Commencement of the Property Developers Act 2024 (ACT): what you need to know now

On 27 June 2024, the Property Developers Bill 2023 was passed by the ACT Legislative Assembly and on 10 July 2024, the Property Developers Act 2024 (ACT) was notified.

The Act introduces significant reforms to the property development sector in the ACT including requirements to be licensed as a property developer in order to undertake certain residential development activities and a rectification orders regime where the registrar (being the construction occupations registrar) can order property developers to rectify serious defects.

A number of sections of the Act, including the rectification orders regime, came into operation on 11 July 2024. Notably, the provisions relating to the licensing scheme have not yet commenced and may not commence for another two years.

The parts of the Property Developers Act 2024 in effect now

The Rectification Orders Regime

The rectification orders regime gives the registrar the power to make orders against property developers for the rectification of serious defects and possible serious defects in residential building work.

Given the potential for rectification orders to be made against a broad range of "property developers" and personally against directors of property developers (in the case of wound up companies), it is important for property developers to understand the operation of the rectification orders regime and consider the potential consequences and costs of complying with rectification orders. 

Application

Development approvals: The rectification orders regime applies to residential building work for which a development approval is given on or after 11 July 2024 (section 44). We note that the Bill had originally proposed for the regime to apply retrospectively to residential building work that had been completed for up to 10 years prior to the commencement of the Bill – this retrospective application has been removed from the Act.

It is also important to note that it is currently unclear how a development approval being "given" will be interpreted. In particular, there is a question as to whether the rectification orders regime will apply in circumstances where a development approval was given before 11 July 2024 but an amendment or a correction to the development approval is approved after 11 July 2024. There is a possibility that an amended or corrected development approval may constitute a development approval being “given” for the purposes of the Act and this could include amendments or corrections of a minor or technical nature. 

“Residential building work”: The definition of “residential building work” under the Act has also changed from the definition proposed under the Bill which has restricted the operation of the rectification orders regime. Under the Bill, "residential building work" was defined as building work in relation to a class 1 (ie. houses) or class 2 (ie. apartment buildings) building. 

Under the Act, “residential building work” means building work in relation to a regulated residential building with a “regulated residential building” being defined as a class 1 or class 2 building, or a building that contains a class 2 building, constructed as part of a project to construct 3 or more dwellings.

The new definitions of “residential building work” and “regulated residential building” mean that single dwellings, dual occupancies and adding secondary dwellings are not captured by the rectification orders regime and are also not captured by the property developer licensing scheme more generally. This addresses criticism of the Bill in relation to the application of the scheme to mums and dads and smaller scale development and aligns with the key focus of the Act of regulating larger scale development.

We note that the regulations will specify any exclusions from the definition of “regulated residential building”. The regulations have not yet been finalised and notified therefore it remains to be seen what type of developments and buildings will be excluded from this definition. Potential exclusions could include buildings used by not-for-profit organisations, aged care providers or community housing organisations.

"Property developer": A rectification order may be made against a "property developer" which is broadly defined as including the owner of the land, the principal builder and a person who contracts or arranges for, or facilitates or otherwise causes (whether directly or indirectly) the building work to be done (section 46). The broad nature of this definition means that there will likely be multiple parties on a project that are considered to be "property developers" and this could include financiers or liquidators stepping in on projects or owners corporations arranging for building work to be undertaken on common property. 

The regulations will specify any exclusions from the definition of "property developer". As noted previously, the regulations have not yet been notified however we expect that the following persons may be excluded from the definition of "property developer":

• a person providing advice in relation to building work such as a consultant;
• subcontractors of property developers;
• employees of property developers; and
• financiers and liquidators stepping in on projects.

Proposed rectification orders

The rectification order process begins with the registrar giving a property developer a proposed rectification order notice. The registrar will give such a notice if the registrar believes on reasonable grounds that either:

• residential building work was or is being undertaken by a property developer in a way that could result in a serious defect in the building (possible serious defect); or
• a regulated residential building constructed by a property developer has a serious defect (section 48(1)).

Proposed rectification orders can therefore be given in respect of buildings which already have serious defects or in respect of work which could result in a possible serious defect.

The property developer will be given an opportunity to respond to the proposed rectification order notice before the registrar makes a rectification order (section 48(2)).

Making rectification orders

After the registrar has considered any submission by the property developer, the registrar can make a rectification order if it is satisfied that it is appropriate to make such an order (section 49(1)).

