New law on building residential apartments: Beware builders and developers in NSW

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Overview

Who should read this paper?

Developers and builders who will commence or complete the construction of a residential apartment building on or after 1 September 2020 should read this paper. This paper has been prepared to assist builders and developers to understand the Residential Apartment Buildings Compliance and Enforcement Power) Act 2020 which was made law on 11 June 2020.

What is the RAB Act?

On 11 June 2020, the NSW Government passed into law the Residential Apartment Buildings (Compliance and Enforcement Powers) Act 2020 (NSW) (the RAB Act). The RAB Act grants new powers to New South Wales Fair Trading (Fair Trading) which will be used to regulate developers during the construction of residential apartment buildings to prevent building serious defects in completed apartment buildings.

The RAB Act is part of the wider reform in New South Wales focused on the improving the quality of buildings in New South Wales by increasing regulation of the delivery phase of construction projects.

RAB Act in a nutshell

In summary, the RAB Act makes provision for the following:-

  1. to enable Fair Trading to issue developers with:-
    • prohibition orders to stop the issue of an occupation certification in relation to a residential apartment buildings, and if relevant, the registration of a strata plan or strata scheme;
    • stop work orders; and
    • building rectification orders to cause building work to be carried out, or refrained from being carried out.
  1. to provide Fair Trading broader investigative and enforcement powers to ensure compliance with the RAB Act;
  2. to establish penalties for non-compliance with orders made by Fair Trading under the RAB Act; and
  3. to impose an obligation on developers to provide advance notice of expected completion dates.

Does the RAB Act apply to your project?

Type of building work

The RAB Act applies to “residential apartment building work”. Residential apartment building work means a class 2 building or any building containing a part that is classified as a class 2 component within the meaning of the Building Code of Australia. In other words, the RAB Act applies to apartment buildings, including mixed-use buildings (for e.g.  shop-top apartment buildings) as long as part of the building includes residential apartments.

Retrospective application (except for the Transitional Period)

The RAB Act commences on 1 September 2020. Unless the transitional period applies, the RAB Act applies retrospectively to existing residential apartment building work that is incomplete, or has been completed within the last 10 years.

Transitional Period

The transitional period is from 1 September 2020 until 1 February 2021.

Projects completing during Transitional Period

During the transitional period a developer who intends to apply for an occupation certificate for a residential apartment building between 1 September 2020 and 1 February 2021 (i.e. the transitional period) must provide Fair Trading with an Expected Completion Notice between 1 September 2020 and 15 September 2020.

Who is liable under the RAB Act?

Developers (and builders)

All obligations and requirements set out in the RAB Act apply to “developers” (this includes builders).

Who is a “developer”?

Section 4 of the RAB Act defines a “developer” as:

  • a person who contracted or arranged for, or facilitated or otherwise caused (whether directly or indirectly) the building work to be carried out;
  • the owner of the land on which the building work is carried out at the time the building work is carried out;
  • the person responsible for the overall co-ordination and control of the carrying out of the building work (k.a. a builder) (see the definition of “principal contractor” in the Environmental Planning and Assessment Act 1979); or
  • in relation to strata scheme buildings, the original owner of the strata scheme or the owner of a “development lot” within a strata scheme (see the definition of “developer” in the Strata Schemes Management Act 2015).


Must know terms

“Serious defect”

The term “serious defect” is used frequently in the RAB Act as a threshold for Fair Trading exercising its powers.  It is important to know and understand what the RAB Act defines as a “serious defect”.

A serious defect is:

  1. a defect in a building element that is attributable to a failure to comply with the performance requirements of the Building Code of Australia, the relevant Australian Standards or the relevant approved plans, or
  2. a defect in a building product or building element that (1) is attributable to defective design, defective or faulty workmanship or defective materials, and (2) causes or is likely to cause:
    • the inability to inhabit or use the building (or part of the building) for its intended purpose; or
    • the destruction of the building or any part of the building; or
    • a threat of collapse of the building or any part of the building; or
  1. a defect of a kind that is prescribed by the regulations as a serious defect (at the time of publishing, there are no regulations); or
  2. the use of a building product (within the meaning of the Building Products (Safety) Act 2017) in contravention of that Act.

“Building Element” and “Building Product”

(After 1 February 2021) a “Building Element” is defined by section 6 of the Design and Building Practitioners Act 2020 (NSW) as including fire safety systems, waterproofing, internal or external load-bearing components of a building, building enclosures and services (mechanical, plumbing or electrical) or other things as prescribed by regulations.  (See Transitional Period)

A “Building Product” means any product, material or other thing that is, or could be, used in a building.

Notice of Expected Completion

Developers (this includes builders) are required to notify Fair Trading of when it expects to apply for an occupation certificate.  These notices are called Expected Completion Notice.

When must an Expected Completion Notice be given?

