Clamps are tightening around unscrupulous builders and developers as new building industry reforms start coming into effect across NSW. In one of the most groundbreaking changes so far, purchasers of defective apartments in a Parramatta complex will be able to break their contracts and recoup deposits after a landmark agreement between the NSW building commissioner and a developer in receivership. As the first of its kind, the agreement sounds a clear warning to shonky developers and their financial backers that times are changing fast – as does the cancellation of four building certifier’s licences so far this year.

Also set to shake up the sector is the NSW government’s proposal to introduce a latent defects insurance (LDI), a 10-year liability insurance that would give an apartment building’s owner’s corporation the ability to have serious defects fixed up to 10 years after the building is first occupied.

Rob Finnigan, partner at leading insurance and risk firm Wotton + Kearney told a seminar this month that the product is expected to be compulsory by 2028. LDI will “transform the insurance framework for high rise residential buildings,” Mr Finnigan said, given that it will also impact such areas as residential state insurance and professional indemnity.

Better and safer

Another change announced this week will see the NSW Building Commissioner granted the power to inspect any freestanding residence under construction and, if defects are found, order rectification or a rebuild. The move comes after a widespread inspection program earlier uncovered defective work in more than 100 new free-standing residences within an area extending as far south as Shellharbour, north to Coffs Harbour and out to Sydney’s western fringes.

The developments are first steps along the path to restoring consumer confidence in the NSW construction industry after serious defects emerged across multiple developments, triggering an industry crisis. Deregulation of the construction sector is viewed as largely to blame, the relaxation of rules around compliance and quality opening the gates to unscrupulous operators who shunned laws to maximise profits.

“The sure point here is that deregulation of the industry has led to a drop in standards,” Mr Finnigan said, adding that the situation was compounded by “a massive increase in high-rise residential development” that occurred at the same time.

Numerous failures to comply with the Building Code of Australia became apparent when major structural problems began emerging across new residential and commercial towers. Two of the most high-profile cases involved Sydney’s Opal Towers and Mascot Towers, so badly constructed that residents were forced to evacuate for their own safety. Initial governmental inquiries identified unclear accountability, insufficient controls and inaccurate documentation as the main drivers for the crisis.

Sweeping legislative reforms are currently before the NSW parliament as a result. These will together create a foundation for the government’s six-stage transformation strategy to raise both standards and faith in the sector by 2025. Changes being made to the previous legislation are set to enhance safety and transparency in the building industry, guarantee high-quality design and construction, and simplify building legislation across the board.

Casting a wider net

Among the proposals are measures that will prevent intentional phoenixing – whereby assets from a struggling company are transferred to a new debt-free one to allow the new entity to operate unhindered – by cancelling or refusing licences. Legislation will also be introduced around supply chains that will lead to ensuring all building products are safe to use.

The net used to catch dishonest operators is also to become markedly larger. The proposed Building Bill 2022, reworked to replace the current Home Building Act 1989, will see the definition of ‘developer’ broadened to include more parties that may be liable for defective building work. The new bill will also overhaul the current definition of ‘major defect’ with a far broader definition of ‘serious defect’.

Building and Fair Trading and Better Regulation Minister Anoulack Chanthivong said the measures now taking place, especially empowering the role of the building commissioner, were “critical steps forward to fight the grifters in this sector”.

“There is no room in this state for rip-off merchants taking home buyers for a ride,” Mr Chanthivong said. “We’ve already started the work required to weed out untrustworthy players in the market and with these new powers we’ll be doing even more.”