Fix strata building defects with a simple privity [not privacy] change
Despite recent initiatives in certain regions, such as the NSW Building Commissioner, or targeting specific problems like flammable cladding, these efforts provide only short-term solutions.
Once David Chandler AOM resigns [as he is doing soon], or when the threat of highrise cladding fires dissipates [if it hasn’t already], the focus on long term and widespread strata building defects tends to wane. This is especially true under economic and political pressure to increase medium and high-rise development to address housing shortages.
But, the underlying issues causing strata building defects persist and are likely to become worse with the next property boom cycle.
So, I’m proposing a long term solution to address one of the fundamental causes of strata building defects.
And, that’s to overcome the restrictions imposed by the legal doctrine of privity on strata building and strata lot owner rights against builders.
Privity is the legal principle that a contract cannot confer rights or impose obligations on anyone who is not a party to the contract. It exists to protect contracting parties from unforeseen claims they weren’t able to cover in their bargain.
However, this doctrine played a crucial role in the High Court's decision to limit the Chelsea building's rights in Brookfield in the Brookfield Multiplex Ltd v Owners Corporation Strata Plan 61288 & Anor [2014] HCA 36, denying the strata building rights to sue in negligence.
It makes no sense that while a developer can contract a builder for a strata apartment building and sue under that contract, the strata corporation created for that strata building cannot rely on that contract. Consequently, strata buildings lose the benefits of enforcing contract terms specific to its building, relying on detailed specifications over materials, finishes, work methods, etc, and accessing performance protections like security bonds and retentions [which I believe are actually held by developers on a constructive trust in favour of strata corporations; but that’s another topic for another day].
The strata building is constructed for the strata corporation and its owners, who pay for it with their purchase money. Therefore, privity of contract for the construction of strata title and other shared ownership buildings should be overridden, making the strata corporation and its members the contracting owner under construction contracts once formed, inheriting the developer's rights.
Some argue that home building consumer laws already circumvent privity, but they only do so for limited periods, specific defects, and at lower quality standards. So, these laws provide minimum consumer protections at best. Plus, secondary protections like last resort insurance schemes, regulator orders and agreements, and builder licensing enforcement actions are too remote, slow and late in the defects process to really assist owners of defective strata builders.
Now, there’s been a few obscure cases where Australian and English courts have considered when and how to step around privity of contract principles but they’ve gone nowhere as it’s a legal doctrine that most jurists and commercial interests find very challenging to norms and there’s not many deserving plaintiffs that have good arguments in favour of sidestepping privity [like vulnerable strata buildings] that are prepared to run cases to the appeal courts.
If builders knew that strata corporations would become their customers under building contracts, the contracts would be written differently, quality control would improve, certifications would be more thorough, and legal actions to resolve building quality disputes would be simpler and more effective.
I’m sure [in fact I know] that in large commercial buildings constructed for property trusts or major corporations, defects are fewer and resolved promptly. Major water leaks, structural failures, and fire safety non-compliance are rare in such buildings.
It's time to apply the same standards to strata buildings by giving them the rights of the developer that created it..
For more details about the High Court decision in the Brookfield case, read my CaseWatch High Court refuses Strata Building Defects Negligence Claims on it here.
Just strata saying ...
June 11, 2024
Francesco ...