The Victorian Government’s proposed changes to domestic building rules will do nothing to protect most apartment buyers from dodgy construction, industry sources have warned The Fifth Estate.

Under proposed changes to domestic building legislation, the Victorian government has said surveyors will regain their independence and will no longer be appointed by the builder.

The change is part of an overall aim to reduce widespread malpractice in the industry, but industry sources say it will do little to protect apartment buyers, especially given residential projects over three stories are exempt from needing Domestic Warranty Insurance.

The government has said the reforms aim to reduce disputes and better protect buyers, but as yet has not responded to The Fifth Estate’s request for information regarding who will now appoint the surveyor, or whether the new rules will apply to multi-residential projects.

A spokesman for the Victorian Building Authority said the VBA believed it would be up to owners to appoint a surveyor.

However, an industry source told The Fifth Estate this could be problematic, as most home buyers do not have the expertise to know what to look for in a surveyor. And in the case of multi-residential projects, such as an apartment tower, 100 or more buyers all appointing their own surveyor would add a vast amount of complication, they said.

There are also issues for off-plan buyers as there is often nothing completed to survey for compliance issues, even at the point of signing the contract and obtaining the mortgage.

The source said that, ideally, it should be local councils appointing building surveyors to ensure better compliance.

As part of the reforms to the legislation, the Building Practitioners Board is to be abolished, and its responsibilities transferred to the VBA, which will have stronger disciplinary powers.

A new dispute resolution service is to be created that will have power to obtain independent expert assessment of building work. It will be able to compel builders to repair poor work or make the consumer pay if work was correctly completed, reducing disputes.

Another industry source pointed out that in the case of apartment buildings higher than three stories, even under the revised legislation it would be the consumer that has to pay if work were defective and needed redoing.

What most consumers don’t realise, the source said, is there is no Domestic Warranty Insurance on residential buildings taller than three stories in Victoria, and no Structural Warranty Insurance. The consumer is completely exposed.

“Who appoints the surveyor is not the main story,” the source said. “It’s what the legislation [changes] didn’t address that really matters.”

The source also said there had been ongoing lobbying from within the industry for the government to take action that would genuinely protect owners of apartments in high rise developments.

The Fifth Estate has confirmed that the Victorian Building Commission issued a Practice Note in 2012 that sets out the conditions for an exemption to obtaining Domestic Warranty Insurance. The exemption applies to any building that has four living stories or more, using the Building Code of Australia definition of “living floor” that comprises any residential floor in a class two building.

These types of insurance in the low-rise sector also only come into effect when the builder has died or become insolvent. A Choice investigation in 2014 found that in Victoria, consumers have been finding it extremely difficult to successfully make claims, and that generally costly, time-consuming litigation has been the only way to attempt redress for defective work.

The Planning Institute of Australia has welcomed the initial tranche of changes, which were tabled in the Victorian Parliament this month.

PIA Victorian president James Larmour-Reid said improving the domestic building system was necessary for a healthy planning system.

“Building practitioner and consumer confidence is an integral part of the performance of planning. Improving the building system, so the industry can get on with the business of compliant building, is a key indicator of a healthy planning system,” Mr Larmour-Reid said.

“PIA understands that a vast majority of consumer complaints are triggered by issues with domestic building insurances. This week’s changes do not address needed changes to warranties, so we look forward to seeing these changes as part of the second roll-out of reform next year.”

Chief executive of the Australian Institute of Building Surveyors, Brett Mace, said the organisation supports the changes that will allow home owners to appoint the building surveyor.

In a submission to Planning Minister Richard Wynne earlier this year, AIBS said the proposal for an information statement to owners has “some minor merit, however, unless it is provided to the owner by the builder at the contract signing stage, it is little more than window dressing”.

“The government should consider direct appointment of a relevant building surveyor by the owner, which will properly resolve the issue.”

AIBS also said amendments to the act should include a “prohibition of appointing agents to make applications on the behalf of an owner”.

Several industry sources all told The Fifth Estate that regardless of the changes potentially putting the onus on owners to appoint the surveyor, most consumers would probably still let the builder do it.

