LC Lawyers

Heritage protection may be imposed on a person’s property and can reduce the relatively safe value of a property with little compensation to seek for any loss. For this reason, heritage protection schemes are highly publicised and controversial; some high street historical buildings may be worth preserving via heritage controls,1however when such schemes are imposed on privately owned dwellings a homeowner may experience the single biggest drop in wealth a person can experience in their life.2

At the heart of the issue is whether a property is genuinely worth preserving. As historical cities like Melbourne and Sydney grow, the argument intensifies as cities expand and more economic uses for space are required.  

Generally, there are two types of local heritage protections: a heritage listing generally covers land and buildings, while a heritage overlay usually controls modifications only to the external parts of a building.3 

For items of local heritage significance, such as most homes, these protections are applied in planning schemes by local council. The Council identifies and manages these additional protections by requiring permits for any changes that could affect heritage significance. Its purpose may be to: 

  • To conserve and enhance heritage places of cultural significance. 
  • To conserve and enhance those elements which contribute to the significance of heritage places. 
  • To ensure that development does not adversely affect the significance of heritage places.  
  • To conserve specifically identified heritage places by allowing a use that would otherwise be prohibited if this will demonstrably assist with the conservation of the significance of the heritage value4.

How can heritage protection affect my property? 

Any proposed demolition or renovation will require a planning permit, allowing the local council to determine if proposed building work will detract from the “heritage significance” the property provides that area. This restriction of development options and additional council approval requirements means that any attempted changes to a property will be assessed against the Council’s polices in relation to developments, which will generally aim for designs which sit comfortably with those of surrounding houses. A prospective developer will generally require the assistance of a town planner and a skilled architect in order to produce an acceptable proposal.  

It is common knowledge that many properties in inner city areas may have heritage status, what is less commonly known is that these restrictions can go beyond the house and include other items, such as fencing. For this reason, even the painting of a fence may require a permit.  

This firm has recently been involved in the opposition process for a client living in a rural farming area on a disused dairy, where local volunteers recommend the property for heritage status. The house itself was over 130 years old, surrounded by many disused outbuildings. Every building on the property required renovation and was in poor condition. The imposition of such a recommendation would mean that any renovation work would require the approval of the same Council who imposed the heritage status.  

How does the opposition process work? 

The proprietors of a property recommended to be given heritage will be provided an opportunity to contest such a listing by making submissions in opposition. The opposition process can be long and expensive, however the imposition of heritage status can be far more costly in the long run. It is not uncommon when multiple properties are recommended in a close area for many people to sell up as a way to avoid the restrictions.  

Some of the primary reasons used for opposition can be: 

  • The house is in a dilapidated state or requires renovations, and that any protection imposed on the property would restrict such works.  
  • Past renovations/alterations to the property have altered it to a point where it is no longer valued as demonstrative of heritage value.  
  • The initial purpose of the building has changed.  

Heritage in Victoria 

In Victoria, the preservation and conservation of heritage listed property comes from the Heritage Act 2017 (Vic). 

Local councils are responsible for local heritage and locally significant places, while the State Government, Heritage Victoria and the Heritage Council of Victoria are responsible for state heritage.5 A place included in the register is legally protected and cannot be altered in any way without a permit from Heritage Victoria.6 

Anyone wishing to oppose registration are given the opportunity to present to the Heritage Council of Victoria at a Registration Hearing.7 

If the Heritage Council reject an application, a homeowner can apply to VCAT to overturn the Council rejection. At this level, success is not guaranteed and can be expensive.  

Heritage in NSW 

In NSW, heritage recommendations come from local council, who are in the role of assessing applications and oppositions. As each local Council is different, the values given to properties can vary.  

Conclusion 

Heritage listing is a system decades old which can restrict a homeowner from modifications to their old home and reduce the property’s value to a prospective developer. Property owners are advised to object to such heritage impositions by consulting with an experienced construction and planning lawyer. 

Disclaimer

This article is not legal advice rather a discussion of the topic in only general terms

  1. https://www.cbdnews.com.au/more-than-120-cbd-buildings-and-sites-win-heritage-protection-in-monumental-planning-change/ ↩︎
  2. https://www.theage.com.au/national/victoria/it-boggles-my-mind-melbourne-council-quietly-puts-heritage-protection-on-900-suburban-homes-20230112-p5cbzw.html ↩︎
  3. https://archipro.com.au/article/what-you-need-to-know-about-renovating-a-heritage-home-archipro-au-au ↩︎
  4.  https://www.elementsofhome.com.au/what-is-the-difference-between-a-heritage-overlay-and-a-heritage-listed-building-in-victoria/ ↩︎
  5. https://www.planning.vic.gov.au/guides-and-resources/guides/all-guides/local-heritage-protection ↩︎
  6. https://heritagecouncil.vic.gov.au/heritage-protection/register/#:~:text=Those%20opposing%20registration%20are%20given,a%20meeting%20of%20the%20Council. ↩︎
  7.  https://heritagecouncil.vic.gov.au/heritage-protection/register/#:~:text=Those%20opposing%20registration%20are%20given,a%20meeting%20of%20the%20Council. ↩︎