 Pursuant to section 7 and 8 of the RAB Act, a developer must give to Fair Trading an:

  • Expected Completion Notice between 6 to 12 months before an application is made for the occupation certificate for the building or any part of the building.
  • Expected Completion Amendment Notice within 7 days of the developer becoming aware that the date given in the Expected Completion Notice is expected to change.
  • For projects with programmes of less than 6 months, the developer must give an Expected Completion Notice within 30 days of the commencement of the works.

Projects completing during Transitional Period

During the transitional period a developer who intends to apply for an occupation certificate for a residential apartment building between 1 September 2020 and 1 February 2021 (i.e. the transitional period) must provide Fair Trading with an Expected Completion Notice between 1 September 2020 and 15 September 2020.

Consequences of failure to give Expected Completion Notice

Where an Expected Completion Notice is not given in time or at all:

  • the developer may be fined up to $110,000; and
  • Fair Trading may make a prohibition order under the RAB Act which prohibits the issue of an occupation certificate – thereafter any occupation certificate issued in contravention of the prohibition order would be invalid.

Fair Trading Powers

Prohibition Orders

What you need to know

Pursuant to s.9 of the RAB Act, Fair Trading may make an order prohibiting the issue of an occupation certificate and, if relevant, the registration of a strata plan for a strata scheme, if any one or more of the following applies:

  • the developer fails to, within the prescribed time, give notice to Fair Trading of when it expects to apply for an occupation certificate for any part of the building work; or
  • if Fair Trading is satisfied that a serious defect in the building exists; or
  • the developer fails to make payment of the building bond as required under 207 of the Strata Schemes Management Act 2015.
Non-compliance with a prohibition order

An occupation certificate issued in contravention of a prohibition order is invalid, and attaches a maximum penalty of $110,000 in the case of a body corporate, or $22,000 in any other case.

Stop Work Order

What you need to know

Under s.29 of the RAB Act, Fair Trading may order a developer to stop works if it is of the opinion that the building work is, or is likely to be, carried out in a manner that could result in significant harm to the public, or occupiers, or potential occupiers of the building.

A stop work order is effective as at the date it is given to the developer (unless otherwise specified), and remains in force until:-

  • the order is revoked by Fair Trading; or
  • expiry of the term specified in the order (if applicable); or
  • 12 months from the date on which the order takes effect.
Appealing from Stop Work Orders

Under s. 30 of the RAB Act, a developer may appeal the stop work order in the Land and Environment Court within 30 days of the order being given. The appeal process does not (unless the Court directs otherwise) operate to “stay” the stop work order. This means, that a developer must give effect to the stop work order notwithstanding its appeal application.

Consequences of non-compliance with a Stop Work Order

The maximum penalty for non-compliance with a stop work order is:-

  • in the case of a body corporate: $330,000 and $33,00 for each day the office continues; and
  • in any other case: $110,000 with an additional $11,000 for each day the offence continues.

Building Rectification Order

What you need to know

Under s.33 of the RAB Act, Fair Trading may issue a building work rectification order to require a developer to carry out, or refrain from carrying out building work for the purposes of eliminating, or minimising a serious defect.

A rectification order may be unconditional or subject to conditions and remains in force until it is revoked by Fair Trading, or upon the expiry of the term of the order (if any).

Prior to exercising any right under s. 33, Fair Trading must (unless in the case of an emergency) give notice to the developer of:

  • its intention to issue a rectification order;
  • the terms of the proposed rectification order; and
  • the period for compliance with the order.

Under s. 46 of the RAB Act, a developer may make written submissions concerning the proposed rectification order. The timing for these submissions will be set out by Fair Trading, in its notice of intention identified above.

Appealing from Rectification Orders

A developer may appeal a rectification order in the Land and Environment Court within 30 days after the rectification order is given. Notably, the appeal does not affect a stay of a rectification order.

Consequences of non-compliance with a Rectification Order

Fair Trading may do anything necessary or convenient to give effect to the terms of the rectification order. This may include removal and/or disposal of materials. A developer bears the reasonable costs incurred by Fair Trading in connection with a rectification order (Compliance Costs).

Fair Trading may commence proceedings to recover any unpaid amounts of its Compliance Costs.

Investigation Powers

Under the RAB Act, Fair Trading may appoint an authorised officer to:-

  • investigate, monitor and enforce compliance with the requirements imposed by or under the RAB Act;
  • investigate whether the building has serious defects;
  • obtain information or records for purposes connected with the administration of the RAB Act.

Get in touch

Prudent developers will attempt to allocate risk that arises under the RAB Act to builders under a head contract.  As the RAB Act applies retrospectively, all industry stakeholders need to observe the new requirements that flow from the RAB Act.

If you have any questions about how the Residential Apartment Buildings (Compliance and Enforcement Powers) Act 2020 will impact your business, please get in touch with our Construction + Projects team.

 

 

The information in this paper is current at the time of publishing and is for general information purposes only.  You should seek legal advice that accounts for your specific circumstances.

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