Introduction of new law relating to serious defects and issuance of occupation certificates

Introduction

The Residential Apartment Buildings (Compliance and Enforcement Powers) Act 2020 (NSW) (Act) was assented to on 10 June 2020 and will commence on 1 September 2020.

The Act applies retrospectively and significantly impacts residential projects delivery, completion, developer cash flow and contractors risks. Developers (you) must note these changes and take relevant measures to minimise your risks.

Application

The Act applies to building works:

  • in respect of residential buildings that are in whole or in part, class 2 buildings under the Building Code of Australia;
  • are or were authorised to commence in accordance with a construction certificate or complying development certificate; and
  • that have not been completed or have been completed within the period of 10 years before the Secretary of the Department of Customer Service exercises its functions under the Act.

The regulations, which are yet to be enacted, may prescribe other classes of building works to which the Act applies.

Key Changes

Under the Act, you must:

  • provide an expected completion notice to the Secretary at least 6 months but not more than 12 months before application for an occupation certificate; and
  • provide an amendment notice within 7 days of you becoming aware of a change in the date specified in the expected completion notice.

The Secretary may appoint officers to investigate, gather information relating to and perform tests on building works. The Secretary may also:

  • issue stop work orders if the building works are, or are likely to be, carried out in a manner that could result in significant harm or loss to the public or occupiers or significant damage to property;
  • issue rectification orders if the building works were or are being carried out in a manner that could result in serious defects;
  • do those works in the rectification orders if you fail to comply with them;
  • issue prohibition orders preventing issuance of occupation certificates and registration of strata plans if:
  • you fail to provide the expected completion and amendment notices;
  • you fail to provide building bonds;
  • there are serious defects in the building;
  • the rectification orders are not revoked; or
  • a development control order has been made and not revoked; and
  • issue cost compliance notices demanding payment of costs and expenses incurred by the Secretary if rectification orders are issued.

You will be in breach of the Conveyancing Regulations new warranty, as amended in the Act, if you enter into sale contracts before rectification orders end or are revoked unless they are disclosed in the sale contracts.

If you have breached the Act prior to issuance of orders by the Secretary, you may provide an undertaking and, if acceptable by the Secretary, must comply with it.

If you are a body corporate which is in breach of the Act, directors who knowingly authorised or permitted the breach will also contravene the Act.

Who is a ‘developer’?

Under the Act the broad definition of ‘developer’ captures developers, owners, principal contractors as that term is used in the Environmental Planning and Assessment Act 1979 (NSW), the developer of a strata scheme as that term is used in the Strata Schemes Management Act 2015 (NSW) and anyone else prescribed by the regulations.

Moving Forward

The Act significantly affects both developers, owners and builders of residential apartment

developments. The key impact is the prohibition order delaying issuance of occupation certificates and registration of strata plans. This may affect developers in satisfying their obligations under both sales contracts and finance facilities agreements.

There are several items which are not addressed in the Act, for example statutory timeframe on issuance of stop work orders and rectification orders by the Secretary.

We will provide further information when the regulations are enacted.

For further information, please contact the Property + Projects Team.

Mike Ellis: mike.ellis@vincentyoung.com.au
Yanlie Leung: yanlie.leung@vincentyoung.com.au

The contents of this publication do not constitute legal advice and are for general information purposes only.  You should seek legal advice regarding your particular circumstances.