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City Hall for many years has been doing too much of the heavy lifting

Unequal Responsibilities 

For many years, New Zealand’s local councils have shouldered an unfair share of liability for building defect claims. This burden is disproportionate because councils are neither the builders nor the designers, they often found liable for issues they did not create. 

The Approval Paradox 

While councils are ultimately the approval agencies, they cannot be present 24/7 at building sites. The expectations placed upon them are enormous and unrealistic. 

Equitable Principles Misapplied 

In principle, the party responsible for a defect should bear the liability. However, this is not the case due to the doctrine of joint and several liability, which might be unfamiliar to the general public. 

Understanding Liability Apportionment Doctrines 

Joint and Several Liability: The Overweight Doctrine 

Joint and several liability means that in a legal proceeding with multiple co-defendants, the financially solvent defendants will assume the liabilities of any insolvent defendants. This places an undue burden on councils, who are seen as “deep pockets.” 

Proportionate Liability: The Responsibility-Weighted Doctrine 

Proportionate liability ensures that each defendant is only responsible for their assessed portion of the liability. In this system, liabilities do not migrate; they stay within their judicially assessed silos. 

The Doctrine Dichotomy 

Joint and Several Liability Explained 

“Joint and several liability is a doctrine that provides that when there are a number of co-defendants in a legal proceeding, those defendants that are still standing or financially sound at the end of the proceedings will assume the adjudicated liabilities of any insolvent defendants in the same proceedings. This means that the solvent defendants assume the financial liability for other parties that through their own negligence occasioned economic harm. An astute plaintiff will do his or her level best to find a way to implicate a council in full knowledge of the fact that in a country like NZ where insurance is optional unless you can embroil a deep pocket in the legal action, a litigated victory can be pyrrhic because there will be no money at the end of the day.” 

How to Fix the New Zealand Building Act 2014 – Adjunct Professor Kim Lovegrove 

Proportionate Liability Explained 

“This doctrine ensures that no defendant is liable for any more than his judicially assessed proportion of liability. Case in point would be a multi-party proceeding where there is a designer, a builder, and a council. When the judgment is handed down the decision maker will divvy up liability on the basis of the given defendants’ contribution to the problem. Regardless of the pecuniosity of the co-defendants, no defendant assumes the liabilities of another defendant, or to put it another way, the liabilities can’t migrate, they stay within their judicially assessed silos.” 

How to Fix the New Zealand Building Act 2014 – Adjunct Professor Kim Lovegrove 

The Case for Proportionate Liability in New Zealand 

Without Mandatory Insurance 

If proportionate liability were introduced without mandatory insurance for key building practitioners: 

  • Local government would benefit by not having to assume the liabilities of those primarily responsible for construction issues. 
  • Consumers might be left without recourse, as many building practitioners in New Zealand are not required to have insurance. 

With Mandatory Insurance 

If proportionate liability were coupled with compulsory insurance for key actors: 

  • Local governments, rate-paying consumers, and plaintiff consumers would generally be better off due to the assurance of solvent defendants.  

International Perspectives 

Australian Precedent 

Several Australian jurisdictions, including Victoria, have adopted proportionate liability along with compulsory insurance since 1993. This has led to significant benefits for local governments and has not shown signs of unsustainability. 

Mandatory Insurance in Victoria 

In Victoria, the following practitioners are required by law to carry professional indemnity cover: 

  • Engineers 
  • Building surveyors 
  • Building inspectors 
  • Draftspersons 
  • Architects 
  • Quantity surveyors 
  • Residential builders 

Residential builders are required to carry home warranty cover, which protects the homeowner if the builder becomes insolvent or disappears. 

The Road Ahead for New Zealand 

Support from Local Government 

The support for proportionate liability in Australia has been strong, with local governments backing the reforms. 

Potential for Market Adaptation 

Build it and they will come

Some argue that the insurance industry in New Zealand may be reluctant to underwrite mandatory cover. However, with the right regulatory changes, including mandatory registration of key practitioners and tightening up registration criteria, the market is likely to adapt. 

Conclusion: A Call for Reform 

To ensure fairness and sustainability in the construction sector, New Zealand should consider: 

  • Introducing proportionate liability 
  • Mandatory registration of key practitioners 
  • Compulsory insurance for all responsible actors 
  • Addressing the ten-year liability limitation period 

Such reforms would alleviate the disproportionate burden on local councils and ensure a more equitable system for all parties involved. 

