Developers could face increasing accountability requirements whilst protection for consumers will be ramped up if recommendations from the second stage of a major review into Victoria’s building system are implemented.

The Stage Two Report to Government of the Expert Panel’s Comprehensive Review of Victoria’s Building System has been released.

It makes fourteen recommendations across five areas.

The report’s release comes as part of a wide-ranging review of Victoria’s building system which is being undertaken by an expert panel that was formed in 2019.

The review comes in response to the landmark Building Confidence Report that was prepared for the Building Ministers Forum (now called Building Ministers Meeting) at a national level in 2018. It also followed serious concerns about the quality and safety of residential buildings throughout the state.

The review is being conducted in three stages.

Stage One focused on building practitioner registration, building approval processes, regulatory oversight and consumer protection. In its Stage One report, the panel made 16 recommendations.

During Stage Two, the panel extended its focus to cover five additional areas.

These include:

• Extending the accountability of developers, builders and other parties
• Improving compliance, enforcement and discipline
• Establishing a framework to implement a mandatory decennial liability insurance scheme
• Improving dispute resolution mechanisms; and
• Improving regulation relating to building maintenance, products and technologies.

First, the Committee made three recommendations to extend the accountability of developers, builders and other parties.

As things stand, the Committee found that current regulatory controls fail to capture upstream participants such as property developers.

This is problematic as developers control decisions relating to design and contractual arrangements that influence project outcomes and construction quality.

Beyond this, current pathways for consumers to obtain recourse in relation to defective building work are limited.

As things stand, existing protections for consumers involve a common law duty of care, consumer guarantees and implied warranties.

However, the report found that these mechanisms provide only limited avenues through which consumers are able to hold participants accountable for defective or non-compliant work.

In response, it made three recommendations.

These include:

• Introduction of a developer bond scheme to cover the cost of defect rectification in high-rise apartment complexes of three storeys or above (which are not covered by domestic building insurance). The scheme would likely be similar to an existing scheme that is currently in place in NSW.
• Requiring developers to appoint an agent such as a superintendent, site architect or clerk of works to monitor the quality and safety of construction on site for certain types of buildings.
• Consideration of extending warranties which are currently provided by builders under section 8 of the Domestic Building Contracts Act to also cover developers.
• Introducing a statutory duty of care that is owed to consumers and would strengthen building owners’ claims to negligence actions. The duty would be applied to a range of building project participants including architects and engineers, product manufacturers and suppliers, project supervisors and coordinators, project managers and others.

According to the report, benefits associated with such measures would be substantial.

The developer bond scheme which is proposed for multi-storey apartment complexes would help to ensure that money was available to owners and owners corporations to rectify defects even in cases where the developer has either ceased to exist (i.e. become insolvent) or is unable or unwilling to rectify defects.

Meanwhile, the appointment of a superintendent/clerk of works would help to drive an overall quality focus across fragmented project team members and would provide a means through which defects are able to be identified and addressed early on during construction.

Finally, the statutory duty of care would make it easier for owners to claim recourse for defects which occur as a result of negligence.

As things stand, the report notes that it can be difficult for property owners to demonstrate that they are owed a duty of care under common law. At any rate, such duties are generally limited to builders and building surveyors. Developers, engineers and other building participants are not usually covered.

By contrast, the statutory duty of care would clarify which parties owe a duty of care to consumers and for what the duty is owed.

The second area of reform relates to decennial liability insurance (DLI).

Currently in place in a voluntary capacity in new South Wales, DCI provides coverage for apartment owners against serious defects which may occur in apartment complexes.

Though details would be worked through by the by the advisory committee, the report suggests that DBI would likely apply to multi-storey apartment buildings (Class 2 buildings under the National Construction Code) and would likely have a coverage period of either six or ten years (in NSW, the coverage period is ten years).

Its scope may either potentially be restricted to serious defects on common property or may be broader than this.

According to the report, a critical feature of DLI involves its ‘first-resort’ nature.

This means that owners and owners corporations will be able to make a claim for insurance as a first point of call when a defect occurs.

This contrasts with the ‘last resort’ nature of insurance which is afforded under domestic building insurance in low-density residential settings. In such a system, owners are able to claim insurance for defective or incomplete work only if the builder has either died, disappeared, become insolvent or has not complied with a court or tribunal order.

Third, the report contains recommendations which aim to improve compliance, monitoring, enforcement and discipline across the building regulation system.

These builds on recommendations from the Stage One of the review that aim to strengthen the regulatory oversight of building practitioners and to better support the Victorian Building Authority (VBA) to become a best-practice regulator.

In its Stage Two recommendations, the Expert Panel has recommended that the Building Act should be amended to provide greater powers to the Victorian Building Authority to address current gaps in compliance and enforcement.

In particular, it says that the VBA should have new powers to require rectification of non-compliant building work.

To ensure that costs associated with this are not simply borne by consumers, it says the regulator should also have the power to direct builders, developers and other responsible parties to pay for rectification costs.

To promote better information, communication and reporting on enforcement activity, meanwhile, it says that the VBA should publish guidance and information on its enforcement activity.

This includes expectations of practitioners during the disciplinary processes (required documentation and expected timelines) along with guidelines on disciplinary sanctions that may apply in different circumstances, processes involved in undertaking disciplinary proceedings and reporting on outcomes and timelines achieved.

Finally, the report made recommendations to improve dispute prevention and resolution and to improve regulation around building maintenance, products and technologies.

