Proving Systemic Building Defects in Strata: A Guide from The “Owners v SPS Building Contractors” Case

Introduction

Systemic defects in strata buildings can create significant financial and practical challenges for owners corporations and strata managers. These widespread flaws often signal underlying issues in construction methods or materials, making early identification and legal action essential for protecting the value and safety of strata properties.

This guide examines the legal complexities of proving systemic defects in strata schemes, drawing on the case of The Owners – Strata Plan 99960 v SPS Building Contractors Pty Ltd [2024] NSWSC 687 to highlight the evidentiary hurdles and responsibilities faced by owners corporations when pursuing claims in New South Wales.

Understanding Systemic Defects in Strata Buildings

Defining Systemic Defects vs Recurring Defects

In the context of strata buildings, systemic defects are flaws that appear consistently throughout a structure, pointing to a fundamental problem with the construction methods or materials used.

These defects are widespread, indicating that the work was performed incorrectly in a uniform manner. Moreover, this concept is critical for identifying and addressing quality issues in buildings where repetitive construction techniques are common.

It is important to distinguish between systemic and recurring defects, as the difference can impact the legal strategy for a claim:

• Systemic Defects: Consistent flaws found in multiple areas of a building, with no instances of correct workmanship. This suggests a pervasive issue—such as an incorrect construction method or unsuitable materials—across the board. For example, widespread waterproofing failures across an entire building due to improper techniques would be considered a systemic defect.
• Recurring Defects: Similar to systemic defects but showing variability in the quality of work. This means there are instances where the work was performed correctly, suggesting isolated workmanship issues rather than a flawed methodology. An example would be some bathrooms in a building having waterproofing problems while others do not.

Key Considerations for Identifying Systemic Defects in Your Strata Property

When an owners corporation or strata manager suspects a systemic defect, several factors must be considered to build a strong case. A thorough investigation is necessary to understand the full scope and nature of the problem and will include the following:

• Cause Analysis: Essential to determine the root cause of the defect, which could include incorrect construction methodology, poor-quality materials, or inadequate supervision during the building process.
• Extent of Defect: Assess the full scope by evaluating whether it affects all instances—such as every balcony—and investigating why some areas show damage while others do not.
• Inspection Scope: When inspecting every potential instance isn’t feasible due to time or cost, examine a representative sample to verify whether the flaw is systemic or recurring.
• Hidden Defects: Since some issues are not immediately visible, inspect behind walls, in ceiling spaces, or review as-built construction drawings to uncover flaws like improperly installed fire collars.
• Variance in Defective Work: For recurring defects, measure the variance between compliant and non-compliant work to gauge the problem’s impact on the strata property.
• Scope of Rectification: Recognise that rectification methods vary based on location and specific conditions—for example, solutions for a sliding door may differ depending on exposure to wind-driven rain.

The Legal Framework for Strata Building Defect Claims in NSW

Statutory Warranties Under the Home Building Act 1989 (NSW)

In New South Wales, the primary legal protections for owners corporations dealing with building defects are found in the Home Building Act 1989 (NSW).
This legislation provides a critical avenue for seeking redress against builders and developers for substandard work.

Under Section 18B of the Home Building Act 1989 (NSW), several warranties are automatically implied in every contract for residential building work. These warranties form the basis of most defect claims for a strata property and ensure a minimum standard of quality.

Key warranties include:

• Due Care and Skill: The work must be performed with proper care and skill, according to the plans and specifications outlined in the contract.
• Quality of Materials: All materials supplied by the builder must be suitable for their intended purpose and new, unless the contract specifies otherwise.
• Compliance with Laws: The building work must comply with all relevant laws and regulations, including the Building Code of Australia.
• Timeliness: The work must be completed with due diligence within the time stipulated in the contract or, if no time is specified, within a reasonable timeframe.
• Fitness for Occupation: If the work involves constructing or altering a dwelling, it must result in a home that is reasonably fit for occupation.

How Warranties Extend to an Owners Corporation

The statutory warranties are not limited to the original party who contracted the builder.

Under Section 18D of the Home Building Act 1989 (NSW), the benefit of these warranties extends to any successors in title.

This provision is crucial for strata schemes, as it allows an Owners Corporation to sue builders and developers for breaches of statutory warranties related to the common property.

In effect, the Owners Corporation gains the same rights as the original developer to enforce these protections, even though it was not a party to the initial building contract.

Time Limits for Making a Strata Defect Claim

It is essential for any strata scheme to be aware of the strict time limits for making a claim under the Home Building Act 1989 (NSW), including the Home Building Act’s 10-year limit. Specifically, Section 18E(1) specifies the warranty periods within which legal proceedings must be commenced.

The time limits begin from the date the construction work was completed, and an Owners Corporation must initiate a claim within these periods:

• Six years for a breach of warranty that results in a major defect.
• Two years for any other breach of warranty.