Author biog: 
Kim Lovegrove is admitted to practice in NZ, is a past president of the Northern Chapter of the NZIOB, a construction law reformer of many years, chair of the IBQC. He has been retained as a law reform advisor by the Japanese Government, some Australian governments and has had deployments with the World Bank in China and Southern Africa. He is also a member of the NZ Society of Construction Lawyers. 

Related articles

Some ideas on how to renovate the New Zealand Building Act to embrace International good practice
A contrast and comparison between the Building Act 1993 (Victoria) and the Building Act 2004 (New Zealand)  

Disclaimer

This article is not legal advice rather it is a discussion of the topic in only general terms.

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Introduction:  

In this article we will look closely at the similarities and differences between the New Zealand Building Act 2004 (the New Zealand Act) and the Victorian Building Act 1993 (the Victorian Act). We will specifically examine three key areas beginning firstly with those whom are required to be registered/licenced within each jurisdiction.  

We will then explore the liability limitation periods for the bringing of actions under the respective acts. We will then venture into the different insurance requirements under both statutes including domestic building insurance, professional indemnity insurance and public liability insurance  

The Registrants:  

 

 

The Victorian Act and its New Zealand counterpart specify different categories of registrants. 

  

Victoria  

In Victoria, one is required to be a registered builder if one works in domestic building and carries out contract works for more than $10,000.1 You do not have to register with the Victorian Building Authority (VBA) for jobs that involve only one of the following: plastering, tiling, electrical work, glazing, installing floor coverings, insulating, painting…2 

There are categories of building practitioners in Victoria which the Victorian Building Authority (VBA) included in the definitions of ‘building practitioner’ under the Victorian Act. These categories are:  

  • building surveyors, 
  • building inspectors (unlimited/limited), 
  • quantity surveyors, 
  • building designer (building design – architectural, interior, services), 
  • commercial builders (unlimited/limited), 
  • domestic builders (unlimited/limited/manager), 
  • demolishers (low-rise buildings/medium-rise buildings/unlimited), 
  • erector or supervisor (temporary structures – Class 1 and 2), 
  • a project manager.3 

It is worth noting, the Victorian Act also regulates plumbers in a similar manner to building practitioners by requiring under section 221D that plumbing work only be carried out by licenced or registered plumbers.4  

New Zealand 

In contrast, New Zealand’s emphasis differs in that it provides that all restricted building work (RBW) be carried out or supervised by a licenced building practitioner (LBP)’.5 Because RBW ‘is work that is critical to make a home structurally sound and weathertight’ there currently exists the following seven licensing classes:  

  • design,  
  • carpentry,  
  • roofing,  
  • brick and block laying,  
  • external plastering,  
  • foundations,  
  • site.6  

The New Zealand system appears to place a heavier emphasis on specific trades or ‘sub-contractors’ as it were than Victoria. The term registered builder in Victoria is also found in the definitions section of the Building Act 1993.    

In New Zealand, the categories attempt to capture all trades that perform restricted building work, such work is defined as ‘work that is critical to make a home structurally sound and weathertight’.7 So, at present the New Zealand Act seems limited to the capturing of tradespersons working on houses and small apartments. This is at odds with the current approach in Victoria which is a far broader church and is not merely corralled to homes but embraces far more complex and extensive building structures.  

Of interest too is that the above mentioned ‘trades’, save for the design practitioners in the case of Victoria are sub-contractors in that they would typically be sub-contracted to the registered builder, particularly in the case of residential building work.  

Residential building work in the case of both Victoria and New South Wales is governed by the Domestic Building Contracts Act 1995 (Vic) and the Home Building Act 1989 (NSW) respectively. 

It is worth mentioning as it provides greater context that both jurisdictions operate in a wider ecosystem of legislation and regulations that are relevant to the building and construction industry.  

The New Zealand framework contains the Registered Architects Act 2005, Chartered Professional Engineers Act 2002, Plumbers, Gasfitters, and Drainlayers Act 1976 and Electricity Act 1992 which provide registration/licensing requirements for architects, engineers, plumbers, gasfitters, drainlayers and electrical workers respectively.  

Victoria is similar in how there is also a wider legislation base including the Professional Engineers Registration Act 2019, Electricity Safety Act 1998 and Architects Act 1991. These acts provide registration/licensing requirements for those specific participants. Victoria does however contain requirements for the registration of plumbers and acknowledges the category of building surveyors as a building practitioner under the Building Act itself. 

