Building and construction update: the Residential Apartment Buildings (Compliance and Enforcement Powers) Act 2020

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Background

The Residential Apartment Buildings (Compliance & Enforcement Powers) Act 2020 (NSW) (RAB Act) came into force on 1 September 2020.

The RAB Act is part of the NSW Government's commitment to arm the Building Commissioner and relevant government departments with a suite of comprehensive powers against non-compliant developers and to identify serious defects in residential apartment buildings.

The RAB Act provides complementary enforcement and investigative powers to the Secretary of the Department of Customer Service (including any authorised officer) (Secretary) to order the rectification of work or prohibit building work from being completed.

The RAB Act is retrospective in nature, meaning that it applies to buildings that are currently in the process of construction as well as buildings that have been completed in the last 10 years.

Overview

The RAB Act significantly changes the building and construction industry, particularly with respect to the residential development space. The key reforms brought about by the RAB Act include: 

  1. A notification scheme whereby developers must advise the Secretary ahead of applying for an occupation certificate
  2. Various powers of the Secretary to attend site to inspect the works and specifically look for ‘serious defects’
  3. Ability of the Secretary to issue various orders, including stop work orders, rectification orders and prohibition orders to ‘developers’ 
  4. Significant penalties in the event of non-compliance

The broad powers given to the Secretary under RAB Act to inspect and investigate residential building works is afforded in the period of six and 12 months prior to completion of the building work.

Application

The RAB Act applies to residential apartment buildings (including mixed use buildings) that are (or were) authorised to commence in accordance with a construction certificate (CC) or a complying development certificate (CDC).

The RAB Act applies to ‘developers,’ the definition of which is broad and includes the following: 

  1. The person who contracted or arranged for, or facilitated or otherwise caused, (whether directly or indirectly) the building work to be carried out
  2. The owner of the land on which the building work is carried out at the time the building work is carried out
  3. The principal contractor for the building work within the meaning of the Environmental Planning and Assessment Act 1979 (NSW)
  4. The developer of the strata scheme within the meaning of the Strata Schemes Management Act 2015 (NSW)

This definition of ‘developer’ is much broader than that in the Home Building Act 1989 (HBA) and includes a ‘principal contractor’ which may now include a contractor engaged under a development management, construction management arrangement or other construction contract.

The definition of ‘building work’ is also broader than in the HBA and includes: 

  1. Any physical activity involved in the erection of a building
  2. Work involved in coordinating or supervising work involved in the construction of a building (or part of) or alterations, additions, repairs and renovations of a building (or part of)

This means that the RAB Act applies to any size project that requires a CC or a CDC.

Notification scheme

The RAB Act requires developers to notify the Secretary between six and 12 months before the anticipated application date for an occupation certificate. For projects with a length of less than six months, a developer must notify the Secretary within 30 days of commencement of the works. In the event a developer notifies the Secretary less than six months before the anticipated application date, the developer may be liable for a fine of up to AU$110,000 and / or the Secretary may issue a prohibition order preventing the issuance of an occupation certificate.

A developer must also notify the Secretary if the anticipated application date has changed by more than 60 days. The developer must make notification of this change to the Secretary within seven days of becoming aware of a change in circumstances. A developer may be liable for a fine of up to AU$55,000 and / or the Secretary may issue a prohibition order if it fails to notify the Secretary of the change within the stipulated time.

The purpose of the notification is to enable the Secretary to attend the site and inspect the works to identify ‘serious defects’.

The definition of a ‘serious defect’ under the RAB Act includes a defect in a building element that is attributable to: 

  1. A failure to comply with the standards (i.e. Building Code of Australia or relevant Australian Standards) or the relevant approved plans
  2. Causes or is likely to cause the inability to inhabit part or all of the building

The definition of ‘serious defect’ is broader than the definition of ‘major defect’ in the HBA.

Order making powers of the Secretary

The RAB Act gives the Secretary significant order making powers. Those powers include the ability to issue stop work orders, rectification orders and prohibition orders.

