How Your Strata Owners Corporation Can Sue for Building Defects in NSW

Introduction

Building defects continue to present significant financial and legal challenges for strata owners corporations across New South Wales. With complex legislation and strict duties to maintain common property, understanding the legal pathways to address defects is essential for protecting both property value and resident safety.

This guide is designed to help strata committees, owners, and managers navigate the process of identifying, preparing, and pursuing claims for building defects. By outlining key responsibilities, time limits, and strategic steps, it aims to equip strata stakeholders with the knowledge needed to take effective action when defects arise.

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Establishing the Grounds for Your Strata Defect Claim

Identifying Defects & Your Strata Corporation’s Duty to Act

Under Section 106 of the Strata Schemes Management Act 2015 (NSW), an Owners Corporation has strict and ongoing legal duties of an Owners Corporation to maintain and repair common property, ensuring it remains in a good and serviceable condition. When building defects exist, the strata corporation is technically in breach of this fundamental obligation, which forms the legal foundation for taking action.

The Owners Corporation’s responsibility primarily covers defects in common property, while individual lot owners are responsible for issues within their own lot. However, if a defect originates in common property and causes damage to an individual lot—such as water ingress from one apartment to another—the responsibility to address it remains with the strata corporation.

If the Owners Corporation initiates legal proceedings against the builder or developer for these defects, its obligation to immediately rectify the issues under Section 106 can be deferred. This allows the strata scheme to pursue compensation to fund the necessary repairs without being in breach of its duties.

Understanding the Legal Basis for a Strata Claim

There are two primary legal frameworks that allow a strata corporation to sue for building defects in NSW:

• The first is through the statutory warranties provided under the Home Building Act 1989 (NSW). For a claim to succeed under this Act, it must be proven that the defect constitutes a breach of one of the warranties listed in Section 18B, such as a failure to comply with the Building Code of Australia.
• The second legal basis is the statutory duty of care established by the Design & Building Practitioners Act 2020 (NSW). This legislation creates a duty for individuals involved in construction work to exercise reasonable care to avoid causing economic loss from defects. The duty extends to current and future owners, including the strata corporation.

A significant advantage of the Design & Building Practitioners Act 2020 (NSW) is its power to hold individuals with substantive control over the work personally liable, which is particularly useful if the original building or development company has been liquidated.

Taking Essential Preliminary Actions

Complying with Critical Time Limits for Your Strata Claim

Acting promptly is essential when dealing with building defects, as strict time limits apply to legal claims. The Home Building Act 1989 (NSW) provides statutory warranties that serve as a primary legal basis for a strata claim. These warranties cover specific timeframes depending on the severity of the defect.

The key warranty periods you must be aware of are:

• Six years for major defects: This applies to serious issues that constitute major defects in residential buildings, such as problems with waterproofing, fire safety systems, or structural components, that make the building unsafe or uninhabitable.
• Two years for all other defects: This shorter period covers any non-major or minor issues.

These periods are calculated from the date the construction work was completed. If a major defect is discovered in the last six months of the six-year warranty period, you may be granted an additional six months to commence proceedings.

If these warranty periods expire, the Design and Building Practitioners Act 2020 (NSW) may offer an alternative path. This legislation provides a duty of care that extends for up to ten years after completion, though a claim must still be filed within six years of the loss becoming known.

Passing a Special Resolution to Authorise Legal Action

Before an Owners Corporation can formally initiate legal proceedings for building defects, it must obtain authorisation from its members. Under the Strata Schemes Management Act 2015 (NSW), this requires passing a special resolution. A special resolution is passed if no more than 25% of the votes cast are against the motion.

This procedural step is a legal prerequisite and ensures that a significant majority of owners support the decision to commit the strata scheme’s resources to litigation. The motion for the special resolution should:

• Clearly outline the intention to pursue legal action
• Include provisions for funding the case

Raising a Special Levy to Fund the Litigation

Building defect disputes can be complex, lengthy, and expensive, often lasting between 18 months and four years. To cover the significant costs of legal representation and expert technical analysis, the Owners Corporation must raise sufficient funds. This is typically achieved by raising a special levy, a process that often requires legal guidance to ensure compliance.

A special levy is a one-off payment collected from all lot owners, specifically for a defined purpose like funding litigation. The amount raised must be realistic to cover the costs of:

• Engaging construction lawyers
• Hiring forensic experts who can diagnose defects and provide evidence

Due to the potentially prolonged nature of these disputes, the strata committee should plan for the possibility of needing further levies down the track to see the matter through to resolution.

Building a Strong Case for Your Strata Corporation

Engaging Expert Strata Lawyers & Technical Consultants

After raising the necessary funds, your strata corporation should engage an experienced construction lawyer who specialises in building defect litigation. This legal professional is essential for representing the owners corporation’s interests, providing strategic advice, and preparing all necessary legal documents for the tribunal or court.

It is vital to select a lawyer with expertise in both NSW construction law and strata regulations.

Alongside legal counsel, assembling a team of highly regarded technical experts is crucial. These professionals are responsible for the forensic analysis and diagnosis of building defects, providing the factual basis for your legal claim.

Depending on the issues identified, your strata corporation may need to engage a range of specialists, including:

• Building consultants
• Structural or civil engineers
• Waterproofing consultants
• Quantity surveyors

The Central Role of Expert Evidence & Reports

Expert evidence is at the heart of any successful building defects case. Reports from technical specialists are essential for:

• Defining the scope of the defects
• Linking them to specific breaches of the Building Code of Australia or other relevant standards
• Providing a detailed estimate of rectification costs

This evidence forms the foundation of your legal claim and is critical for substantiating your strata corporation’s position.