Liability periods: 

Under the New Zealand Act there is a 10-year limitation period which means civil proceedings in respect of building work cannot be brought after that period. This is stated in section 393(2) as:   

  

‘…Civil proceedings relating to building work may not be brought against a person after 10 years or more from the date of the act or omission on which the proceedings are based.’8 

 

Similarly, under the Victorian Act the liability period for non-cladding work is also 10 years under section 134(1) which states:   

  

‘…a building action cannot be brought more than 10 years after the date of issue of the occupancy permit in respect of the building work (whether or not the occupancy permit is subsequently cancelled or varied) or, if an occupancy permit is not issued, the date of issue under Part 4 of the certificate of final inspection of the building work.’9  

Unlike the New Zealand Act, Victoria provides an extension of five years for cladding work under section 134(2) as follows: 

 

‘Despite subsection (1), a building action may be brought more than 10 years but less than 15 years after the date of issue of the occupancy permit in respect of the building work (whether or not the occupancy permit is subsequently cancelled or varied) or, if an occupancy permit is not issued, the date of issue under part 4 of the certificate of final inspection of the building work if:  

            (a) the building action is a cladding building action.’10  

Although, you could be forgiven for believing the two liability limitation periods act in similar ways in practice, the New Zealand legislation is more problematic and troublesome. The New Zealand legislation is marred by uncertainty in terms of the time when the liability limitation period begins to run. 

The Victorian legislation is not so marred as the liability period commencement trigger is crystal clear. However, as we see from New Zealand case law, in the decision of Wigglesworth v Auckland Council [2012] absent the Victorian specificity in this area, the terms ‘off-task’ or ‘off-duty’ were discussed as a test for considering when the commencement of the liability would run for a contractor.11  

These phrases were used to define ‘when the ostensible 10-year period starts to run’ and would relate to situations where a ‘contractor stops work on the site, leaves the site and does not return’.12  

The situation as when the liability period commences would not be so clear where ‘the sub-trader’s works are partially completed and then not finally completed until the end of the building project’ which is common.13  

In any case, the vagueness of the New Zealand approach has been resolved in Victoria by the specificity of ’10 years from issuance of occupancy permit’.14 There is nothing that is either cryptic or uncertain about such a trigger. The OP is issued by the relevant building surveyor, a copy is kept with the council and 10 years post issue of the OP the ability to sue for economic loss is expunged (save for the cladding exemption). 

Insurance Requirements:  

 

The Victorian Act regulations contain very prescriptive requirements for registrants to possess insurance than compared to New Zealand. For example, in Victoria, if you undertake domestic building work worth more than $16,000 you need domestic building insurance.15 

This specific power is contained in part 9 of the Victorian Act under section 135(1)(a) which gives the Minister the power to:  

‘Require building practitioners in specified categories or classes of building practitioners or any part of a class or category of building practitioners or any persons in a specified category or class of engineers engaged in the building industry to be covered by insurance’.16  

Aside from domestic building insurance, the Victorian jurisdiction also requires prescribed classes of registrants to have professional indemnity insurance.17 These apposite registrants are:  

  • building surveyors,  
  • building inspectors,  
  • quantity surveyors,  
  • civil, mechanical, electrical and fire safety engineers.  
  • building design (architectural), building design (interior), building design (services) draftsperson.18 

Similarly, demolishers for low, medium and high-rise buildings and Class 1 & 2 erectors are required to have public liability insurance.19 

In New Zealand the legislative power appears very similar to the Victorian Act under section 192 which allows the chief executive when: 

‘Considering whether a person has adequate means to cover any civil liabilities’…’the chief executive may have regard to whether the person – holds an insurance policy that meets the minimum terms and conditions prescribed by regulations made under section 402(r)’.20  

However, despite the similar powers of both jurisdictions to impose mandatory insurance requirements, New Zealand does not currently impose any mandatory insurance obligations for LBP’s.   

Conclusion:  

  • Victoria uses the term ‘building practitioner’ whereas in New Zealand it is ‘licensed building practitioner’ (LBP).
  • The differences are interesting and to a degree profound, as the Building Act registrants in Victoria are save for builders, typically degreed and are typically engaged by property owners.  
  • The NZ registrants in the Australian setting would be considered to be sub-contractors and tradespeople. Tradespersons in Victoria are not registered, save for plumbers. Further tradespeople are typically sub-contracted to builders in Victoria, regardless of whether they are residential, civil or commercial. 
  • Both jurisdictions offer a 10-year liability period albeit New Zealand’s liability commencement date is fraught with uncertainty which is leading to confusion when compared to the Victorian regime and resulting in litigation that could be avoided if the act was amended. Victoria also offers a 15-year liability period for works relating to cladding which New Zealand does not.  
  • Unlike Victoria, there are currently no mandatory insurance obligations visited upon building practitioners in New Zealand for licenced building practitioners (LBP’s), although whether professional indemnity cover would be available for the classes of New Zealand registrants is another question. 

