Reforms Put Heat on Residential Developers

The next stage of New South Wales building reforms will come into effect on 1 September in an attempt to rebuild confidence in the residential construction industry.

New powers will give the NSW building commissioner the ability to issue stop work orders, order developers to rectify defective buildings and stop occupation certificates from being issued.

This follows a number of key changes including a duty of care which started in June as well as changes set to start in July next year for compulsory registration of people involved in creating new buildings.

Office of the Building Commissioner director said Matt Press said it was a customer-focused regulatory framework, with a rating system, using digital accountability while improving skills within the industry and strengthening contracts and standards.

“The first horizon [goal] is about getting confidence back in the market, here we're focusing on the accreditation regime making sure that there's registered designers, producing designs for the builders to work from,” Press said.

“The second horizon is about getting insurers back into the game, giving them the confidence that they can ensure the work that's being constructed and ensure the practitioners are doing the work.

“The third horizon is about decennial liability insurance, having a first-resort scheme that provides ten-year coverage for defects for consumers.”

Industry consultant and property finance lawyer Peter Faludi said the new legislation was convoluted, and entities created by companies to isolate financial and legal risk would not provide the protection they are used to.

“One of the sections sort of hidden away at the each of these two pieces of legislation is that if anybody contravenes the legislation—say if it’s a company that contravenes the legislation—then the directors and any person who has involvement in the management of the company are also personally liable,” Faludi said.

“That means even if that SPV entity is no longer around, if you were a director or involved in the management of that company you can still be on the hook.

“And because the legislation has in some ways retrospective operation, it could actually mean that a director of an SPV who did a project five or six years ago could be on the hook for something that’s now discovered. ”

Developers and the industry should take necessary steps now to prepare for the new regime, Allens partner Nigel Papi said.

“Industry participants should be alert to the possibility they are caught by the wide definition of 'developer', which includes any person who arranges for, facilitates or otherwise causes or otherwise causes [directly or indirectly] residential apartment building work to be carried out.

“It also includes owners of the land on which the building work occurs and principal contractors as defined in the Environmental Planning and Assessment Act 1979.”

In an update published in the lead up to the commencement of the Residential Apartment Buildings (Compliance and Enforcement Powers) Act 2020 (NSW), Allens said that developers should review any existing projects and consider the need for contractual mechanisms to minimise the occurrence of these problems.

Faludi said many of the larger development companies had already been working towards the changes, and it was smaller developers who had to be cautious and make preparations.

“The logic is, if you do a good job and you comply with the new procedures you have nothing to worry about,” Faludi said.

The building reforms follow a series of high-profile incidents in Sydney where residents were forced from their homes due to major defects, including those at Opal Tower, Mascot Towers and Zetland.