictates that the carrying out of building work can only occur if there is a building permit. The building permit will be issued in accordance with the appropriate NCC classification.

Failure to obtain a Building Permit for building work or the conversion of use of a building from a non-habitable class to a habitable class is a breach of the Building Act 1993. “Building” is a defined term under the Building Act, although there are some exceptions that preclude the necessity to obtain a Building Permit, those exceptions are contained in the Building Regulations and very careful regard must be had for same.

Building Surveyors have extensive powers to issue building notices and orders. Municipal Building Surveyors have a greater arsenal of building order powers at their disposal. Pursuant to s106 the Municipal Building Surveyor has the far reaching power to issue building Notices if there is any danger to life, health and safety of the public. While it is not common, if an argument is raised that a structure’s class is indeterminable much emphasis will fall of the purpose of the Act; the priority of the protection of people and property.

Please see the below for further and related articles:

Do Building Laws and Consumer Protections Apply to Shipping Container Residences in Victoria?

Lovegrove & Cotton Cladding Compliance and Regularisation Lawyers

For thirty years, Lovegrove & Cotton have provided advice and represented property owners, builders, and building practitioners in cladding regularisation matters. Please see the building surveyors page for more information.

Please see our page for more information. 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.

Disclaimer

This article is not legal advice and discusses its 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.

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[1] https://ncc.abcb.gov.au/editions/ncc-2022/adopted/volume-two/a-governing-requirements/part-a6-building-classification

[2] https://www.vba.vic.gov.au/building/regulatory-framework/building-classes

[3] https://www.vba.vic.gov.au/building/regulatory-framework/building-classes

[4] https://www.vba.vic.gov.au/__data/assets/pdf_file/0005/97619/Building-notices-and-orders.pdf

[5] https://www.vba.vic.gov.au/__data/assets/pdf_file/0005/97619/Building-notices-and-orders.pdf

[5] https://www.vba.vic.gov.au/__data/assets/pdf_file/0006/136149/Building_BP-01_-When-is-a-building-permit-required.pdf

[6] https://www.vba.vic.gov.au/__data/assets/pdf_file/0008/145925/Building_GE_04_Definition-of-Building_v2.pdf