Some of our people

Kim Lovegrove has 3 adjunct/conjoint professorships and is admitted to practice in both New Zealand and Australia. He has 30 years` experience in building regulatory law reform and has been a senior law reform consultant to the World Bank and state and national governments. R and D for the piece was forthcoming from one of our law graduates.

Duncan Anderson is domiciled in Christchurch and has recently completed a Masters in Construction law from Melbourne University. 

Disclaimer

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

Footnotes:  

1 Victorian Building Authority, ‘Engaging a builder’ < Engaging a builder | Victorian Building Authority (vba.vic.gov.au)> <Accessed 10 April 2024>  

2 Consumer Affairs Victoria, ‘Do you need to register?’ <Becoming a registered building practitioner – Consumer Affairs Victoria><Accessed 10 April 2024>  

3 Victorian Building Authority, ‘Building Practitioner’ < Building practitioner registration | Victorian Building Authority (vba.vic.gov.au)><Accessed 10 April 2024> 

4 Building Act 1993 (Vic) S 221D 

5 Building Act 2004 (NZ) s 84 

5 Licenced Building Practitioners, ‘Licensing Classes’<Licensing classes | Licensed Building Practitioners (lbp.govt.nz)><Accessed 10 April 2024>  

6 Ibid 

7 Ibid 

8 Building Act 2004 (NZ) s 393 

9 Building Act 1993 (Vic) s 134(1) 

10 Building Act 1993 (Vic) s 134(2)-(a) 

11 Wigglesworth v Auckland Council [2012] NZHC 1194 

12 Presentation by Adjunct Professor Kim Lovegrove for the Society of Construction Law New Zealand, February 2023 <Kim-Lovegrove-NZ-SCL-Presentation-2023.pdf (lclawyers.com.au)><Accessed 16 April 2024>  

13 Ibid 

14 Ibid 

15 Victorian Building Authority, ‘Insurance for building and plumbing work ‘< Engaging a builder | Victorian Building Authority (vba.vic.gov.au)> <Accessed 10 April 2024> 

16 Building Act 1993 (Vic) s 135(a) 

17 ‘Building Practitioners’ Insurance Ministerial Order’, Victorian Government Gazette, No. S 19 – 17 January 2020 

18 ‘Building Practitioners’ Insurance Ministerial Order’, Victorian Government Gazette, No. S 19 – 17 January 2020 

19 ‘Building Practitioners’ Insurance Ministerial Order’, Victorian Government Gazette, No. S 19 – 17 January 2020 

20 Building Act 2004 (NZ) s 192 & 402(r) 

  

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The below piece that I have italicised for ease of reference was published in sourceable 9 years ago. It attracted 33,000 reads. I`ve re-released it (with a couple of minor edits) as the crises discussed in the article, the shrinking pool of certifiers hasn’t been solved nearly a decade later. 

Jill Brookfield CEO of the Australian Association of Certifiers last week was quoted in the Daily Telegraph as saying “Make no mistake, the housing crises cannot be solved without certifiers”

“Is the era of Private  Certification nearly  over” sourceable  3 July 2015

“There is talk again a around the imminent demise of private certification. If this is correct, how did it get to this?

A trip down memory lane will provide some of the answers. Private certification was established in the early 1990s. By the mid-90s, it was prevalent in all Australian jurisdictions albeit in different guises. 

The system allowed one to choose either a private certifier or a council building surveyor to issue building permits, carry out inspections and ultimately issue occupancy permits. In some jurisdictions like ACT, certifiers were tasked with carrying out some of the approval functions but the occupancy permits were issued by government. There were further permutations; in some jurisdictions they were called building surveyors, while in others, accredited certifiers.

Why was the private certification system introduced?


It came into play to speed up the building approval process. Back in the day, before the system opened up (and I’m showing my age here), building permit issues was the sole domain of local government. Builders and owners complained that it could take weeks, sometimes months to get a building permit from a council.

I remember lodging a simple set of plans for a very minor renovation. When visiting the council building department I noticed that between the hours of 10am and 12pm, or 2pm and 4pm, I could be graced with access to a building surveyor. It was a good lifestyle job for the civil servants but a  inconvenient for the rate paying customer. 

Private certification revolutionised this and turnaround time plummeted as building surveyors competed with one another for building permit revenue.

10 year runoff cover

When private certification was first introduced, the insurance products were fantastic. All building practitioners could get 10-year runoff cover. 

Based on the French system, when a building practitioner retired, it triggered automatic runoff. This meant that the retiree was indemnified for 10 years post-retirement and consumers had the benefit of insurance protection for 10 years. 

