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.