Is the claim within time? That is invariably the first question that should be asked when a claim for damages for defective building work is received or is to be made.

In Victoria, a claim for damages for defective building work can be made at any time up to and within 10 years from the date of issue of an occupancy permit or a certificate of final inspection relating to that building work.

But what about when multiple occupancy permits have been progressively issued with respect to a staged development?  When does the 10-year limitation start and end?

Until now, there has been confusion in Victoria about when the limitation period starts to run when multiple occupancy permits have been issued with respect to building work.  The confusion reigned because the Building Act 1993 (Vic) (Building Act) was silent in this regard.

However, the Supreme Court of Victoria has provided the industry with clarity. It has decided that where more than one occupancy permit has been issued for a staged development, the limitation period for the entire project commences on the date that the last staged occupancy permit or final certificate has been issued. [1]

The consequence of this decision is that where a building project is delivered by multiple stages, a building practitioner may be exposed to liability for damages for defective works for a longer period than they had previously thought.  That is because their exposure to claims for defective works starts to run from when the last staged occupancy permit is issued for the project, and not from when their works were signed off under an earlier staged occupancy permit.

Let’s take a deeper dive into the Court’s decision and reasoning.

The staged development – The Chevron Hotel, St Kilda

The iconic Chevron Hotel was built in 1934.  In the early 2000s the original hotel was converted into an apartment complex.  The transformation of the Chevron Hotel to apartments was carried out in stages, with four staged occupancy permits being issued for the project.

Lendlease Engineering Pty Ltd (Lendlease) undertook building work at the Chevron apartment complex, including the construction of louvered metal shade screens to the exterior of the building perimeter located on both the common property and private apartments.

The dispute

The Owners Corporation (OC) started legal proceedings against Lendlease in respect of defects in the louvre system exterior of the new apartment building.

Lendlease applied to have the OC’s claim dismissed for two reasons:

1. the OC’s claim was out of time due to section 134 of the Building Act; and
2. the OC only had legal standing to bring proceedings in relation to louvre system defects in the common property, and not in the lot owners’ property.

The OC applied to join the apartment owners to the legal proceedings. The contractor objected on the basis that, amongst other things, the limitation period had expired as more than 10 years had passed from when the occupancy permit had been issued.

What is a limitation period, and when does it start?

A limitation period is the timeframe within which a legal proceeding must be commenced.  If a legal proceeding is commenced after that timeframe has expired, the claim is time barred and the person against whom the claim is made can defend the legal proceedings on that basis.  Limitation periods exist to protect defendants.  The underlying policy principle of legislating limitation periods is that the longer it takes for a party to commence a legal proceeding, the less efficient the administration of justice becomes, and if the events occurred too long ago, the defendant may have lost the evidence necessary to defend themselves.  For example, key witnesses may no longer be available, and documents might be lost or destroyed.

Different legislation sets out the limitation periods for various types of claims that can be made.  Sometimes, the contracts you enter can also include limitation periods too.

In Victoria, the limitation period with respect to claims for damages for defective building works is set out in section 134 of the Building Act.  This section effectively provides that such a claim cannot be commenced more than 10 years after the date that the occupancy permit or certificate of final completion is issued in respect of the defective building work.

The decision

In this case, there were two occupancy permits that were relevant to the defective louvered metal shade screens to the exterior of the building perimeter, one dated 6 December 2006, the other dated 16 February 2007.

The Court decided that the 10-year limitation period commences from the date that the last staged occupancy permit or certificate of final inspection is issued.  That meant that the limitation period started running on 16 February 2007. Therefore, the OC was not out of time and could bring its claim in relation to the defective works.  Had the Court found that the limitation period started to run from when the earlier staged occupancy permit was issued, the OC would not have been able to bring its claim as it fell outside the 10-year limitation period.

In reaching its decision, the Court recognised that whilst the Building Act permitted staged occupancy permits to be issued, at a certain stage close to completion of the building works, an occupancy permit is required to be issued for the whole of the building.  The 10-year limitation period runs from the occupancy permit that best reflects the whole of the building work for the whole of the building.  In most cases, this will be the final occupancy permit that is issued for the staged building works.

This decision as to the 10-year limitation period is applicable to builders, engineers and architects involved in the design and construction of defective building works.

What does this mean for you?

The consequence of this decision is that building practitioners that undertook building works the subject of earlier staged occupancy permits may face significantly longer limitation periods than they expected as the 10-year limitation period will not commence running until the final occupancy permit is issued for a stage development.  This increases the period of potential risk and may impact the insurance which must be maintained.

Building practitioners should check their historical projects and identify those where staged occupancy permits of certificates of final inspection have been issued to ensure they correctly calculate the 10-year limitation period from the date of the final occupancy permit being issued for those projects (and not the earlier date).

When tendering, practitioners should ensure that they understand whether or not staged permits will be issued – and if so, the anticipated timing of those permits. This will enable them to assess the increased risk and ensure that it is included in any pricing.

The upside of the decision for developers and building owners in Victoria is that they will have more time to bring a claim for damages for defective works even though a staged occupancy permit or certificate of final inspection had been issued for those works well before the final occupancy permit or certificate has been issued.

By Jeanette Barbaro, Tom Kearney and Michael Lo

MinterEllison

[1] Lendlease Engineering Pty Ltd v Owners Corporation No. & Ors [2021] VSC 338.

Jeanette Barbaro

Partner

Jeanette is a partner at MinterEllison in the Project, Infrastructure and Construction group. Her expertise lies in dispute resolution, building compliance, building regulation, risk management and the delivery of construction and infrastructure projects.  This unique combination of expertise allows Jeanette to bring an understand of the technicalities of building and the industry dynamics to the legal work she does for builders, developers, investors, government, and regulators.  Jeanette has extensive experience providing legal support throughout the design and the construction of residential, commercial, social housing, health, education and aged care buildings, including the resolution of defect, delay and variation claims.

Tom Kearney

Senior Associate

Tom acts for principals, developers, contractors and government on both contentious and non-contentious work. His expertise ranges from contract negotiation and formation, contract review through to advice and administration, with a particular focus on litigation and other forms of dispute resolution including experience with the relevant security of payment legislation in all Australian jurisdictions.

Michael Lo

Associate

Michael has broad experience in infrastructure projects specialising in both contentious and non-contentious matters.  Currently, his focus is on the resolution of disputes arising out of major technology, engineering and construction projects.  These disputes invariably relate to time, cost, or quality issues which are common in construction projects.