These include:

• Having Domestic Building Dispute Resolution Victoria (DBDRV) publish regular reports on achievement of performance, targets, timelines and outcomes.
• Establishment of a single integrated portal of practitioner details and establishment of a communications strategy which covers all relevant agencies across the building regulation system.
• Developing an effective triaging model to cover all disputes to enable efficient resolution of disputes.
• Improving the effectiveness of dispute resolution services by Increasing use of technical assessments and rectification orders and by allowing single trade disputes to be head at DBDRV without duplication with VCAT.
• Considering further structural reforms to dispute resolution institutional arrangements.
• Increasing oversight of maintenance regarding essential services measures (ESMs) within buildings by beefing up sanctions where ESM maintenance has not been complied with; introducing five-year inspections periods to assess whether ESMs remain fit for purpose (in addition to annual ESM inspections); and requiring owners corporations to implement recommended changes from ESM inspections.
• Strengthening competencies and obligations of owners corporations (OCs) and OC managers by requiring OC managers to undertake professional development in ESM obligations and record keeping and by developing materials to support OCs to employ OC managers who adequately understand ESM requirements.
• Strengthening regulatory requirements relating to complex plumbing work by defining complex plumbing work, requiring notification to the VBA of such work, considering the introduction of inspection requirements for such work and introducing certification of designs for complex plumbing work.
• Ensuring that the regulatory framework enables the uptake of new technologies, practices and products such as increased use of recycled materials where appropriate and greater adoption of technologies such as BIM and digital twins. This may include legislative amendments to reduce barriers where appropriate.

Building industry commentators broadly welcomed the recommendations.

Bronwyn Weir, managing director of Weir Legal Consulting and co-author of the aforementioned Building Confidence Report, said that it was pleasing to see the release of the second stage recommendations after four years of work from the review panel and extensive input and effort from stakeholders.

Asked which recommendations are likely to have the biggest impact, Weir nominated several areas.

“The proposed reforms aimed at increased accountability for developers and encouraging the uptake of latent defects insurance for apartment buildings, if introduced, should make a difference,” Weir said.

“These coupled with increased powers for the VBA and increased resources to support more proactive inspections during construction to identify and rectify defects before owners complete apartment sales are likely to make the most difference.

“An overhaul of the dispute resolution services is also necessary. When defects arise, owners and builders need support to nip things in the bud rather than entering into long, expensive drawn-out litigation. The longer defects are left unresolved, the more likely that consequential problems arise like water damage affecting structural elements and mould. It is imperative that there are effective dispute resolution services available for the growing legacy of buildings with serious defects.

“More effective proactive inspections and dispute resolution will also help support the uptake and availability of latent defects insurance in Victoria.

“The recommendation relating to complex plumbing work is also welcomed. More oversight of this work through inspections will improve outcomes in this area.”

Still, Weir issued three points of caution.

First, outcomes will not improve unless recommendations are actually implemented. This is critical as important recommendations from Stage One of the review were absent from the Building Legislation Amendment Act 2023 and have not been implemented thus far. These include proposed improvements to the building approval systems such as enhancing the role of councils in complex building projects as well as increased obligations on designers.

Second, Weir says that reforms need to go further on building product safety. On this score, Weir encourages Victoria to legislate a chain of responsibility throughout the building product supply chain similar to that which is in place in Queensland and that which is contained in legislation which has passed the Upper House in New South Wales.

Finally, Weir says greater urgency is needed in progressing reform.

“I think there is still a significant body of work to be done in Victoria to improve the regulatory scheme and the effectiveness of the regulators,” Weir said.

“I wish there was more of a sense of urgency, particularly in light of the Housing Statement and the prospect of 800,000 new homes in Victoria (many of them apartments) over the next decade.

“With CSV’s (Cladding Safety Victoria’s) research showing serious defects are occurring in around 50% of apartment buildings, the government simply can’t afford to wait any longer to progress the panel’s recommendations and other reforms to ensure better outcomes for consumers and industry.

Alan Ferre, President of Strata Community Association (Victoria) also welcomed the recommendations.

“SCA (Vic) believes it is vital to continue to implement measures which will improve the quality of residential buildings across Victoria from their design and construction through to their handover and beyond,” Ferre said.

“Victorians have every right to have confidence and trust in their choice of home and we will continue to work hard to raise standards across the industry to help ensure this.

SCA (Vic) believes the recommendations in the Stage Two report of Victoria’s building system review are much needed steps in the right direction to address gaps within industry and regulation.”

In particular, Ferre says that SCA (Vic) supports the reforms that seek to extend accountability, improve compliance and enforcement and streamline dispute resolution.

With regard to building rectification work, SCA (Vic) supports expanding Domestic Building Insurance (DBI) scheme in its current form to allow for a Certificate of Warranty Insurance to be issued for residential buildings of any height. The organisation is also open to considering reforms such as the developer bond scheme and DLI – though it stresses that more detail and engagement is needed before these reforms are implemented.

However, Ferre cautions that the proposals regarding additional competencies and obligations regarding owners corporations and owners corporations managers need to be accompanied by further consultation regarding design and implementation along with appropriate support mechanisms such as education and funding.

In addition, Ferre would like the Government’s reform efforts from Stage One to go further.

In addition to the creation of a Building Monitor and State Building Surveyor as legislated under the Building Legislation Amendment Act, Ferne would like to see the creation of a Strata Commissioner who is responsible for understanding and overseeing the strata industry specifically with a view to creating much needed strata-specific reforms.

Creation of such a position would bring Victoria into line with other states such as Queensland (which has a Commissioner for Body Corporate and Community Management) and more recently New South Wales (which elevated strata into the Commissioner’s role as Strata and Property Services Commissioner), Ferre said.

As well, Ferre says the Government should continue to review and reform key areas within the industry to ensure that Victorian building consumers including those living within strata communities that their needs and concerns are being met.

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