NSW Government proposes reforms to transform the building sector

Introduction

The Building Legislation Amendment Bill 2023 is the next step in the NSW Government's commitment to transformational building reforms in NSW.

The Bill amends various Acts with a view to improving customer protection for homeowners, increasing accountability for unsafe building products and ensuring the regulator is well equipped to tackle poor behaviour in the industry and serious defects in in homes.

The Bill follows the release of a tranche of bills for public consultation to promote the construction of "trustworthy buildings", restore consumer confidence in the construction industry and empower the NSW Building Commissioner.

We highlight some of the key amendments of the Bill below.

Amendments to the Home Building Act 1989 (NSW) to expand the powers of the building regulator

Investigation and orders

The Bill will expand the powers of the Secretary of the Department of Customer Service under the Home Building Act 1989 (NSW) (HBA) to Class 1 Buildings (being standalone single dwellings of a domestic or residential nature) to:

• authorise inspectors to investigate residential building work;
• issue rectification orders requiring contractors to rectify damage or defects in residential building work, including where the defective work has caused damage to other parts of the building or other structures, including neighboring properties; and
• issue stop work orders requiring developers to stop building work where that building work could result in significant harm or loss to the public, occupiers or potential occupiers, there is a change in principal certifier or building practitioner, or the building work could prevent the issue of an occupation certificate or building compliance declaration.

For the purposes of these expanded powers, "residential building work" will be taken to include:

• "specialist work", which includes plumbing and drainage, mechanical services, gas and electrical wiring work;
• work under the HBA which impacts other land and buildings; and
• work that relates to, or leads to, other residential building work (including the work referred to in paragraphs (a) and (b)).

These powers are intended to operate "proactively", providing for issues to be identified early so that defective work can be rectified before the building is occupied. Currently, the HBA operates "reactively", with rectification orders requiring a customer to first raise a dispute or complaint.

Cracking down on phoenixing activity

The Bill will expand the powers of the Secretary to:

• cancel or prevent the issue of contractor licenses; and
• disqualify individuals and body corporates from holding an authority (other than an owner-builder permit),

where an individual has been the director of, or involved in the management of, a company which is under administration or convicted of a crime under the Corporations Act 2001 (Cth), either at the time of the event or within the period six months prior.

These powers are intended to prevent practitioners who engage in intentional phoenixing activity and poor corporate behaviour from operating in the building industry, as well as increasing scrutiny on directors who surrender their title to avoid liability.

To this end, the Bill will also increase the period which a person must not have been a director or concerned with the management of an insolvent company to be eligible to hold authorities under the HBA from three to 10 years.

Amendments to the Strata Schemes Management Act 2015 (NSW) to promote the use of Decennial Liability Insurance

The Bill will amend the Strata Schemes Management Act 2015 (NSW) (SSMA) to exempt developers who have effected Decennial Liability Insurance (DLI) from the existing Strata Scheme Bond and Inspections Scheme requirements.

DLI is a new insurance product, designed to provide long-term cover against defects for owners of residential apartments. Liability under a DLI policy is determined on a strict liability basis, meaning owners are not required to prove any negligence or fault to trigger a DLI claim. However, there is currently only one provider of DLI in the Australian market. While the NSW Government has been actively encouraging other providers, the DLI market has not yet reached maturity. The NSW Government is planning to eventually mandate DLI insurance for residential building works, but that cannot be achieved until the market is sufficiently mature.

The existing Strata Bond Scheme requires developers to lodge a bond of 2% of the total contract price for the building work. If no defects are identified in the building, the bond will be returned 2 years after the date of the issue of the occupation certificate. The bond is proposed to increase to 3% of the total contract price from 1 February 2024 under the Strata Schemes Management Regulation 2016 (NSW).

The Bill also allows for regulations to be made (at an appropriate time in the future) which would:

• enable DLI to be taken out as an alternative to home building compensation insurance, as required under sections 92 and 96 of the HBA - the exemption would apply to low rise apartment buildings and the developer would be required to notify the Secretary if the developer intends to obtain DLI insurance as an alternative to home building compensation insurance; and
• prohibit the issue of a complying development certificate under the Environmental Planning and Assessment Act 1979 (NSW) or a "strata certificate" under the Strata Schemes Development Act 2015 (NSW) if evidence of a DLI policy has not been provided to the Secretary.

The Bill also requires developers of strata schemes to provide the Secretary with a copy of a certificate of currency for DLI prior to an application for an occupation certificate, where a bond has not been provided. A failure to do so will enable the Secretary to issue an order prohibiting the issue of an occupation certificate under the Residential Apartment Buildings (Compliance an Enforcement Powers) Act 2020 (NSW).

