Increasingly, the system of private certification of buildings is being slated, by those with expertise and knowledge in the area, as one of the main factors accounting for the crisis in the residential building industry in NSW.
Construction lawyer, Jessica Rippon, is forthright in identifying private certification as a contributing factor, in her article “Closing the Gap: Decennial Liability Insurance – The Solution to the Strata Living Crisis in New South Wales” in the Building and Construction Law Journal (BCL), Vol 35 No 5.
Rippon discusses a case concerning the construction of a “luxury” development. “A series of life-threatening fire safety deficiencies were found by the Council and Fire and Rescue NSW immediately after the development had been certified and residents moved in,” she recounts. Investigations revealed “the certifier had not undertaken any proper fire safety inspections, instead choosing to sign off the development as being … compliant based on paperwork furnished to him by the builder”.
Critics of the private certification regime say it has generated an era of “friendly certifiers” meaning developers and builders choose, appoint, and pay an accredited certifier to certify their developments, with the result the certifier “would consciously or unconsciously, bear in mind the necessity to produce ‘positive’ results if they wish to secure future work”.
The main thrust of Rippon’s article is her suggestion for reform of NSW’s building insurance regime to enhance consumer protection given the “strata living crisis” in the State.
The crisis consists in the burgeoning of strata developments – 80,660 strata schemes, housing over 1.1 million people, with the expectation that in 20 years half NSW’s population will be living or working in strata or community schemes – and the unavailability of remedies for apartment owners hit by the need to rectify, often “major”, defects that may appear years after occupation. Rippon says over 85% of apartments built since 2000 have defects in construction, materials, or design, and quotes a Fire and Rescue NSW official as referring to the existence of around 350 “fire safety concerns”.
The factors accounting for the unavailability of remedies, include the exemption of multi-storey developments from the mandatory insurance requirements of the Home Building Act 1989 (NSW), and builder and developer insolvencies.
There is also the “common” practice of developers incorporating new entities for each project: “Those entities … special purpose vehicles, are used to construct the project, sell the apartment and distribute profits.” Once this is done, says Rippon, the entity is then deregistered, leaving apartment owners and Owners Corporations without a remedy.
Rippon proposes the introduction of a system of decennial liability and decennial liability insurance. Considering the operation of decennial regimes in various countries, she argues that decennial liability insurance schemes promise a “holistic solution to the strata living crisis” through their various principles and requirements, including:
- strict liability;
- mandatory insurance;
- subrogation suits;
- 10-year liability; and
- joint and several liability.
Rippon argues that giving insurers control over the appointment of building certifiers (through amendments to s 109E of the Environmental Planning and Assessment Act 1979 (NSW)), would help secure insurers participation in the suggested decennial liability insurance market.
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 Lisa Visentin, “NSW Government Fails to Act on Proposed Building Industry Reforms for Almost Two Years”, The Sydney Morning Herald, 22 June 2017.