By Paul Jurdeczka & James Blake, Chambers Russell Lawyers.
Owners corporations and strata managers regularly have to deal with undertaking building work on existing residential (or mixed use) strata schemes. They need to be aware of some of the issues that can arise in doing so properly and prudently. Due diligence at the early stages prior to entering any contract should avoid or minimize disputes and problems later in the process.
The supposed savings of engaging a cheap “handyman” with no written contract, no licence to perform building work and no insurance are usually far outweighed by the protections that would have been provided by paying the extra money of engaging a licenced builder and having the proper requirements in place.
Strata Authorisation
Firstly, owners corporations always need to consider their own process to get work done.
An owners corporation must first consider whether the work consists of maintenance and repair to the common property (including repairs to address defects in the original construction) or whether the work amounts to a renovation or improvement on what was there before. It is an important distinction.
If the work is required to be undertaken to maintain and repair the common property, it falls under the duty imposed on the owners corporation under section 106 of the Strata Schemes Management Act 2015 (NSW) (SSMA). In that case, the owners corporation through the strata committee may arguably have that work undertaken without the need to call a general meeting, even though a meeting may be required in any event for the purpose of raising the necessary funds to meet the cost of the work either by way of a levy or strata loan. Further, if the work required is urgent, the strata committee does not necessarily have to wait and may arrange the work on an emergency basis subject to cashflow availability.
However, if the owners corporation intends to undertake work to “add to the common property, alter the common property or erect a new structure on common property for the purpose of improving or enhancing the common property” it must first obtain approval from the owners corporation by way of special resolution at a general meeting. This is specifically provided for at section 108 of the SSMA.
So first and foremost, before undertaking work, the owners corporation has to consider the nature of the work being undertaken and any steps required to authorise it being undertaken.
Regard also needs to be had to existing by-laws, strata plans and strata management statements (for larger buildings with multiple schemes and/or lots).
Planning Approvals
Some work will require planning approval from the local council under a Development Consent or can be dealt with under a Complying Development Certificate. Whether works require approval or not will differ from council to council given variations in planning rules.
Work involving stormwater, sewers and driveways often also need to consider easements and the approvals of relevant statutory bodies (like say Sydney Water).
Building contract
Residential building work is regulated, in part, by the Home Building Act 1989 (currently being amended as part of a wider legislative reform program). Work with a market value of over $5,000 is regulated and requires a written contract which must meet certain minimum requirements at to its terms and conditions. Work with a contract price or market value of $20,000 or more has additional stringent requirements that must be met, like the requirement for the builder to procure Home Builders Compensation Fund (HBCF) insurance before commencing the work.
The form of contract is often proposed by the contractor using what is usually described as their “standard terms and conditions”. Those contracts naturally tend to be drafted in terms that are more favourable to that contractor than the owners corporation. The contractor may also propose the use of a pro forma contract based on a draft issued by an industry group. Again, many of the terms of those contracts will favour the contractor when it comes to risk allocation.
Owners corporations should check the contract wording and consider obtaining legal advice about the risks and processes involved as well as any amendments that may be required to offer it some contractual protection and allocate risk as between the parties more equally, especially for large projects.
Licence
Persons undertaking residential building work are required to be appropriately licenced. Specialist work will usually require a specialist licence. Owners corporations should check contractors (and sub-contractors) being engaged are suitably licenced, and ensure their disciplinary record has been checked. A builder’s licence can be checked online via the Service NSW website.
Superintendent
Large projects can involve complex contractual processes to deal with issues such as delays, variations, the payments of large amounts of money at various stages and the requirement to check works have been done properly when paying. It requires the input of a construction professional other than the contractor to represent the interests of the owners corporation. It is a role which is usually beyond the professional qualifications of strata committee members, lot owners, and strata managers. The work can also involve arranging access that might be beyond the usual duties of a building manager or strata manager.
An owners corporation should always consider engaging a building consultant to act as a superintendent or project manager on large or complex jobs, to oversee and administer the contract on its behalf to ensure its interests are being properly protected.
HBCF Insurance
Residential building work on an existing scheme where the contract price or market value of which is $20,000 or more requires HBCF insurance to be obtained by the contractor before the work commences. HBCF insurance protects the owners corporation by providing indemnity in respect of the costs of repairing defects if the builder becomes insolvent, has died or disappeared.
In simple terms, HBCF insurance provides a policy with cover of $340,000 for the whole project, or $340,000 cover for each dwelling in the strata scheme for the project, depending on a threshold of the contract price / number of dwellings being greater than $20,000.
Other Insurance
Contractors should have appropriate insurance policies in place (required under properly drafted contracts) to protect the owners against the risks of the work being done. Contract works, public liability, workers compensation and professional indemnity (where design work is being done) should be in place.
DBPA registered designs
Since 1 July 2021 various regulations as to the requirement for the preparation of regulated designs for building work have applied, under the Design & Building Practitioners Act 2020. The purpose of this legislation is to ensure work is properly designed, and those designs are registered and complied with in the performance of the work.
The provisions which apply are complex, and subject to various thresholds and exemptions. An owners corporation needs to ensure that it is properly advised in this regard, and the designs for any works being done are compliant and prepared and uploaded to the relevant portal maintained by Service NSW before the work commences.
SOPA claims
The payment of construction work in NSW will usually be subject to the Building & Constructions Industry Security of Payment Act 1999 (SOPA). This puts in place various strict processes about making and paying payment claims that are meant to ensure contractors are paid on time and do not suffer cashflow issues. However, those processes are very quick moving, and payments will be required to be made unless the process to dispute them is strictly followed, sending it to an adjudication process.
The owners corporation in each case needs to understand that process and how to comply with it, especially on larger projects. Having a superintendent or project manager experienced in dealing with SOPA is often one of the best ways to do so.
If your building plans to undertake residential building works and you require legal assistance throughout the process, please contact Chambers Russell Lawyers by email to receive a FREE proposal info@chambersrussell.com.au.
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