20 years later, Grellman's Ghost leaves Strata Owners in a Top Place Nightmare
or, maybe no one remembers how we got here …
Recent news about the collapse of a major NSW developer and builder of strata apartment complexes leaves tens of thousands of strata owners in a building defects nightmare. One of the major causes for their problems is a ghost from 20 years ago that’s still haunting strata stakeholders. And, here’s the sad and sorry tale …
[5.50 minutes estimated reading time, 1078 words]
Introduction
Unless you’ve been hiding under a pile of strata defect rubble in NSW, you’ve probably heard the news that one of its largest strata apartment developers and builders is in administration and/or receivership and two of its directors are subject to fraud charges.
Since this isn’t a news site I’m not reporting on the unfolding story. But, you can follow the news elsewhere … starting with this ABC News report.
There’s also going to be plenty of things to learn from the story because of its scale and given the wide ranging cast of characters that feature in it. But, since it’s still early days in the saga, it’s premature to make any intelligent comments.
However, the story reminded me of something that happened in NSW a bit over 20 years ago that’s directly led to today’s problems for the tens of thousands of Toplace strata apartment owners that might end up having to foot the bills for all their building defects.
What happened and why it looks rather foolish today?
Let’s go back to 2002
Let me take you back to the early 2000’s when we were listening to JLO [Jennifer Lopez then] telling us she was Jenny from the Block with these ironic lyrics.
Don't be fooled by the rocks that I got, I'm still, I'm still Jenny from the block, Used to have a little, now I have a lot
HIH Insurance had just collapsed in late 2001.
HIH was the largest insurer of residential building work and the NSW government had to step in to cover their liabilities. The other residential building insurers didn’t want to offer more insurance and were threatening to leave the market entirely. Builders and developers were experiencing problems getting insurance and strata developments were being stalled.
So, the NSW Government engaged Richard Grellman to conduct an inquiry and report with recommendations about insurance for residential building work.
The Terms of Reference covered 9 issues and the report ultimately made 7 primary recommendations and 6 secondary recommendations for changes
You can read the whole 108 page report here.
But for the purposes of today’s article, the main recommendation by Grellman [that was adopted by the NSW Government] was his recommendation to exclude high-rise developments from the residential building insurance scheme.
That meant that builders and developers no longer needed to have Home Building Act insurance covering defective or incomplete construction work if the strata building was more than 3 storeys tall.
Up until then, high-rise strata buildings had last resort insurance cover defective or incomplete construction work of $200,000 per apartment.
It was nice compensation if you could get it; which [of course] you could.
So, ending that insurance scheme for high-rise buildings was a major change.
Why did Grellman make the recommendation?
Grellman based his recommendation to exclude high-rise developments from the residential building insurance scheme on a number of findings and conclusions.
Here they are, quoted directly from the report.
‘construction projects (three storeys and greater) are fundamentally commercial projects. Accordingly, project risks are materially different to those of an ordinary house construction’
‘high-rise construction ordinarily poses minimal risk to a consumer during the period of construction’
‘in the event that a consumer buys off-the-plan, any funds paid are held in trust only released at the time of completion’
‘alternatively, if a consumer buys post-completion, the only realistic risk is from defects occurring during the warranty period’
‘developers and builders are generally larger organisations with more robust financial management than small builders, reducing risk (although increasing the impact) of insolvency’
‘consumer risk could be further reduced if mandatory certification is required at key construction stages, ensuring that faults are detected and corrected prior to building completion’
‘if a consumer buys post-completion, the only realistic risk is from defects occurring during the warranty period’
‘insurers and reinsurers indicated they will not underwrite high-rise developments. They highlighted the accumulation of risk associated with these projects; that is the potential for a defect occurring in one unit to extend across all units’
‘submissions consistently called for high-rise to be removed from the scheme, specifically quoting those from Brian Burden of Stuart Pty Limited, Master Builders Association of NSW, and, Gadens Lawyers’
In short, Grellman’s reasoning seemed to be that:
bigger strata buildings are developed and built by bigger companies that build better and are less likely to go broke,
any defects will get fixed before sale completions or at least within the warranty periods,
insurers didn’t want to offer insurance for high-rise strata buildings, and
a lot of the submissions said it was a good idea.
I wasn’t convinced at the time and you can form your own views of his logic.
But, it seems history has proved Grellmant to be more than a bit wrong.
Where does that leave strata owners in Toplace [and other] strata developments?
Whilst each strata building’s situation will be different, I think it’s fair to say that if you own a strata apartment in a Toplace developed and built strata building that has unresolved defects, you’re unlikely to get any compensation from the developer or builder as a result of the administration, receivership [and possibly liquidation] and will need to see if you have any rights to sue other parties like certifiers, designers, project managers, etc for some or all of the building defects.
You certainly don’t have any insurance covering the defects in your builder.
But, that’s also the case for many tens of thousands of other strata owners in NSW buildings with defects where builders and developers disappear.
Maybe they can comfort in the confident words of Richard Grellman’s in his 2002 report and listening to JLO, whilst they live with and pay for those defects.
If you’re interested to know more about the long-running saga of building defects in strata buildings, I’ve written about the NSW history of strata building defects, how to claim for building defects, and, how developers and builders avoid liability in the following GoStrata Stak articles:
The Saga of NSW Strata Defect Claims
Suing for Strata Buildings Defects: A 2021 Update
How Builders & Developers Resist Strata Building Defect Claims
July 25, 2023
Francesco ...