Confidence in the off-the-plan market in NSW has been considerably damaged by the Opal Towers and Mascot Towers debacles, which episodes revealed a major gap in consumer protection when buying high-rise apartments.
But with the housing crisis unsolved, the NSW government have stepped in with some major initiatives due to launch this year which may restore confidence. We outline two of the key initiatives below:
New insurance regime
One of the biggest problems with purchasing high-rise apartments off-the-plan in NSW is the fact that buyers have no access to the Home Building Compensation Fund (the HBC Fund) when the developer / builder goes missing.
Ordinarily, buyers who purchase a new property have 6-year statutory warranties from the builder for major defects (2 years for minor defects). However, these warranties are not worth much if the builder goes missing or insolvent. In that case, most buyers have access to the HBC Fund as a back-up insurer.
However, controversially, buyers of properties in buildings 3 stories or more do not have access to the HBC Fund. This means that, in cases like that of Opal Towers, where the developer went bankrupt, the buyers have to foot major repair costs themselves – sometimes bankrupting the body corporate or burdening them with huge debts.
Late last year, the NSW Government announced that it would be introducing Decennial Liability Insurance for residential apartment buildings in NSW, potentially with effect in late 2022.
Decennial liability insurance is a form of insurance taken out by a developer or builder for a period of ten years following the completion of a building, in favour of future owners of the building. The policy would cover the building totally or partially collapsing, or where the building contains structural defects that affect the building’s stability or safety (i.e. the kind of things that happened to Opal & Mascot Towers).
An important aspect of decennial liability insurance is that it insures liability on a strict liability basis. As a result, owners of buildings are not required to prove any negligence or fault by the developer or builder to trigger a decennial liability insurance claim. This likely cut down the costly litigatation that ensues when body corporates have to sue their builders and liability is contested.
Developer’s rating system announced
Complimenting the new Decenial Insurance scheme is the announcement of a new public rating system for developers, so that consumers can readily get feedback as to how the developer’s past projects have fared.
This is a key development as until now the developer’s track record was not something that consumers could readily get access to.
Purchasers and their advisers can access the ratings tool here. As of today, three major developers, Deicorp, Helm and Ultra Building, have completed the Equifax Independent Construction Industry Rating Tool (iCIRT). They each received scores above three out of five stars, the benchmark to be deemed “trustworthy”.
This will be an important tool for both consumers and insurers to analyse the operational risks of builders / developers and is very encouraging step for ward for the market.
If you have any questions about this article, please contact the office on 1800 870 407 and one of our solicitors/conveyancers will be able to assist.