We recently issued an article on the Building Planning and Heritage Legislation Amendment (Administration and Other Matters) Bill 2022.

Among other things, the Bill will amend Victoria’s Building Act 1993.

It was introduced into Parliament in late June. Key changes to the Building Act are discussed in our article.

Here I focus on the proposed introduction of mandatory inspection overseen by the municipal building surveyor (MBS) for certain prescribed buildings.

In the second reading speech for the Bill, the Minister said regarding this amendment:

Currently, an occupancy permit can be issued for a building even though the building work is not complete or compliant. In a measure to strengthen the process and documentation requirements for the issue of occupancy permits, this Bill will improve checks of the as-constructed building against the building permit. The municipal building surveyor will be responsible for causing the pre-occupancy permit inspection and may engage others, such as a fire safety engineer, to assist in this task. A pre-occupancy compliance assessment by an independent municipal building surveyor will ensure oversight before the relevant building surveyor issues the occupancy permit. At this stage it is intended to only prescribe a subset of building work, such as for class 2 buildings, that being residential apartments for which this additional inspection will be required.

It is clear from this that the government intends to strengthen the process and provide for greater oversight of the construction of residential apartment buildings.

It should be highlighted that in the Framework for Reform paper issued by Victoria’s Building System Review Expert Panel in April 2021, changes to the building approval process were discussed. The paper includes potential models proposed by the Victorian Municipal Building Surveyors Group (VMBSG), the Australian Institute of Building Surveyors (AIBS) and the Municipal Association of Victoria (MAV) (see p 62-68).

Both the VMBSG and AIBS proposed that mandatory inspections and the issuing of occupancy permits should become a function of the MBS. The VMBSG said this should occur for all buildings whereas the AIBS this should occur for class 2 and 3 buildings. It should therefore not be a surprise that this reform has come forward in the Bill given the strong support from the two peak building surveyor associations for giving local government a mandatory role in the building approval process.

This is a significant policy shift for Victoria’s private certification model. Other jurisdictions will be watching with interest.

Key steps for the new MBS pre-occupation inspection provided for in the Bill are as follows:

1. The owner must notify the relevant council by a prescribed time before the building work reaches completion.
2. The MBS must then cause an inspection to be carried out of the building work and/or related documentation to determine whether it is compliant.
3. The MBS must prepare a report that is provided to the relevant building surveyor (RBS), the VBA, the builder and owner.
4. The inspection report forms part of the matters to be considered by the RBS, in that the RBS must not issue the occupancy permit unless they are satisfied that any non-compliant building work or related documentation identified by the MBS in their inspection report has been rectified.

This new inspection has the potential to provide an opportunity for a building surveyor and other suitable experts completely independent of the project to identify defects and departures from the approved permit documents. Where this occurs, this will prevent the issue of the occupancy permit – and hence settlements on off the plan sales – until these issues are resolved.  This process will operate whilst the developer and builder are still in control of the project. It will therefore hold them accountable for resolving any non-compliance.

The process is similar to the ‘Occupation Certificate Audit Program’ (OC Audits) introduced by the Office of the Building Commission in NSW in 2019. Under the OC Audits developers are required to notify the NSW Department of Fair Trading 6 months before they intend to apply for an occupancy certificate (the equivalent of an occupancy permit in Victoria). The regulator selects sites to inspect with the aim to inspect the most risky developments having regard to regulatory intelligence. Around 140 sites involving over 10,000 apartments have been inspected so far. The inspectors call for all permit documentation and conduct a desktop review before attending the site for a comprehensive inspection. If ‘serious defects’ (as defined in the legislation) are found, there are powers to issue stop work orders or rectification orders and also to prohibit the issuing of an occupancy certificate. Where such orders are issued, they are published on the Fair Trading website.

To date there are 27 orders published pertaining to around 13 developments. In practice, as the program has developed, it is becoming commonplace for the Principal Certifying Authority (PCA) (equivalent to the Victoria’s RBS) to issue directions instead of or to complement orders issued by the Fair Trading inspectors. The occupation certificate will not be issued and purchasers of the units will not be made to settle on sales until the issues are rectified to the satisfaction of the Fair Trading inspectors or the PCA.

Under the proposed Victorian reforms, there are some notable differences. It will be the MBS who causes the pre-occupancy permit inspections to be carried out. It appears as though these inspections will be required for all prescribed buildings, however there is provision for the inspection of the building work, the inspection of prescribed documents or both so not all building sites may need to be inspected. One might expect that a risk based decision about which sites to conduct inspections of could be made. Under the Bill, if the MBS determines that the work does not comply with a prescribed standard or requirement, the non-compliant work or required documentation must be rectified before an occupancy permit can be issued. Therefore, no orders will need to be issued, the requirement for rectification will be automatic.

Since the Bill was introduced in Victoria, many have raised concerns. How will Councils fund this? Do they have the skills or resources? What about their risks and liability?

There will always be reasons not to try something new. My view is that this reform is a leap in the right direction.