The ability for the registrar to make a rectification order is linked to a 10-year period (section 49(4)). The 10-year period is defined as the period within which a building action may be brought in relation to the residential building work under the Building Act 2004 (ACT) – with this 10-year period commencing on the day of the issuing of the certificate of completion or, if this does not apply, the day of the last inspection by the certifier or, if neither applies, the day the building was first occupied or used.

A rectification order can be given during the 10-year period, however:

• if the date the registrar first became aware of the serious defect or possible serious defect is in the last 6 months of the 10-year period, a rectification order can be given up to a year after this date; or
• if the registrar gives a proposed rectification order notice before the end of the 10-year period, a rectification order can be given up to a year after the notice (section 49(4)).

It is also important to note that if there is more than 1 property developer involved in the residential building work, a rectification order may be given to two or more property developers (section 51). As discussed above, the definition of “property developer” is broad and there is likely to be multiple property developers on one project including the owner of the land and the principal builder. If a rectification order is given to two or more property developers then such a rectification order applies jointly and severally meaning that each property developer is liable for the entirety of the rectification order.

Liability of directors

If:

• the registrar either makes a rectification order against a property developer or believes on reasonable grounds that making a rectification order is appropriate; and
• the property developer is a corporation which, before or after the registrar makes the rectification order, becomes the subject of a winding-up order, is placed into administration, receivership or liquidation or is deregistered,

then the registrar may make a rectification order against, or give a proposed rectification order notice to, each person who was a director of the property developer at or after the time the residential building work resulting in the serious defect or possible serious defect was undertaken (section 52).

Importantly, personal liability is only triggered if the property developer is wound-up, placed into administration, receivership or liquidation or is deregistered. However it is also important to note that people who became directors of a property developer after the work resulting in the serous defect or possible serious defect was undertaken may be liable in relation to a rectification order.

In considering whether it is appropriate to make a rectification order against a director, the registrar must consider whether there is a latent defects insurance policy, or similar insurance policy, that covers the work required to rectify the defect (section 52(3)) – the regulations will also prescribe any further considerations to be taken into account by the registrar.

Notably, the only amendment to this section from the Bill was clarifying that directors of territory, State or Commonwealth entities are exempt from these provisions.

The Stop Work Orders Regime

The stop work orders regime has also commenced – property developers should be aware of the operation of this regime due to the risk of significant delay and cost which could result from a stop work order being given in respect of a project.

A property developer may be given a stop work order if the registrar believes that residential building work undertaken by a property developer could result in significant harm or loss to the public or occupants of a regulated residential building or significant damage to property (section 60).

We note that there is no further explanation within the Act as to what circumstances constitute conduct that could result in significant harm or loss to the public or occupants or significant damage to property and, as such, there is a risk that this could be interpreted broadly and stop work orders could be given in a variety of circumstances.

Sections awaiting commencement – what activities require a property developer licence?

Key parts of the Act, including the licensing scheme, are yet to commence.

The licensing scheme will require a person to have a licence in order to undertake certain residential development activities. There have been a number of amendments to the Bill which have limited the circumstances in which a property developer licence is required:

• Development applications – under the amendments to the Planning Act included in the Act, a property developer licence is required to be held by the applicant of a development application for a proposed residential building development (section 162A). Under the Act, ‘residential building development’ is defined as building or altering a regulated residential building on land. This definition significantly limits the definition proposed by the Bill, which also included undertaking earthworks, subdividing the land, varying a Crown lease and demolishing a building. It is also limited to regulated residential buildings which, as discussed above, means smaller scale developments are not captured.
• Building approval – under the amendments to the Building Act included in the Act, a property developer licence is required to apply for a building approval, building commencement notice or a certificate of occupancy for residential building work (which as discussed is limited to regulated residential buildings).
• Off-the-plan contracts – under the amendments to the Civil Law (Sale of Residential Property) Act 2003 (ACT), the seller of an off-the-plan contract for a regulated residential building must have a property developer licence. An “off-the-plan contract” is defined as a contract for the sale of a unit for residential use before the registration of the units plan or a residence on land before the certificate of occupancy is issued.

We note that the Territory, Commonwealth and States, including territory entities and Commonwealth and State entities, have been excluded from the requirements to hold a licence to undertake the above residential development activities.