“I expect in the case of apartment buildings the buyer will be presented with a form from the builder alongside the contract, giving [the builder] the go-ahead to choose the surveyor,” one source said.

Victoria is not the only state where consumers are being left exposed. In NSW, there is a similar warranty insurance exemption.

A spokeswoman for the NSW Department of Fair Trading said buildings more than three stories high were not covered by the Home Building Compensation Fund, which covers consumers in the event that the builder dies, disappears, becomes insolvent or has their licence suspended because they have not complied with a tribunal order.

“In multi-level residential buildings the owners corporation must levy (charge) owners in the strata scheme to raise enough funds to carry out its duties. If defects are found after the warranty period has expired the other options for owners is special levies or to take civil action,” the spokeswoman said.

“The NSW Government has developed a package of proposed reforms for strata buildings. The reforms include a proposal to require an independent defects inspection 12 to 18 months after completion of the building work. This proposal would be supported by the retention of a defect bond from the developer.”

Executive officer of the Owners Corporation Network Karen Stiles told The Fifth Estate that NSW was “haemorrhaging” around $1.7 million a week in Home Owners Warranty claims.

“And that’s just for buildings up to three storeys, and only to rectify defects where the builder has died, disappeared or become bankrupt. No one knows the total cost of not enforcing building standards,” she said.

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  1. Northern Territory leads the way with consumer protection and has included Hi-Rise in their new reforms.

    Since the current Last Resort Consumer protection Scheme was introduced in 2003 there has been nothing but conflict and controversy in the manner it deals with both consumers and builders.

    It should be clearly noted that Hi-Rise was to be catered for in these reforms under the document produced in harmony by the the NSW and Victorian Governments and known as the 10 Point Plan but the big builders were very critical and had it removed.

    It was introduced under the illusion of protecting consumers and at the time and we hold a Rehame Transcript of HIA describing their new Last Resort scheme paints a picture of confidence, and well being for the future of the industry and its builders and consumers.

    Over the past 13 years the Builders Collective of Australia (BCA) has dealt with every Government in the nation as well as consumers and builders where the Last Resort system was implemented, and while a minority may have received some benefit it is clear the vast majority of issues for both consumers and builders has only delivered heartache and devastation from a scheme of so called protection.

    The Last Resort Scheme has spawned some 54 inquires/reviews that have cost $tens of millions while Governments struggle with the consumer controversy, and fiddle at its edges in an endeavour to satisfy the threats of retaliation from so few who benefit from its being.

    Fortunately the Tasmanian Government saw fit to remove Last Resort in 2008 and now Minister Tollner of the Northern Territory has just announced his vision of reform and asked Territorians to comment as requested in this media release:

    Minister Tollner agrees a holistic approach is required and has also included hi-rise apartments in his consumer protection regime, which is supported by the recent findings University of NSW that since 2002 85% of all NSW apartments have building defects, and that with security for subcontractors and suppliers in the event of a builder’s failure demonstrates the insight Minister Tollner has of his portfolio.

    Victoria’s announcement of their limited reforms this week is welcomed and will assist many in the future, and in fact are crucial within the holistic reform we seek as demonstrated in our document presented to Government titled “Consumer Protection”.

    While no one has all the answers however we do believe we have as a voluntary association had many years of exposure to the areas of failure of the current arrangements around the nation relating to consumer protection and industry management and we believe the key elements are vested interest, dispute and resolution, and compliance.

    The secretive Last Resort Warranty regime is just that thanks to the change in the Corporations Regulation bought in at the same time that removes all regulatory control/oversight over this one product being Last Resort Warranty schemes.
    The previous Liberal Government in Victoria had visions of a new scheme and it even reached second reading but they became weak at the knees after the trade associations threatened them and they put all on hold and lost the election but not before Minister Clark confirmed that some 70% of all premiums went to private enterprise before any was available for consumer protection.

    If Hi- Rise was included and the big builders contributed to the consumer protection together with the domestic builder and private enterprise removed in favour of a statuary fund run by Government such as will be the case in the Northern Territory then we would have genuine consumer protection instead of the illusion now in place.

    Phil Dwyer
    National President
    Builders Collective of Australia