Whilst we know that anecdotally defects in apartment buildings are all too common, detailed data on the extent of apartment building defects around the country is not readily available. The NSW Building Commissioner commissioned a report on the prevalence of defects in strata buildings which found that in NSW 39 percent of strata buildings experience ‘serious’ defects in the common property. A report published by the University of NSW City Futures Research Centre, Cracks in the Compact City  concluded from a sample of 314 strata schemes that 51 percent had at least one type defect and 12 percent has at least 10 types of defects.

Similar reports on Victorian residential apartment buildings do not exist. However, in its 20/21 annual report, Cladding Safety Victoria highlighted that the existence of many non-cladding defects a challenge in delivery of the cladding rectification program. The VBA also publishes findings on its proactive inspections program. In its most recent report for Jan -March 2022, it says for its 54 inspections of class 2, 3, 4, 9a and 9c buildings 41 percent had moderate or high compliance risks identified. The report notes that the VBA target higher risk buildings based on regulatory intelligence.

Where there are defects in multi owned buildings, the challenges of rectification and seeking compensation are significant. The nature of strata communities is that when defects occur, owners are often confused, disappointed and worried about safety and financial implications. Differing levels of knowledge, personal interests, financial positions and values of each owner make it challenging to communicate and agree on how to respond.

In addition to the inherent complexity of managing the decision making of groups of people, the identification and rectification of defects is complex. There is an asymmetry between the knowledge held by owners and held by advisors on technical and legal issues. This can make owners vulnerable.

For all these reasons it is imperative that multi owned buildings are delivered with high levels of compliance. The hardship ensured when defects arise can be life changing and prolonged over many years of legal battles. This often leads to significant impacts on health and wellbeing of lot owners.

If done well, the proposed MBS pre-occupation inspection has the potential deliver better outcomes for consumers. Early phases of implementation will not be easy. A developer who has the completion of their development held up will be anxious about settlement delays and rectification costs. Some may inevitably raise legal challenges which will put pressure on MBSs. However, if these distractions can be resisted – and the sooner developers understand that doing things correctly from the start will avoid major delays and rectification costs at the back end of the project – the greater impact this new inspection process can have.

Assuming the Bill passes, a 7-point plan for implementation of the new inspection requirement is as follows:

1. The State Building Surveyor should work with MBSs to set up a process for inspections that will drive consistency across councils and to support the process on an ongoing basis. This should align to the new powers and functions of the State Building Surveyor as detailed in the Bill.
2. Inspections should be documented in a digital platform which would also capture detailed information about these buildings so there is a consistency in approach, ability to collect and interrogate data and to provide education and feedback to relevant stakeholders. This should align to the reforms requiring a building manual for new buildings.
3. Rather than Councils setting up separate panels of experts to assist them with this new responsibility, government should support councils with a centralised panel of preferred building surveyors, inspectors, engineers or other experts that councils can choose to engage to undertake the pre-occupation inspections if they don’t have the expertise within councils. The pre-qualified experts should have the highest levels of expertise and integrity.
4. Panel experts and the process should be subject to protocols on how inspections are to be carried out including using checklists and templates for reporting. The intention here should be to define the expected scope of inspections and in doing manage risk. Protocols should also deal with the interaction between relevant professionals. For example, whether the RBS, fire authorities and the design engineer and architect attend inspections or are consulted. These professionals should support each other to identify and resolve non-compliance in a collaborative manner with public interest outcomes paramount. The protocols should of course include strict management of conflicts of interest to ensure that the inspection caused by the MBS is genuinely independent. It would also enable the setting of consistent fees for the inspection services which of course should be paid by the developer.
5. Efforts should be made to negotiate appropriate insurance cover for those involved in the pre-occupancy permit inspections demonstrating how risks are managed through the process and procedures developed as part of the implementation work.
6. The inspection process should be informed by the learnings from the NSW OC Audits by speaking with representatives from NSW and seeking their assistance to develop processes and checklists and to understand common issues they faced in establishing the NSW program. It might even be possible to have Victorian MBSs and others attend site inspections performed under the NSW OC Audits to gain knowledge and experience.
7. A process for publishing outcomes from the inspections should be developed early. There are many benefits to capturing data about these inspections through consistent inspection records and analytics. This will assist to properly understand the extent of non-compliance in this sector and to inform education and CPD for developers, builders and building surveyors so they can learn quickly about common problems which can be avoided for future projects and with regulating the sector more broadly.

The new MBS pre-occupancy inspection is a great opportunity for collaboration between the three key regulators in our building control system, namely state and local government and private building surveyors. It also provides an opportunity to learn from the NSW experience over the past few years. This collaboration has the potential to drive cultural change and most importantly deliver better outcomes for purchasers of apartment buildings going forward.

If we stand back and do nothing, nothing will change. If implementation is left to individual local councils to navigate, then we may miss a great opportunity to make an effective positive shift towards better outcomes for the community.

I hope my perspective on how this reform could work promotes positive discussion and a vision for genuine collaboration and improvement.

Bronwyn Weir is Managing Director of Weir Legal & Consulting – She specialises in advising government regulators and known for her expertise in building regulation. In 2017 she co-authored the Building Confidence Report with Professor Peter Shergold which was commissioned by Ministers of Australia’s nine jurisdictions. She continues to advise Australian governments on building regulatory matters.