Building Manager Review Issue 1 2013

Welcome to the first issue of Building Manager’s Review, a monthly newsletter keeping you updated on the ever-changing world of strata.At K&S Building Management Services (K&S BMS) we believe keeping our owners and clients well informed about issues that impact on the management of buildings makes resolving issues easier for everyone concerned.K&S BMS has been working in the strata sector for almost 30 years. Our services are designed to assist owners corporations with the smooth running of their buildings. Duties we undertake include: by-law enforcement, coordinating repairs and maintenance, assisting with building defects issues and claims, coordinating fire and essential service compliance, managing various maintenance contracts, liaising with owners and tenants in the day-to-day operation of their building, and waste management.

Defects – what are they & what to do

In this first review, we’ll be addressing one of the hot topics in strata – building defects.

During our time in the strata industry we have dealt with a number of multi-million dollar Home Owners Warranty defects claims (none of these claims resulted from work carried out by contractors engaged by K&S BMS). These defect claims related to the original contractor or builder’s works.

We have been fortunate to work with some of the best lawyers and construction experts available in servicing our clients. One such construction expert is Mr. Chris Mo’ane, who is the Managing Director of Integrated Consultancy Group. Chris has been the lead construction expert on a number of successful Home Owners Warranty/litigation building defects claims on behalf of some of the buildings we manage. We have invited Chris to contribute to this first review.

Jamie Killorn – Director, K&S Building Management Services

Chris – in layman’s terms, how would you describe a building defect?

Many people mistake an item that has reached its serviceable life as a building defect. The term building defect is used as a generic term. A building defect can be best described as an item or section of works completed by a licensed builder (or tradesman) that is not completed in a fit for purpose manner, and/or is not constructed as drawn or specified within the approved plans, and/or specifications and/or that may not be compliant to the Building Code of Australia and/or its referenced Australian Standards.

What obligations does an Owners Corporation have to make good on maintenance issues and/or building defects?

I can certainly give some guidance to this, however please note I’m not providing legal advice.Strata schemes fall under a number of Acts, two of which are the Strata Schemes Freehold Act and what is commonly known as the Strata Schemes Management Act. Section 62 of the Strata Schemes Management Act requires an Owners Corporation to maintain and keep in a state of good and serviceable repair the common property, and any personal property invested in the Owners Corporation. This obligation is conditional on both maintenance and defect items. Unfortunately, far too often I see the misconception that the Owners Corporation does not have the obligation to make repairs in relation to defect claims.

My observation is that whilst the Owners Corporation would like to delay repairs until the settlement of the claim or litigation, this really is only achievable with the agreement and participation of the lot owners affected by the defects. There are avenues for lot owners to seek orders to force Owners Corporation to make repairs. Accordingly, Owners Corporation should act as expediently as reasonable to address both maintenance and defects issues. Good communication with both lot owners individually and the Owners Corporation at large is imperative. Most owners are very supportive and patient, as long as they can see that the Owners Corporation is acting reasonably in addressing their lot property issues.

What is the process the Owners Corporations should take in identifying defect works by the original builder and carrying out repairs?

Often Owners Corporations inadvertently make repairs to defective works believing they are carrying out maintenance. In many of these cases, there are circumstances that make it difficult to claim the rectification cost back from the original builder and/or the Home Owners Warranty insurer. You must be mindful of what is being repaired.

The question that should always be asked prior to proceeding with repairs, “Is this damage/remedial works brought about by expected wear and tear?” For example, if a roof membrane leaks and causes water ingress into a lot property or common property and the building is aging (in this example say 12 years) then one may consider that this is a maintenance issue and that the membrane has failed as it has reached its serviceable life. However, if the membrane is on a recently constructed building (say within 10 years) or is a membrane that was replaced recently on an older building and the warranty period as applied by the applicator and/or manufacturer of the membrane is still in place, then the failure of the membrane may well be a warranty claim. This could be brought about by defective materials, workmanship or possibly the preparation or application the contractor applied at the time. The contractor should have been reasonably aware that this would not result in a fit for purpose application, rendering this be a building defect.

How long is a new building or maintenance and/or refurbishment work covered under warranty and particularly Home Owners Warranty coverage?

The only proper way of determining the warranty periods that apply to any particular strata scheme and the terms of its Home Owners Warranty policy is to appoint an experienced Strata Lawyer. The lawyer will view the strata records and make further enquiries, as required, so as to source the various documents and certificates, which will normally allow the Strata Lawyer to provide advice on whether the building is covered by either the Home Building Act “Statutory Warranties” and/or the Home Owners Warranty insurance policy. This advice would normally also include a summary of the time period to which general defects and structural defects are covered.Changes on the 1st February 2012 to Home Owners Warranty Insurance legislation state newly registered schemes only have two years to claim general defects. Our understanding is that the claim must be made within the two-year period; therefore, early action is imperative to protect the interests of the Owners Corporation. Further, Owners Corporation should engage suitably qualified and experienced professionals to determine defective and non-compliant construction in their complex. Frequently we re provided lists from Owners Corporations that purport to identify building defects, but find many of the items are maintenance issues, and in most circumstances the important defect/compliance issues are not identified. See below for the appropriate procedure to follow for building defect claims.

We strongly suggest the following protocol be adopted for building defect claims:

1. Appoint an experienced and qualified Strata Lawyer.
2. The Owners Corporation’s legal advice may recommend to engage a construction industry expert to inspect the building and provide a defects report. If the Owners Corporation wishes to engage their own construction expert, they must ensure the consultant engaged can, and will, produce litigation compliant reports. Owners Corporations should also seek samples of the consultant’s reports. You are also advised to make enquiries, whether through your Building Manager and/or Strata Manager, about their knowledge of industry experts.
3. A measure that can be taken to help in protecting the Owners Corporation’s rights for recovery is (even with maintenance work) to take photos, record in writing what has been seen and ask contractors to provide in writing, with their quotations, what they consider is the cause of the problem. The contractor must, in some detail, describe what will be the remedial methodology they will undertake in making the repair. I would strongly suggest a minimum of at least two quotes sourced for all repairs. We have previously been able to argue successfully that the repair was in fact a defect, but quite often we are left with trying to substantiate that the methodology and cost of repairs was fair and reasonable. Properly detailing the works and having a number of quotations is of great assistance. I would reiterate however, that if there is any thought that the works could be considered a building defect, then aside from emergency works to prevent issues such as further water ingress, WH&S or fire issues, the Owners Corporation should not hesitate to seek professional advice.
Repairing defects is not always a simple process. It can be costly and take many years to complete. Owners and residents must be made aware of potential timelines and associated costs. Keep all residents up to date with what is happening and ensure your administration process is faultless.

Defects must be indentified as soon as it is physically possible so the process of repairs can start. In some cases it is not always economically viable to chase builders or insurance companies and this is a decision the owners corporation needs to make.

Having a great team (EC, solicitor, building defects consultant, building manager and strata manager) is the foundation for getting repairs completed efficiently and effectively. Working together as a team brings or keeps harmony within the building, thus making life a whole lot easier.
Have a question you’d like answered or feedback on our first Review?
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