It was very good consumer protection. By the late-90s, however, the insurance industry said “enough.” They complained that the cost of underwriting the scheme was crippling and unsustainable. Fearing an underwriter exodus, the governments did away with mandatory requirement of runoff.

By the late 90s the risk landscape for certifiers began to change

Further, the early 90s Model Act based reforms had intended that all building practitioners were required to be registered across the board. This only occurred in some jurisdictions like Northern Territory and Victoria. Other jurisdictions like New South Wales chose not to insist upon the registration of all building practitioners; they opted for a regime where only residential builders and private certifiers were required by law to be registered and insured. 

So we had the emergence by the late-90s of profoundly divergent risk landscapes in the eight countries of Australia (i.e. the states and territories). 

Ominously, risk started to skew in the direction of the certifiers

Then there was another thing that cut across the bow: in the mid-90s the ABCB introduced a performance based building code. This allowed building surveyors to sanction alternative solutions – to choose innovative often computer modelling based design scenarios, designed to comply with the objectives of the BCA – in lieu of design proposals complying with the prescriptive or deemed to satisfy provisions of the BCA.

This was all well and good, but it was a huge game changer as for the first time in Australia, building surveyors could issue building permits based upon alternative solution design scenarios that did not comply with the prescriptive provisions of the BCA.

A private certifier, armed with a building surveying qualification could ‘green light’ a development courtesy of an alternative solution that was not of the tried and true prescriptive regulation persuasion. Talk about a radical turn!

Now one had a proliferation of alternative solutions being sanctioned in areas like fire compliance, where sprinklers would be deleted as other methods of fire retardant persuasion were preferred. 

Invariably some of the alternative solutions involving the likes of the deletion of sprinklers were a cheaper option than sprinkler-containing solutions. The risk barometer was ratcheted up against private certifiers on account of the massive assumption on alternative solution base risk.

Another Game Changer introducing the above 3 story home warranty exclusion

At about the turn of the third millennium, the insurers arched up. Insurers descended upon government, insisting that they didn’t like to underwrite warranty cover for residential skyscrapers anymore. The risk was too high and they argued that they were losing money on multi-unit development claims.

They intimated that they would have to have to leave the market unless they were freed from underwriting the mandatory legislative requirement for sky-rise multi-storey dwellings. 

The upshot was that insurers no longer underwrote residential high rises for builders. But here’s the thing: private building surveyors still had to carry general professional indemnity cover for high rise residential monoliths.

So the elevated status of private certifiers as highly desirable insured defendants went through gained momentum, particularly in jurisdictions like NSW where, unlike Victoria, certifiers had by default become the only professionals who were by law required to carry mandatory PI cover. 

For fear of belabouring the point, this made certifiers very attractive to plaintiffs. In Victoria, on the other hand, engineers, architects, draftspersons and quantity surveyors are all required to be insured. Needless to say, the risk was spread more evenly.

Not surprisingly, in garden variety lawsuits – multi-defendant legal proceedings, that is – building surveyors increasingly found themselves locked in as co-defendants.

If not as co-defendants, they were joined as third parties and this in recent times has become the bane of the building surveying sector. The insurers began to see say ‘these guys as a bad risk, as they were popping up as co-defendants everywhere” and the London-based underwriters looking from afar began to get a little nervous about this antipodean creature called a private certifier (or is it an accredited certifier?).

Premiums went up and more and more certifiers began complaining about the difficulty in getting insurance cover. More and more frequently, one heard of certifiers having to look far and wide for cover to avoid closing shop and going out of business.

The deleterious impact of all of this on the risk profile has continued to coincide with fee cannibalisation and the habit of too many builders or developers screwing certifiers down on price. So we have an unholy coalescence of hefty and increasing premiums and cutthroat fee competition. Anecdotally, there is even talk of the insurance industry pulling out of the market altogether. None of this is surprising.

All of this means that the profession is being poleaxed every which way and the risk profile of the private certification sector has become increasingly dire. Compounding the problem is an ageing demographic, for the green shoots of youth are not coming through. Whenever I address a building surveyor conference, 80% of the audience members look like me: male, bald or grey, or both. Not surprising, we are all well north of 50 and take my word, 50-something is not the new 40-something.

More and more certifiers are telling me that the writing is on the wall. Unless there are some profound changes, this relatively new profession may be in its twilight. This has led to the rumours that now abound about it all returning to local government. 

That may be well and good, depending on your point of view, but remember: in the post-GFC world there have been cutbacks to the funding of compliance departments. Latvia’s supermarket roof collapse, that killed many people, was in part due to the post-GFC austerity measures on account of the disbanding of the national building inspectorate.


