Developers who fall foul of proposed new laws in the Australian Capital Territory will be personally liable for defects including actions taken on their behalf by builders.
The bill, introduced by Sustainable Building and Construction Minister Rebecca Vassarotti, extends responsibility for relevant issues up to 10 years with the Territory able to order developers’ directors to fix defects, even if the company is insolvent.
This proposed radical new legislation has caused uproar in the ACT with the Property Council claiming that the proposed developer licensing scheme will increase the cost of new homes and potentially drive investors and developers away from Canberra.
Property Council ACT’s executive director, Shane Martin said the bill was rushed through and claims by the proponents that it was the first in Australia and possibly the world was sufficient cause for concern.
The Construction Forestry Maritime Mining and Energy Union countered, saying claims were a baseless scare campaign that ignored the facts.
“If acting ethically or within the law isn’t cost effective then your business model is broken,” said ACT and national secretary Zach Smith.
“The overwhelming majority of Canberrans support developer licensing because it protects consumers and keeps workers safe.
“The only people with anything to fear from this bill are dodgy developers who do the wrong thing by homeowners and workers.”
The proposed legislation introduced by Sustainable Building and Construction Minister Rebecca Vassarotti provide significant enforcement powers to a registrar, holding developers personally accountable for defects and work undertaken by builders and other involved in a project for a period of 10 years.
The Master Builders Association questioned whether architects and designers would also be brought into any potential action.
The bill provides for a registrar to be granted powers of entry to building sites without consent for authorised persons to monitor compliance and investigate if an offence has been committed. But a warrant would still be required to enter a residence. The registrar would also have power to access personal information to assess complaints.
If the defect claim is false, it is up to the builders and developers to prove this. Otherwise, they will be presumed liable. The presumption of liability will come into effect during the first two years after a certificate of occupancy is issued. Developers can appeal decisions and licence suspensions with the ACT Civil and Administrative Tribunal for review or go to the Supreme Court for a rectification order, stop work order or compliance cost notice to be revoked within 30 days.
According to scant information published by the ACT government new rules will involve:
- publishing a public register about developers
- giving the government powers to have defects fixed by a developer and their builder
- having a code of practice that developers must follow
- needing a rating report as part of the application for a licence, which will look at developers’ capacity and capability to deliver residential property developments
- encouraging developers to have insurance that covers a building for 10 years after people move in
Vassarotti said the bill would tackle the problem of defects and compliance failures in residential property developments that appear before, during, and after construction, and Canberrans should demand the best from those who built them.
“Over recent years, high profile cases of poor development have undermined the trust of Canberrans in the home building industry,” Vassarotti said in media statement.
“This law change will add property developers to the chain of accountability for building quality and safety.
Vassarotti said that “dodgy development choices by big businesses” are estimated to have cost Canberrans more than $50 million yearly.
“Our legislation will establish a Property Developer Registrar, which will have strong powers to take regulatory action against developers who do the wrong thing. It will compel them to fix problems and face fines or suspend or revoke their licence if they don’t rectify work accordingly.
But is it too early?
In an interview with The Fifth Estate, ACT Property Council’s executive director, Shane Martin, said that the proposed developer licensing scheme will increase the cost of new homes and potentially drive investors and developers away from Canberra.
“The glaringly obvious problem with the current scheme proposed is that there just has not been enough time to consider all of the unintended consequences around the policy,” Martin says.
“Even in the media released, they called themselves the first in Australia, maybe the world, and I think that warrants more time to think this through very carefully, and it takes longer than three months of face to face consultation.”
According to Martin, concepts of the bill were first released in 2018 in a discussion paper, but there was no opportunity for submission until the end of 2022. Martin claimed that he and many in the industry were not consulted until late August.
“Consultation started in late August, where we sat in a room and the government was like ‘this is what we are thinking’. There’s been no independent economic assessment done, no looking at the potential impact.
“If the minister wanted to introduce the bill this year as promised, we should have started face-to-face consultation in January.”
Vassarotti said that consultation with industry organisations and representatives from owners’ corporations and strata managers offered constructive engagement over the past 12 months.
Another major issue is “personal liability”
The bill applies only to commercial property.
Martin said the intention of the legislation was to “effectively add this concept of personal liability around development, and anyone that does residential development in the ACT and does so for a profit would be affected.
“If [developers] look at it from a risk-reward perspective, they will go, ‘Hang on, if we do this, I’ll personally be up for getting issued with a personal rectification if something goes wrong with the builder and the development there – so I’m not going to do that’.
“And that’s mum and dad investors as well.
“People with three or four investment properties who want to do some sort of redevelopment could also be captured by this and have their own personal assets on the cards, including their own house or car – which is severely scary.”
Martin said that institutional investors involved in build to rent property, which was needed in the housing crisis, would not want to sign up to this.
According to Martin, the 10 year accountability period would be retrospective, meaning any new directors and employees who join the development could be held personally liable for the property developed within the past 10 years.
“It’s like using a missile to crack a nut.
“We see lifting building quality as a noble cause, and I think we are being reasonable here. We are not saying stop development here – the government is fighting the good fight in doing developer licences, but we need to get it right, and that’s why we need to come back to the table.”
“NSW is doing it better”
Martin said New South Wales had adopted a better system by holding all parties in a development project responsible for defects, and sanctions of fines or bans from future development.
As this was a developer’s livelihood it was a “big deterrent that hits the balance between consumer protection and at the same time, not having somebody put their own assets on the line.”
He said good developers might want to leave the territory.
“We are adamant that there is another solution other than bringing housing supplies to its knees in the ACT.”
In NSW, Building Commissioner David Chandler introduced the independent construction industry rating tool (iCIRT) in late 2020, an Equifax-provided market surveillance program that uses a star-rating methodology to allow consumers to choose building professionals confidently.
The Australian Financial Review noted that receiving qualification from the tool has recently been at the centre of misinformation as developers were now lying to customers about receiving the certification.
More recently, Chandler introduced similar legislation where NSW builders would be forced to fix defects before finishing a new home.
Opinions remain divided
Meanwhile, the CFMEU is in full support of the proposal that developers must pass a fit and proper person test to be licensed, and those who do the wrong thing can be banned from holding a licence.
CFMEU ACT and national secretary Zach Smith said the new laws would protect Canberrans.
“This Australia-first developer licensing scheme will save lives on ACT worksites by cracking down on dodgy operators.
“Developer licensing schemes like this should be in place all over Australia.
“Polling showed us the huge level of support for developer licensing in the ACT, and there’s no reason to think that wouldn’t be replicated around the country.”
“The CFMEU urges all other federal, state and territory governments to get cracking on protecting people from dodgy developers.”
The chief executive of the Master Builders, Michael Hopkins, agreed that while ACT’s building regulatory system was the weakest in the country when it comes to holding trade contractors accountable, designers and architects were often left out of the accountability chain, leaving developers and builders responsible for the failures of others.
He told Rio-tact that “Before the bill commences, the MBA is calling on the ACT government to commit to implementing all 24 recommendations of the Building Confidence Report, which it helped prepare in 2018.
“Unless the ACT Government is willing to implement a full framework of accountability for designers, trade contractors and supervisors, including minimum training and experience requirements, and aligned liability periods for developers and all building practitioners, then the government’s attempt to hold property developers to account will fail.”
The bill is expected to be debated in the first half of 2024, followed by a transition period before licences will be required. Vassarotti said the government will continue to engage with the local industry and other stakeholders to progress the reform.
The Fifth Estate has reached out to Minister Vassarotti’s office for further comments but has not received a reply by the time of publication.
– With Tina Perinotto