Does Your Strata Property Enjoy Adequate Coverage? 2

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Tuesday, November 3rd, 2015
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As concerns mount within the strata sector over the quality of the huge slew of new apartment buildings coming online, one industry expert has pointed out that owners could be highly vulnerable to potential defects due to lack of adequate coverage.

Stephen Raff, CEO of Ace Body Corporate and former president of Strata Community Australia (Vic), said the problem of poor building quality, whether due to shoddy construction work or the usage of sub-par imported products, could be even further exacerbated for owners by limitations on warranties of which many remain unaware.

“The big problem is that there’s an assumption – a common misperception, that [owners] can claim on the contractor’s builder warranty insurance, which is six years with builders, and ten years under consumer law,” he said.

Raff notes, however, that given the way coverage for defective building products is categorized, many of the problems that have recently started to arise in relation to low quality imported building goods could be subject to shockingly brief warranty periods.

“For structural defects it’s six years, and non-structural defects it’s two years. Most [product quality problems] fall into the category of non-structural, so it’s really only two years,” he said. “The warranty period could be even shorter, depending upon the individual case.”

Even structural defect coverage is subject to conditions that can make it difficult for owners to redress major problems that can potentially arise in relation to buildings.

“The other problem is that everybody thinks they’ve got builders warranty insurance for six years for major defects,” said Raff.

“However, for six-year building warranties, you can only use that insurance if the builder dies, disappears, or becomes insolvent. Otherwise you’re relying on the builder coming back and fixing the defects. And do you think that happens a lot of the time? No way.

“There are good builders out there, but there are also a hell of a lot of bad ones. And the issue is that oftentimes they won’t return to fix problems – particularly if it’s a major problem like concrete cancer.”

Another major issue that Raff raises in relation to builders warranties is limitations based on the height of buildings that set the threshold for coverage at an extremely low level, particularly given the current spate of high-rise apartment development in Australia’s major cities.

“One of the major problems we’ve got is that anything over three storeys doesn’t have [come with] any builders warranty in Melbourne and Sydney,” he said. “That is serious stuff – you’ve got people investing big money into apartments and they’re just not covered.”

According to Raff it’s high time the government intervened on behalf of owners in order shore up coverage as well as ensure that builders are doing their jobs properly.

“One of the things that SCA Vic and other chapters are trying to do, particularly in NSW and Victoria, is to get the government to listen to us and say, hey this is ridiculous, we need to be monitoring these builders more,” he said. “There’s a lot of very poor building out there, and we need to have control systems in place whereby we’re monitoring what they’re doing, monitoring the materials they’re using.

“Even more importantly – we need to be providing warranty insurance for all buildings, and not eliminating buildings that are three storeys and above, which are likely to be the most problematic ones.”

Building consultant Brett Bates has recently noted that the alarming rate of defects for apartments built since the turn of the century is likely related to the increasing scale and complexity of new developments, in conjunction with the failure of education and qualification standards for the construction sector to keep pace.

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  1. Phil Dwyer

    We were responsible for the Last Resort Builders Warranty being removed in Tasmania in 2007 which in effect improved that jurisdiction without any replacement. There is no insurance available in Tasmania.

    Getting the Governments of NSW and Victoria to listen has been proving very difficult against the vested interests of the trade associations who benefit handsomely from the status quo remaining.

    In fact in Victoria of the premiums we as builders pay some 70% is absorbed by private enterprise according to the previous Attourney General leaving only 30% for the intended purpose.

    Consider Governments listening, and improving compliance, regulation, and setting up a statuary fund to administer consumer protection with 100% of our premiums. We could them protect all our consumers with ease and have an industry we could all be proud of. Is that wishful thinking???

  2. Peter Young Peter Young

    Awesome Article