New year, new NSW construction legislation
By Gemma Dehn and Todd Waugh
The NSW Government is set to introduce several pieces of additional construction-industry focused legislation in 2023. One of those is the Building Bill 2022 (Building Bill), which will increase consumer protection by:
- replacing the Home Building Act 1989 (NSW) (HBA) and making it easier for owners to benefit from the six-year (rather than two-year) statutory warranty period;
- expanding the definition of a ‘developer’ (and therefore the range of professionals caught by the legislation, including certifiers); and
- broadening the statutory duty of care to apply to non-residential buildings.
This article provides a whistle-stop tour of some of the legislative changes set to be made and the impact of those changes.
Background: building standards in sharper focus
Issues in the construction industry in New South Wales have been under the microscope for several years, particularly in the wake of the well-publicised Opal Tower and Mascot Towers events which prompted a call for legislative change to prevent similar events occurring.
In 2017, the NSW Government commissioned a report into the regulation of building standards, which highlighted serious concerns for building owners. One example was builders and engineers did not owe a duty of care to owners’ corporations or to subsequent purchasers of property. This meant that the ability of owners and subsequent purchasers to directly claim against builders and engineers for defective works, was limited and difficult. The report also identified a need for ‘integrity of private certification’, suggesting that professional standards in the certification industry may be falling below acceptable levels.
Among other reforms, the report led to the introduction of the Design and Building Practitioners Act 2020 (NSW) (DBP Act). In a major shake-up for building professionals and insurers, the DBP Act imposed a statutory duty of care on anyone who carries out construction work (including engineers, architects, project managers etc) to avoid economic loss caused by defects arising from the construction work. The duty is owed to subsequent owners of land and has a 10-year retrospective application.
As an aside, we note that the knock-on effect of the increased accountability created by the DBP Act is reportedly that many professionals have exited – or are at risk of exiting – the industry because they are unable to meet the standards imposed and/or fund increasing insurance premiums. It remains to be seen how the industry will cope in the coming years.
Most recently, and as part of its increased focus on improving consumer protection and bringing the legislative framework up to speed with industry practices, additional construction-industry focused legislation is planned to be introduced in 2023.
Replaces the HBA and broadens its protections.
The HBA has been one of the most litigated pieces of legislation in NSW, relied on by owners against builders of residential works for, primarily, complaints relating to defective works. The HBA implies statutory warranties in every contract for residential building work (such as that the work will be done with due care and skill), which cannot be contracted out of.
The HBA imposes time limits within which owners must commence proceedings against the builder for any breach of these statutory warranties. For a ‘major defect’, an owner has six years from completion of the works to commence proceedings, and two years for all other defects.
The Building Bill, which will repeal and replace the HBA, will replace the term ‘major defect’ with ‘serious defect’ (as defined in the Residential Apartment Buildings (Compliance and Enforcement Powers) Act 2020 (RAB Act)) for proceedings concerning a breach of the statutory warranties. The differences in these definitions are set out in the following table.
‘Major defect’ under the HBA (s. 18E (4))
‘Serious defect’ under the Building Bill (s. 76 (7))
|a defect in a major element of a building that is attributable to defective design, defective or faulty workmanship, defective materials, or a failure to comply with the structural performance requirements of the National Construction Code (or any combination of these), and that causes, or is likely to cause:
a defect of a kind that is prescribed by the regulations as a major defect.
the use of a building product (within the meaning of the Building Products (Safety) Act 2017 (NSW)) in contravention of that Act.
|a defect in a building element that is attributable to a failure to comply with the governing requirements or the performance requirements of the National Construction Code as in force at the time the building work was carried out, the relevant standards or the relevant approved plans.
a defect in a building product or building element that:
a defect of a kind that is prescribed by the regulations as a serious defect.
The use of a building product in the building, if:
The table above demonstrates that while there are some similarities, the test for a ‘serious defect’ is less onerous than a ‘major defect’ for the following main reasons:
- a ‘serious defect’ can include a ‘building element’ as defined in the DBP Act, which extends to ‘a component of a building that is part of the building enclosure’ (including internal walls, finishes and fittings) as opposed to a ‘major element’, which is restricted to a load-bearing component of the building, fire safety system or waterproofing elements;
- for defects involving a ‘building element’:
- an owner will only need to establish a breach of the National Construction Code, or the performance requirements of the standards or plans; and
- contrary to the requirements for a ‘major defect’, where the former is established, owners will not need to show that a defect is likely to cause an inability to inhabit or use the building, the destruction of the building or the threat of collapse of the building;
- there is a separate ‘catch all’ provision for both a building element and a building product which meets the old ‘inhabit, destruction or threat of collapse’ test; and
- finally, a building product will be defective if it does not comply with the relevant standards (ie there is no need to prove that its performance is otherwise ‘defective’).