A return of the approval function to local government will not be a cure-all

Furthermore, builders and aspiring home owners should be on notice as swift permit delivery may be coming to an end. And for those who have, for so many years, screwed surveyors down on their fees, let’s see how the numbers will stack up when one is holding a development for an extra few months on account of permit delays in councils due to human resource constraints.”

Kim Lovegrove MSE RML is a partner of trans tasman lawyers, Lovegrove & Cotton, an author & law reformer, a Conjoint Professor at UWS University of Newcastle NSW & Chair of the IBQC and a past President of Northern Chapter, NZ

Disclaimer

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

Filed Under: Articles Tagged With: , , ,

The drum is again beating, as there is talk about decennial liability cover or a form of insurance that is akin to it, being introduced again in Australia.

It is important for law reformers to know that this pathway has been traversed before.

Within the construction context decennial liability is an insurance indemnification regime for construction liabilities that are occasioned by acts of negligence. The indemnity is operational for a period of ten years after the liability trigger event.

The French introduced a decennial liability cover regime in the late 70s under the Spinetta code.  It has proved resilient as the insurance cover is still a key feature of the French system. But a cautionary note, the French building regulatory ecology is very, very different to that of any Australian jurisdiction.

90s Runoff Cover

One would hope that those charged with the law reform agenda know that a form of decennial liability cover, i.e. existed in many Australian jurisdictions in the 90’s. It was first introduced in the Northern Territory and Victorian Building Acts.

The Ministerial orders that mandated the cover dictated that a compliant insurance policy had to provide a period of indemnity for 10 years post issue of an occupancy permit. 

The triggering event that gave life to the indemnity was the disappearance or cessation to practice of the registered building practitioner.

Why was runoff cover introduced in the early nineties? 

When building approval private certification was introduced in the early nineties, it provided prospective homeowners and developers with the ability to engage a private building surveyor instead of a local council building surveyor to issue the building permits.

The new mandated run-off cover regime was designed to ensure that private certifiers could emulate the accountability capability that exists with local government. 

It was recognised that if a local government building controller committed an act of negligence in the journey of building permit delivery, the deep pocket of local government could underwrite the liability, hence the coining of the euphemism insurer of last resort.

Annual claims made cover couldn’t emulate this capability, for when a certifier retired or became insolvent unless they had taken out run-off cover there would be no consumer protection for past acts, errors or omissions. This reality would present itself if the certifier defendant was a man of straw.

The accountability level playing field.

The promulgation of mandatory runoff cover mirrored the ability of local government to provide long tail cover down the line, from 10 years from the date of issue of the occupancy permit that is, to the expiration of the liability tenure.

1993 introduced an unparalleled and holistic consumer protection system.

Mandatory registration and mandatory long tail cover for key practitioners was established. Those impacted were:-

  • Engineers
  • Building surveyors
  • Building inspectors
  • Draftspersons 
  • Quantity surveyors
  • Architects 
  • There was also structural defects cover for commercial builder

Residential builders were required to carry a more comprehensive form of warranty cover.

In the early nineties there was no 3-story exemption for the requirement for builder’s warranty cover, so the form of insurance coverage was significantly more comprehensive at that time.

The trifecta

The key benefit of the holistic system was that coinciding with the introduction of proportionate liability was the mandatory registration and long tail cover regime.

The trifecta ensured that consumers would not be lumbered with an unfunded liability if a given responsibly actor became insolvent.

It was as good as it gets

The combination of mandatory professional indemnity, long tail cover and the ‘north of 3 story’ exemption heralded the beginning of the mandated runoff cover chapter but alas within a historical context like any Camelot, it’s lifespan was ever so brief.

In an article “Run off cover has resulted in peace of mind for building practitioners” by this writer for the Age newspaper dated the 9 November 1996, the benefits of the newly promulgated long tail cover were extolled.

“Since the Building Act was proclaimed in 1993 there has been an about change, courtesy of automatic run -off cover. All building practitioners are now required to carry automatic run – off cover in order to practices. Run off cover continuous to provide professional indemnity cover to practitioners for liabilities incurred after their registration ceases. While a practitioner is registered, he is required to pay an annual premium. If the practitioner retires or can no longer afford to practice, provided he was registered and insured while practices, he is indemnified by the insurer for the duration of the liability period. That period is 10 years under the Building Act.

This is an added benefit for practitioners. Prior to proclamation of the act the only way a retired practitioner could avoid the spectre of personal liability for past omissions was to purchase an annual runoff cover policy. This was expensive because peace of mind had to be maintained for a persons’ natural life. I know of one case where an engineer was sued in his 80’s many years after leaving the industry. He was uninsured and personally liable for the full brunt of the judgement)

Ten-year runoff cover is rare internationally. The only other jurisdictions in the world that have this cover are South Australia and France. It requires a massive premium pool”. [1]

Similar insurance cover was issued in NSW in the late nineties, but it only captured accredited certifiers, as apart from residential builders only certifiers had to be registered in NSW.

