Not seeing the (strata) wood for the trees

| February 24, 2012

Francesco Andreone looks at the steady decline in the quality of new strata developments and identifies some much needed procedural strata law reforms.

Sometimes we don’t see what’s obvious because we’re too focused on small details and miss the bigger picture. And, I think there’s a real danger of missing one of the most important issues for strata owners and residents in this current strata law review for exactly that reason.  If we’re to focus on strata law details under the Strata Schemes (Freehold Development) Act 1973 and the Strata Schemes Management Act 1996 we’ll miss other really important changes that don’t have anything to do with those laws.

My best example of that is strata building construction quality, Building Code of Australia compliance levels and defect rectification mechanisms for strata buildings and owners.

Over the last 15 years, NSW strata owners have experienced a steady and consistent decline in the quality of new buildings and they contain more prevalent and serious building defects (including non-compliance with BCA requirements). That been the result of changing development, building and certification processes, economic pressures and (up until recently) a buoyant real estate market.

At the same time the protections available to strata owners about those buildings have been gradually reduced so those larger buildings (over three storeys) no longer enjoy the protection of the Home Owners Warranty insurance, time limits for defect claims have been reduced, more insurance exclusions have been allowed and Court decisions have complicated the legal claims process. So, today most strata corporations have a tougher time getting builders, developers and others to properly address their building defects.

Everyone is affected

What this really means is that the most significant part of a strata scheme (the building) becomes a problem for everyone rather than a source of stability and certainty (as it should be).  No matter how well meetings are run, how accurately records are kept and how promptly owners pay levies if your strata building has construction faults that don’t get fixed then everyone’s experience of strata is seriously affected:

  • Owners suffer property damage, property value reductions, amenity loss, rent losses (if they’re investors) and increased levies.
  • Tenants suffer similar problems.
  • Executive committee members and managers have to deal with more work, conflicts with owners and others, difficult technical and legal issues and financial challenges.
  • Regulators like local councils, fire officers and safety authorities end up with more non-compliant buildings.

And, it’s no answer to say that strata corporations can make insurance claims or take legal action. Regardless of the adequacy of the claim and legal processes available to strata owners to redress building defects, even those that exist are not being well utilised because of the nature of strata title owners and ownership.  By a combination of strata owner capacity issues including lack of knowledge and experience, poor communication channels, strata scheme operational formalities, confused objectives and the incorporeal nature of strata corporations, strata owners miss out on legal remedies.

Better Construction Practices

What’s needed is better construction practices, improved checking and certification systems and easier ways to get defects fixed.  And, some ideas for changes in include –

  • Better home warranty insurance schemes.
  • Incentives for builders to build to better standards
  • Tighter standards and protocols to prevent poor construction work
  • Better equipped systems for complaints and legal challenges
  • Better education for owners and other stakeholders about building quality issues
  • Preventing conflicts of interest within strata corporation that cause delays for rectification
  • Statutory assignment of contractual rights against the builder/s from developers to strata corporations
  • A building rating system for construction quality, building documentation completeness and integrity & defect rectification progress/results
  • Improved and more sophisticated building handover strategies from developers to strata owners

Better quality strata buildings will make more of a difference to strata owners (and others) than many of the necessary but more procedural strata law reforms that are likely to be made in NSW.

 Strata Laws Consultation Questions:

Q1. What are the main areas of the existing strata and community scheme laws you would like to see changed?

Q2. Can you see any future issues that need to be addressed in the legislation?

Q3. How could the management of strata and community schemes be improved?

Q4. Are there any changes needed to the way disputes in strata and community schemes are resolved?



  1. Anthony R

    February 24, 2012 at 1:37 pm

    Strata – defects, developers & the BCA

    Totally agree with this blog. Personally I think this is THE big area of strata development that needs a serious shake-up. Poor workmanship and inadequate/expensive channels for legal recourse can cost owners seriously big dollars. The whole system has really fallen over since the termination of the HOW insurance scheme for buildings over 3 storeys. There has to be a better system that enforces quality and responsbility for construction (from design, through construction, to certification, to maintenance), clearly sets out contractually who the client and builder are, and better safeguards are required for being able to get defects resolved by the strata owners without massive legal risk and expense. The system also needs to prevent developers from setting up multiple companies for the soul purpose of building one project under each (or multiple) company/companies, then purposely leading them into voluntary adminstration in order to cut all future ties with building defects claims. Or changing the companies and/or names multiple times so the path of responsiblity is all but lost. Or the really common one, keeping ownership of 50% of units (and hence efffective control of the EC) for the first 12 months so that all defects are voted against.

    As both an Exec Comm member of a multi-storey strata scheme, and as an Architect, I have heard developers speak first-hand of these methods, and seen the absolute frustration, tangled web of responsibility, and legal nightmare that this can cause for strata owners.

    I think for the most part strata schemes just end up paying for repairs themselves or not fixing defects at all, because the various developers, builders, projects managers etc all deny responsbility or have disappeared, and the legal route is fraught with too much risk for the expense. Combine this with the nature of strata schemes where Exec Comm members (and even strata managers) come and go, have limited to nil experience in construction and/or legal matters, and just the generally slow turning wheels of an EC to discuss, research and resolve matters.

    This ‘at arms length and cut all ties’ philosophy of developers, together with making a buck with the greatest possible margin, inevitibly leads to poor quality construction. Often construction involves just plain dumb detailing in order to cut some corners, usually resuting in leaky buildings or other major issues a few years down the track when the builder, developer etc has long gone. Unfortunately the way the Building Code of Australia (BCA) is set up for multi-unit developments, it is pretty lax when it comes to some requirements such as waterproofing, so builders/developers provide the bare minimum they think they can get away with.

    Whilst the NSW SEPP 65 ‘Design Quality of Residential Flat Development’ has been a very valuable addition since 2002 and has vastly improved the amenity of multi-unit developments, it does not address the finer details of construction quality, nor the ownership/responsibility of quality.

    More often than not these days, Architects who are involved in the initial design phases under of multi-unit developments do not get the opportunity to document the ‘construction details’ or co-ordinate and resolve all the various aspects of construction. Commonly this is left to the builder to work out in whichever way they think is the cheapest and easiest. Or if an Architect is lucky enough to be involved in the details, their documentation is often ignored for a cheaper less effective alternative, with the eventual strata owners paying the price.

    I think one area of improvement which would be reasonably practical and straight forward is to expand the section of the BCA that currently covers minimum construction detailing for single dwellings (which is quite detailed), to have an equivalent section which covers multi-unit developments. This would at least provide a minimum benchmark against which design, construction and certification could be measured, rather than leaving these finer details up to the builder/developer to decide what they think they can commercially get away with.

  2. Mauriati

    February 29, 2012 at 11:01 am

    Home Warranty Insurance and Multi-storey Buildings

    I totally agree with the above. It is ridiculous that Home Warranty Insurance general expemption applies to residential buildings greater than three (3) storeys high.

    From personal experience this is a great anomally which needs to overcome in Strata Legislation to ensure Developers/builders build to the required standard. The legislation should also be strucutred  to ensure owners receive prompt rectification to all structural and non-strucutred defects in a reasonable period (i.e. 10 years for structural and 5 years for non-structural defects) from the date of the final occupation certificate for the particular building.