These expert reports are not only for use in a hearing but also play a pivotal role in resolving disputes before a final judgment. Often, the legal process will involve a joint meeting, or conclave, where the experts for both sides meet to discuss their findings.

These meetings frequently lead to a resolution, as the experts work to:

• Agree on the defects
• Determine the appropriate method of repair

This agreement can then form the basis of a settlement or a work order.

Understanding Your Obligation to Mitigate Loss

In any building dispute, your strata corporation has a legal obligation to take reasonable steps to minimise its loss, a principle known as mitigation.

This often means you must give the builder a fair opportunity to rectify the defects before commencing legal proceedings to recover costs. However, this obligation is not absolute and depends entirely on what is reasonable in the circumstances.

The court will assess whether an owners corporation acted reasonably on a case-by-case basis.

If a builder’s past performance has undermined confidence in their ability to carry out effective repairs, an owners corporation may be justified in refusing to let the builder back to fix defects and engaging another contractor.

Key factors the court may consider include:

• The seriousness and extent of the defects
• The quality of any previous repair attempts made by the builder
• Whether the builder has responded to complaints in a timely and serious manner
• The perceived futility of continuing to negotiate with the builder

Ultimately, the burden is on the builder to prove that the owners corporation acted unreasonably by refusing them the opportunity to rectify the defects.

Navigating the Formal Legal Process

Choosing the Right Venue NCAT or the Courts

The monetary value of your strata corporation’s building defect claim determines the appropriate legal venue in New South Wales. Each court or tribunal has a specific jurisdictional limit, which dictates where you must file your proceedings.

Understanding these financial thresholds is the first step in the formal legal process:

• NSW Civil and Administrative Tribunal (NCAT): This is the most common starting point for residential building disputes, handling claims with a value of up to $500,000. NCAT is designed to be a more cost-effective and efficient alternative to court proceedings.
• District Court: For claims that exceed NCAT’s limit, the District Court has jurisdiction for matters valued up to $1.25 million.
• Supreme Court: Any claim with a rectification cost higher than $1.25 million must be commenced in the Supreme Court of NSW.

If you are uncertain about the total cost of rectification when starting, it is often best to begin proceedings in NCAT. The matter can be transferred to a higher court later if expert evidence reveals the value of the defects is greater than the tribunal’s limit.

What to Expect During the Litigation Timeline

Building defect litigation is a lengthy process, typically lasting between 18 months and four years from commencement to resolution. The timeline involves several distinct stages, each with specific procedural requirements.

The key phases of a typical claim include:

• Filing Initial Documents: The process begins by lodging an application and detailed pleadings that outline the defects and the legal basis for the claim. For many NCAT matters, this is preceded by lodging a complaint with NSW Fair Trading.
• Directions Hearings: The first directions hearing usually occurs within three to six months of filing. During these hearings, the court or tribunal sets a timetable for the case, including deadlines for serving evidence and expert reports.
• Gathering and Serving Evidence: Both sides prepare and exchange their evidence, which is primarily composed of expert reports from building consultants, engineers, and other technical specialists.
• Expert Conclave: A crucial stage is the joint meeting, or conclave, where the experts for both parties meet without lawyers. They discuss their findings and produce a joint report that identifies areas of agreement and disagreement, which often narrows the issues in dispute.
• Settlement Discussions: The expert conclave frequently paves the way for a resolution. With a clearer understanding of the defects and rectification methods, many cases settle at this point through a deed of settlement or a work order, avoiding a final hearing.

Identifying Who Your Strata Corporation Can Sue

Pursuing the Builder & Developer

Under the Home Building Act 1989 (NSW), the builder and developer are the primary parties your strata corporation can pursue for building defects. An owners corporation can typically bring proceedings against both entities for breaches of statutory warranties.

They are directly responsible for the construction work and its compliance with legal standards.

For most strata schemes, the law permits claims against the developer, particularly in new buildings where the developer owned four or more of the proposed dwellings. This ensures both the party who constructed the building and the entity that managed its development can be held accountable.

Holding Individuals Liable When a Company Disappears

A significant challenge arises when a building or development company is liquidated, often leaving no assets to claim against.

The Design and Building Practitioners Act 2020 (NSW) provides a powerful solution by establishing a duty of care that can “pierce the corporate veil,” allowing legal action against the individuals who were actually in charge.

This legislation targets any person who exercised “substantive control” over the construction work, regardless of their official title. This can include:

• Company directors
• Project managers
• Site supervisors

Courts have confirmed that individuals who supervise or manage construction can be held personally liable for defects, even if the company they worked for no longer exists.

This ensures that those with direct influence over the quality of the work cannot simply hide behind a liquidated corporate entity to evade responsibility.

Conclusion

Successfully pursuing a building defect claim requires a strata owners corporation to understand its legal duties, comply with strict time limits, and secure member authorisation before taking action. Building a strong case with expert evidence is crucial for navigating the formal legal process and holding the responsible builders, developers, or even individuals accountable.

Given the complexities of strata and construction law, seeking timely and strategic legal advice is essential to protect your property’s value and ensure a successful resolution. If your strata corporation is considering legal action for building defects, contact the strata defect lawyers at PBL Law Group today for expert assistance tailored to your situation, and to ensure your interests are fully protected throughout the process. Where your dispute extends beyond building defects, our team can also provide guidance as strata dispute lawyers to help resolve a wide range of strata conflicts.

Frequently Asked Questions