“Part 7D of the Regulations comprises extensive insurance requirements for accredited certifiers. The main innovation is the introduction of runoff cover. Run off cover is an insurance cover which meets claims arising after a practitioner has ceased to practice. Runoff cover indemnifies the individual, partnership or company against and accredited certifier`s statutory liability. This would essentially entail any negligence associated with inspections and/or certification responsibilities”.

And then

By the end of the ninety’s storm-clouds were brewing as the challenges of maintaining the mandated runoff cover regime started to gather. The cost of underwriting long tail run cover was proving too onerous for the insurers to bear.

So, at about the turn of the century because of insurance industry submissions to government, the import of which was that the insurance regime was unsustainable, the mandated run off coverage was peeled back. 

This writer can’t recall the exact dates but the winding back events weren’t far apart, for within a proximate period: 

  • Run-off cover
  • A height restriction for warranty cover
  • And structural defects cover for commercial builders

were legislatively annulled by way of amendments to the ministerial orders.

It was the long-term cost of underwriting the cover that was the challenge

The cost of underwriting the product had proved too great. Typically claims take 2 or 3 years to materialise, so at about year five post introduction of the mandated run off cover regime the number of insolvency events were mounting and in some cases there were very large pay outs.

A major insurer insolvency event also occurred with the then insurer HIH in 2001. This company underwrote a lot of construction risk in the building industry.

How is the past instructive?

Firstly, regard must be had to the fact that an insurance product very much akin to a decennial cover did exist for the greater part of the nineties.

When we worked on the facilitation of its promulgation in the early nineties in Victoria and the late nineties in NSW, we worked in lock step with the insurers, so that there was a market capacity to underwrite when the novel cover was first introduced.

The problem was one of sustainability

Sustainability might be a well-worn cliché and an overused term but before the term had the cache that it has now, the continued underwriting of this insurance product within the Australian context proved to be unsustainable. That is just a statement of historical fact.

There were several significant insolvency events at the beginning of the century particularly in the multi – unit high rise sector. This put phenomenal pressure on the underwriting capacity of the market. A major insurer in the construction sector HIH collapsed leaving an unfunded liability crisis.

So, if policymakers are intent on revisiting the viability of the promulgation of decennial liability cover, regard would usefully be had to the past and then most importantly a look to the future the posing of the question will it be sustainable.

This writer is not aware of any evidence to suggest that the risk profile of the building industry has improved. One thing’s clear there are weekly reports of major contractor insolvencies.  

It is one thing to establish a new insurance regime, it is another thing for it to be sustainable. The French have succeeded but Australia has not, and one will only know if any new regime will prove to be resilient at least five years down the track.

The other challenge confronting Australia is the phenomena of the “8 Countries” of Australia. Each sovereign State and Territory has it’s own building regulatory dominion and there exist profound differences in regulatory ecology and consequently profoundly different risk settings. So, if one risk overweight jurisdiction generates a high claims profile, offshore insurers may well treat that as an indictment on the whole Australian market.

It is axiomatic that this doesn’t help but this writer is very confident that this reality will never change despite the decades old well-ventilated clamour for cross jurisdictional regulatory harmonisation, the pleas have not heralded any ‘pan-state and territory’ uniformity. In fact, if anything the states and territories are embracing increasingly divergent pathways.

This article was prepared by the team at Lovegrove & Cotton, Construction and Planning Lawyers.

Kim Lovegrove as an adviser was heavily involved in the development of the Victorian Building Act 1993 and the Part 4 Reforms to the NSW Environmental Planning and Assessment Act of 1997. In this capacity he worked on the development of the liability and insurance reforms in both jurisdictions. 

Tsigereda Lovegrove is a construction and planning lawyer at Lovegrove and Cotton, is the secretary of the IBQC dispute resolution coalition and is a committee member of the Victorian Building Disputes Practitioners Society.

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 construction law firm. Lovegrove & Cotton Lawyers and our experienced team will assist you based on the facts and circumstances of your case.

References

[1] Kim Lovegrove, “Run off cover has resulted in peace of mind for building practitioners”, The Age, 9 November 1996.

[2] Kim Lovegrove and Polly Hatzellis, “Liability and Insurance Reforms of the Environmental Planning and Assessment Act 1979 (NSW) insurance” Austlii, <Rwww.austlii.edu.au/au/journals/AUConstrLawNlr/2000/35.pdf>.

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