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Apartment Owners Left with No Protection

Apartment Owners Left with No Protection

29 May 2015 Jimmy Thomson

In the wake of the High Court ruling buyers are being warned to get legal advice before purchasing new units.

The decision handed down on Wednesday by the High Court that builders do not have a duty of care to people who buy their apartments is a devastating blow to the apartment industry as a whole, and to unit owners and prospective buyers in particular.

The decision that the owners corporation in a 22-storey building could not sue the builder to recover the cost of fixing defects in common areas exposes the paucity of consumer protections for apartment buyers. 

As reported in this story, there is now no recourse for apartment owners who don't qualify for home warranty insurance (if their buildings are more than three storeys high) and may have failed to get defects rectified by their developer.

It's the third get out of jail free card in less than six months handed to dodgy builders. Earlier this year state parliament approved changes to the Home Building Act which seriously restricts the time frame in which certain defects can be claimed.

And the 2 per cent defects bond that was to have been part of proposed strata law reforms will not now come into force until 2016, if at all.

The High Court ruling basically says that because developers have the expertise to choose their builders and apartment buyers have the expertise to choose their developers, and there are existing safeguards, owners are not "vulnerable" in a legal sense.

That means the builders do not have a "duty of care" to apartment buyers who, if they fail to get defects rectified by developers, are left with no recourse but to fix them at their own expense.

Stephen Goddard, a leading strata lawyer and chairman of the Owners Corporation Network, the main advocacy group for apartment owners' rights, told Fairfax Media the State Parliament needed to step in to address a "gaping hole in consumer protection" for residential apartment owners.

A recent survey by the UNSW Built Environment Department showed that about 85 per cent of new apartment buildings contained defects.

Changes to the Home Building Act that are due to come into force in December will redefine major defects as anything that means the building (or part of it) is uninhabitable or literally falling down around you. You'll have six years to claim for these defects (provided you haven't been killed by falling masonry in the meantime).

Anything else, including issues that can take years to emerge will be considered minor defects, meaning owners' corporations have only two years in which to make a claim.

The problem is, you could be well into your two-year window before your block's first annual general meeting is even held. 

As a result owners in new buildings are being advised by strata managers and lawyers to insist on a full defects survey the minute they take over the running of their buildings. 

You have to feel sorry for the decent quality developers who are often unfairly tarred with the same brush as chancers who specialise in cheap and cheerless slums of the future. 

But another leading strata lawyer Colin Grace, who represented the owners corporation in the High Court case, warns all prospective buyers to get legal advice about their consumer protection before buying new units.

"The High Court decision has removed the rights of owners corporations in commercial buildings and residential buildings to make a building defect claim in negligence," he said. 

"Anyone who owns or is considering owning a residential or commercial apartment, will be affected by these changes."

He said that all commercial and residential investors should obtain independent legal advice on their rights, including the possibility of having no claim at all to rectify building defects.