The amendments proposed by the Bill continue to promote DLI through establishing a robust regulatory framework to encourage insurers to enter the market. However, the Bill acknowledges the importance of monitoring market maturity in the DLI space, which will be key to any future considerations about mandating DLI. To this end, the Secretary is empowered to direct insurers to provide information about their DLI policies.

Amendments to the Building Development Certifiers Act 2018 (NSW) and Design and Building Practitioners Act 2020 (NSW)

The Bill will empower the Secretary to suspend the registration of registered certifiers under the Building Development Certifiers Act 2018 (NSW) and registered practitioners under the Design and Building Practitioners Act 2020 (NSW) if:

• the holder of a registration has received a show cause notice and the Secretary is satisfied that the grounds for disciplinary action would, if established, justify the suspension or cancellation of a registration; or
• in the Secretary's opinion there are reasonable grounds to believe that:
  • the registration holder has engaged in conduct which amounts to grounds for suspension;
  • the registration holder will continue to engage in such conduct; or
  • urgent action is needed to prevent a person suffering significant harm, loss or damage as a result of the registration holder's conduct.

A registration holder may appeal to the NSW Civil and Administrative Tribunal for an administrative review of the cancellation or suspension of a registration.

Amendments to the Building Products (Safety) Act 2017 (NSW) to enhance building product safety

Establishing a "chain of responsibility" for building products

The Bill proposes to improve accountability in the building products supply chain by amending the Building Products (Safety) Act 2017 (NSW) (BPSA) to create a "chain of responsibility" for building products and clarify the duties owed by each person in the chain.

The building products supply chain is proposed to include any person who:

• designs or deals with a product and knows that a product will be used in a building;
• prepares a building design that incorporates or recommends the use of a building product in a building (e.g. building designers, engineers and architects);
• uses a product in a building (eg. a person who installs or coordinates or supervises the installation of the product in the building during construction); or
• is specified in the regulations.

The Bill seeks to impose the following duties on those in the building products supply chain:

• ensuring that building products are conforming and compliant for the intended use;
• providing required information, which includes information as to the suitability of the product or element of a product for its intended use, whether the product is only suitable for use in certain conditions, instructions for ensuring the intended use is not a non-compliant use and maintenance information;
• giving written notice to the Secretary within 7 days of "reasonably suspecting" that a non-compliance risk exists in a building product or a safety risk exists in relation to the intended use of the building product;
• where a person in the chain is responsible for:
  • a building product subject to a building product recall, that person must cease using or supplying the product, comply with the recall and provide repairs, modifications, replacements or refunds in respect of the building product (whichever is appropriate in the circumstances) if they are a supplier, manufacturer or importer of the product.
  • a building design incorporating a recalled building product, that person must inform each recipient of the design of the product recall and either amend the design to remove the recalled product, or provide an alternative product.

These duties must be discharged "as far as is reasonably practicable" and "taking into account risk management factors in relation to the matter to which that duty relates". Penalties will apply if a person in the building supply chain fails to comply with a duty.

Increased enforcement measures

The Bill will empower the Secretary to take a number of enforcement measures in respect of building products that pose a non-compliance or safety risk and individuals who engage in unlawful conduct. These include:

• issuing building product safety notices which may be a warning, supply ban, use ban or recall in respect of a building product;
• issuing building product directions which may include a direction to a person to stop using or supplying a building product either generally or in specific circumstances, or making a building product incapable of being used or operated;
• the ability for authorised officers to seize building products if they are of the reasonable belief that a non-compliance risk exists, a safety risk exists for the intended use of the product or an offence against the BPSA has been committed in relation to the product;
• issuing show cause notices to individuals to justify why they should not be banned from carrying out a business of supplying building products if the Secretary is satisfied that person has, in trade or commerce, engaged in unlawful conduct relating to the use or supply of a building product on more than one occasion in NSW or somewhere else; and
• applying to the Supreme Court for trading prohibition orders where the Secretary still believes (following a submission in response to a show cause notice) that person will continue to engage in unlawful conduct.

Impacts of the Bill on the NSW building sector

If the Bill passes, there will be many impacts for practitioners across the construction industry.

• Developers may be entitled to exemptions from the building bond regime under the SSMA and insurance requirements under the HBA if the developer effects an DLI policy for the construction of residential apartment building.
• Developers and builders of Class 1 Buildings should note the Secretary's powers to investigate the construction of residential building work, issue rectification orders and stop work orders and the penalties for failing to comply with such orders.
• Registered certifiers and practitioners should note the powers of the Secretary to cancel registrations for unlawful conduct.
• Manufacturers, architects, engineers, building designers, contractors and subcontractors should consider whether they fall into the "chain of responsibility" by virtue of using, designing or installing a building product and familiarise themselves with the duties owed by those in the chain of responsibility.
• Company directors and company managers should note the powers of the Secretary to cancel contractor licenses and disqualify individuals from holding registrations under the HBA for phoenixing activity and a history of insolvencies.