The effect of this change is that for many defects claims that are currently subject to a two-year window from completion of the works for a claim to be brought, owners will soon be entitled to the extended period of six years. In other words, the limitation periods for many defects claims will be longer, which allows more opportunity for claims to be brought (although the flip side is that ‘knee jerk’ commencement of proceedings may be avoided as parties will have a longer period of time to consider the merits of their claims and potentially explore informal resolution).
More entities and individuals will be liable to consumers, including certifiers.
Consistent with the RAB Act, the Building Bill will broaden the definition of a ‘developer’ to include anyone who contracts or arranges for, facilitates or otherwise causes (directly or indirectly) the work, the effect of which is that entities that never owned the property (such as a conventional developer) but facilitated the works in some way, will owe the same warranties as a developer.
In the case of The Owners – Strata Plan 81837 v Multiplex Hurstville Pty Ltd, the Court ruled that the Owners Corporation was not permitted to claim against Multiplex (which had entered into a ‘Development Management Agreement’ with the landowners, contracted the builder and had exclusive access to the property), because it was not an ‘owner’ and therefore not a ‘developer’. If this case was heard under the laws proposed by the Building Bill, Multiplex would have likely been captured by the statutory warranties.
The Building Bill will also replace the defined term ‘construction work’ (under s. 37 of the DBP Act) with ‘building work’. Of particular interest to certifiers and their professional indemnity insurers, the broader definition of ‘building work’ means that certifiers will now be included within the scope of the DBP Act.
This represents a significant development. Before these proposed reforms, it has been very difficult for subsequent purchasers of property in NSW to establish a duty of care owed by certifiers. However, soon, current and subsequent building owners (both residential and commercial) will be able to rely on a statutory duty of care to directly bring claims against certifiers for economic loss caused by defects.
A broader statutory duty of care
The Building Bill will also incorporate and consolidate the duty of care provisions from the DBP Act and the Environmental Planning and Assessment Act 1979 (NSW) (EPA Act). Interestingly, the duty of care under the DBP Act has a retrospective application. In other words, owners are entitled to rely on these provisions in respect of defects discovered to works completed any time within the last 10 years.
The Building Bill will broaden the statutory duty of care owed under the DBP Act so that it will apply to non-residential buildings (and not just class 2). Interestingly, this comes off the back of and is in harmony with the approach of Stevenson J in Goodwin Street Developments Pty Ltd atf Jesmond Unit Trust v DSD Builders Pty Ltd (in liq).In that decision, after commenting on the difficulties in rectifying the definitions of ‘building’ and ‘building work’ as defined by the DBP Act, His Honour determined that the statutory duty of care extends to construction work on anything considered a ‘building’ under the EPA Act including commercial buildings (read our full analysis of this decision in our previous article). This decision has been appealed with an outcome pending.
It is also notable (and of likely interest to Directors and Officers insurers and their insured clients) that the Courts are giving the statutory duty owed by ‘persons’ a broad interpretation. This has given rise to the possibility of claims against persons directly, including against directors.
Summary and commentary
The Building Bill should be taken seriously by anyone involved in the construction industry. It will introduce a suite of changes that – while intended to improve the standards and accountability of those in the industry – also have the potential to increase the frequency of and broaden the type of claims available to owners.
It remains to be seen how the construction industry will hold up against the evolving legislation and whether the changes will promote a safer and more accountable industry.
 ‘Building Confidence: Improving the effectiveness of compliance and enforcement systems for the building and construction industry across Australia’ by Peter Shergold and Bronwyn Weir (February 2018).
  NSWSC 1488
 Ku-ring-gai Council v Chan  NSWCA.
  NSWSC 624.
 Boulus Constructions Pty Ltd v Warrumbungle Shire Council  NSWSC 1368; The Owners – Strata Plan No 84674 v Pafburn Pty Ltd  NSWSC 659.
You might be also interested in...
Insurance | 21 Jul 2022
Since the Design and Building Practitioners Act was first enacted, building practitioners have been scrambling to understand the impact of its provisions.
Insurance | 25 Oct 2022
You get what you pay for: interpretation of insuring clause and conditions under a Design and Construction Professional Indemnity Insurance policy
A Federal Court case is a reminder for developers and head contractors to consider separate insurance policies for developers and design construction works.