Prohibition orders

Prohibition orders can prevent the issuing of an occupation certificate. If a certifier issues an occupation certificate in contravention of a prohibition order, it will be deemed invalid, and the certifier may be liable for a penalty.

Prohibition orders can be given in the following circumstances: 

  1. If the developer does not notify the Secretary of the anticipated application date for an occupation certificate within the required time 
  2. If the developer does not notify the Secretary of a change of more than 60 days of the anticipated application date within the required time 
  3. If the Secretary is satisfied that a serious defect exists 4. If the building bond pursuant to Part 11 of the Strata Schemes Management Act 2015 (NSW) has not been paid

Stop work orders

Stop work orders prevent the developer from continuing work. A stop work may be conditional or unconditional.

Stop work orders can be given if the Secretary is of the opinion that the building work is, or is likely to be, carried out in a manner that could result in significant harm or loss to the public or occupiers or potential occupiers of the building or significant damage to property.

Rectification orders

Rectification orders can be given if the Secretary has a reasonable belief that the building work was or is being carried out in a manner that could result in a serious defect. Rectification orders require the rectification of part or all of the work that the Secretary is of the view is a ‘serious defect’. Work undertaken in accordance with a rectification order does not require approval under the Environmental Planning and Assessment Act 1979 (NSW).

Rectification orders are the only order whereby the Secretary must first give a developer notice of an intention to issue an order. The Secretary must also give notice to other relevant parties such as the council and / or the certifier. The developer and any person who also receives the notice then has an opportunity to respond with written representations to be considered by the Secretary. The Secretary then decides whether or not to issue the order.

Failure to comply with stop work and rectification orders can result in fines of up to AU$330,000 (prohibition orders carry a maximum fine of AU$110,000). A developer has the ability to appeal to the Land and Environment Court within 30 days of receiving an order.

Investigative powers of the Secretary

The RAB Act gives the Secretary very broad powers in relation to attending site and investigating the existence of ‘serious defects’.

These include the following:

  1. Attend site at any reasonable time during business hours, and may be accompanied by assistants
  2. Direct any person to provide information and records within that person’s possession
  3. Direct any person to provide answers who the authorised officer suspects on reasonable grounds to have knowledge to provide answers
  4. Examine, take samples, take photos, make enquiries and copy records 5. Seize things, open up / demolish work if there is reasonable grounds there is a serious defect or an offence against the RAB Act

If a party fails to comply with the directions that party may be liable for a penalty of up to AU$110,000.

Any costs incurred with demolishing work are at the cost of the developer. In addition, if the Secretary incurs cost in undertaking any action in relation to supervising rectification work, these costs will be a debt due from the developer to the Secretary.

It is also important to note proceedings for offences can be taken in the Local Court or the Land and Environment Court. The limitation of liability for an offence under the RAB Act is three years. Further, directors have personal liability for offences committed by bodies corporate.

Important considerations for developers

There are many significant changes in the RAB Act. The broad powers appear to have very few limitations upon the Secretary (including no guidelines as to how long or how frequently the Secretary or an authorised officer may attend the site).

Of particular concern is that the RAB Act is retrospective, and applies to all buildings completed within the last 10 years. Therefore, the Secretary has the power to attend completed sites and issue rectification orders. There is little consideration in the RAB Act as to how this practically will work, particularly in circumstances where there may be shell developers which are deregistered on completion of projects. Whilst developers should be aware of the RAB Act and its operation, we anticipate that this is only likely to occur in circumstances where there has been a complaint by a lot owner / owners corporation in relation to defects.

The RAB Act is directed at developers, when the works are undertaken day to day by contractors. For this reason it is extremely important that contracts adequately pass on risk, and include indemnities in relation to costs incurred (both rectification costs and penalties). In addition, there is a serious risk that there will be delays associated with site visits by the Secretary, including stop work orders, rectification orders and prohibition orders, which might also significantly impact dates for practical completion. These must be incorporated into all contracts. In relation to existing contracts, we recommend that deeds of variation are entered into to adequately protect the developer. It is possible that contractors may be hesitant to agree to enter into a deed of variation of this nature.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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