ACT Property Developers Bill – Inquiry recommends more changes

In November 2023, the Property Developers Bill 2023 (ACT) was presented in the ACT Legislative Assembly. The Bill introduces significant reforms to the property development sector in the ACT, including:

1. Licensing requirements: a person must be licensed as a property developer in order to undertake certain residential development activities including applying for a development approval and building approval and selling an off-the-plan property.

2. The rectification orders scheme: a rectification order can be made against a property developer to rectify a serious defect or a possible serious defect. A "property developer" is broadly defined as including the owner of the land, the principal builder and a person who contracts or arranges for building work to be undertaken. Controversially, rectification orders may be given in respect of residential building work that has been completed for up to 10 years prior to commencement of this legislation. If the property developer is a corporation that is wound-up, then the rectification order may be made personally against a person who was a director of the property developer at or after the time the residential building work which resulted in the defect was undertaken.

3. Requirements to rectify defective building work (that is not a serious defect): the Bill proposes to amend the Building Act 2004 (ACT) to provide that an affected party (being the owner of the building or land on which the building work was carried out) may require a builder or property developer to rectify defective building work, two years after the building work has been completed. Notably, under the Bill, it is presumed that the building work is defective and able to be rectified, unless proven otherwise.

The Bill has attracted widespread commentary, attracting both support and criticism. On 5 April 2024 the Standing Committee on Planning, Transport, and City Services delivered its Inquiry into the Bill.

In the Inquiry Report, the Committee considered submissions made by parties and made recommendations to the ACT Government in relation to the Bill including proposed amendments.

The Inquiry Report

The table below outlines key findings, recommendations and comments made by the Committee in relation to key concerns raised in submissions.

Definition of "property developer"

Submissions expressed concerns that the Bill's definition of "property developer" is too broad and the scheme could capture people who are not involved in the development decision making process.

A number of submissions called for the following sectors to be excluded from the definition of "property developer":

• aged care and residential living;
• clubs and non-profit organisations; and
• community housing and build to rent sectors.

Submissions also expressed concern in relation to exemptions for certain categories of property developers being made through regulation rather than the Bill itself as this provides less certainty in knowing how the scheme will affect certain sectors.

Findings, recommendations and comments

Finding 1: in developing the regulations, the ACT Government should consider exemptions for not-for-profit developing organisations who will own and rent the development for a period no less than 10 years.

Finding 2: in developing the regulations to exempt certain organisations from the scheme, the ACT Government should consult thoroughly with the sector to ensure that they receive the certainty required to undertake complex, long-term residential developments.

Recommendation 1: in the five-year review of the legislation, the ACT Government should consider whether the Code of Conduct and regulatory system should apply to all property developers, including Government agencies.

Personal liability for directors

Personal liability of directors was a highly contentious aspect of the Bill with submissions noting that it departs from the separate legal entity principle (being a fundamental aspect of corporate law), will discourage investment in the ACT and does not take into account the complexity of decision making in residential construction as multiple parties are often involved.

Findings, recommendations and comments

No recommendation: the Committee noted that the Bill will hold property developers responsible for the defects they are liable for and will encourage behaviour from property developers to avoid these defects.

Reversing the onus of proof

Submissions expressed concerns that reversing the onus of proof will result in a large amount of claims being made against developers and will lead to developers spending considerable amounts of time and money addressing and resolving these claims including ascertaining whether a claimed defect is actually a defect.

Findings, recommendations and comments

No recommendation: the Committee commented that in considering whether the reversal of the onus of proof is justified, it is important to consider the dynamic between property developers and property owners.

Retrospectivity

Submissions expressed significant concerns in relation to the retrospective application of the rectification order regime with many calling for clear policy reasoning for the inclusion of retrospectivity.

Findings, recommendations and comments

Recommendation 2: the Bill should be amended to reflect the ACT Government's stated policy position that rectification orders will not apply retrospectively.

The Committee also commented that, although the ACT Government had explained that the rectification order regime was not intended to have retrospective application, the Bill is clearly retrospective and therefore the perspective put in submissions is entirely understandable and the concerns raised are warranted.

Administration

Submissions expressed concerns in relation to the effective staffing and administering of the licensing scheme by the ACT Government given the significant nature of the reforms.

Findings, recommendations and comments

Recommendation 3: administrative arrangements for the running of the scheme should be clearly established before the commencement of the Bill.

Role of the registrar

Under the Bill, the Registrar is to be appointed by the Director-General of Environment, Planning and Sustainable Development Directorate and the Registrar is responsible for licensing and for pursuing regulatory action against property developers.

Submissions noted that the Registrar should preferably be appointed by a person that is independent of Government.

Findings, recommendations and comments

Recommendation 4: the process of appointing the Registrar should be revised with a view of providing for the Registrar's appointment to be made by Cabinet or pursuant to statute.

Review of decisions

Under the Bill, property developers must appeal rectification orders, stop work orders and compliance cost notices to the ACT Supreme Court.

Submissions expressed concerns around over-clogging the court system and noted that ACAT may be a more appropriate first-instance forum.

Findings, recommendations and comments

Recommendation 5: amendments to the Bill should be considered to facilitate the use of ACAT in contesting the relevant orders and, if no amendments are introduced, a clear policy reason for bypassing ACAT should be provided.

Expansion of licensing scheme

Submissions suggested that the proposed licensing scheme should be expanded to cover a wider range of professionals and tradespeople involved in the building process including architects, water proofers and fire safety related trades.

Findings, recommendations and comments

No recommendation: the Committee noted that further regulation and licensing falls outside the scope of the Bill and is a matter for future consideration by the ACT Government.