Acting promptly is vital, as failing to file a claim within these statutory timeframes can prevent a strata scheme from seeking compensation for rectification costs.

A Case Study on The Owners v SPS Building Contractors

Factual Background of the Strata Dispute

The case of The Owners – Strata Plan 99960 v SPS Building Contractors Pty Ltd [2024] NSWSC 687 involved a strata development of 45 townhouses in Tweed Heads South, constructed between 2018 and 2019. Following the building’s completion, individual lot owners began reporting issues with water ingress from November 2019 onwards.

In August 2021, the Owners Corporation commenced legal proceedings against SPS Building Contractors Pty Ltd. The claim sought damages for breaches of the statutory warranties implied by Section 18B of the Home Building Act 1989 (NSW).

The Owners Corporation alleged that:

• Numerous defects were present throughout the strata complex
• Several of these were systemic issues affecting multiple townhouses

The Central Point of Contention: The LVL Beam Defect

A central issue in the dispute was a specific defect, labelled “Systemic Defect SD2,” which concerned the 26 townhouses featuring first-floor balconies. This defect related to inadequate waterproofing at the outer edge of the front balconies, which had caused moisture damage to the structural Laminated Veneer Lumber (LVL) beams.

While experts for both parties agreed that this LVL beam defect existed in two townhouses where invasive inspections had been conducted, the builder disputed its presence in the remaining 24 townhouses. The Owners Corporation argued that because the balconies shared similar construction details, the defect should be considered systemic across all 26 units.

However, the builder contended that, without direct evidence from inspections in the other 24 townhouses, the defect could not be proven. This disagreement formed the core legal challenge of the case.

Key Legal Principles for Proving Systemic Strata Defects

The Onus of Proof Rests with the Owners Corporation

The fundamental principle in any strata defect claim is that the burden of proof lies with the owners corporation.

It is entirely the owners corporation’s responsibility to:

• Provide sufficient evidence to prove, on the balance of probabilities, that a defect exists.
• Demonstrate proof for each claimed location where damages are sought.

In The Owners – Strata Plan No 62930 v Kell & Rigby Holdings Pty Ltd [2010] NSWSC 612, the court reinforced this principle by highlighting a key failure:

• The owners corporation claimed missing water-stops in all 14 unit bathrooms but only tested three.
• It limited destructive testing to three units.
• Consequently, the court held they failed to meet their burden of proof for the uninspected units.

Why Defects Cannot Be Assumed in Uninspected Strata Units

A court will not automatically infer that a defect is systemic across all units merely because it appeared in a small sample.

Moreover, the argument based on “similar construction details” was rejected in The Owners – Strata Plan 99960 v SPS Building Contractors Pty Ltd [2024] NSWSC 687, where the court found such reasoning flawed without clear evidence of the defect’s root cause.

Courts require more than limited findings; they need proof of causation. For example:

• A waterproofing failure might stem from a fundamental design flaw or isolated poor workmanship.
• Without identifying the specific cause in inspected units, there is no basis to conclude the same problem exists elsewhere.
• Discovering defects in a few locations does not justify a system-wide inference.

The Critical Role of Expert Evidence & Thorough Investigation

Expert evidence is essential for substantiating a systemic defect claim in any strata building.

In The Owners – Strata Plan 99960 v SPS Building Contractors Pty Ltd [2024] NSWSC 687, the owners corporation tried to rely on unverified photographs to prove an LVL beam defect. The court:

• Noted it dismissed this evidence because no expert testimony explained what conclusions could be drawn.

To support expert opinions, owners corporations should:

• Conduct comprehensive investigations across multiple lots.
• Include destructive testing in a substantial number of units.
• Gather robust data to enable defensible expert reports.

A Defect Must Be Established Before a Breach Can Be Claimed

An owners corporation cannot be awarded damages based on the mere risk that a statutory warranty breach might occur in the future. Under Section 18B of the Home Building Act 1989 (NSW), a defect must first be proven in a specific location before a breach can be established there.

In the LVL beam case:

• The owners corporation sought rectification of all LVL beams citing potential catastrophic failure.
• The court emphasised that establishing a breach is a prerequisite to assessing reasonableness of rectification.
• Since the defect was only proven in two townhouses, no breach existed for the other 24 units.
• Consequently, no damages could be awarded for those remaining units.

Practical Implications for Your Strata Scheme After This Case

The Financial Cost of Proving a Systemic Strata Defect

Pursuing a claim for systemic defects demands a significant financial commitment from the owners corporation. To prove a widespread issue, it may be necessary to fund:

• Expert inspections in each or a substantial number of affected lots
• Comprehensive testing across the strata scheme

These investigations can become particularly expensive in a large strata building where extensive investigations are required to gather sufficient evidence. However, such costs are often unavoidable if an owners corporation wants to succeed in a claim regarding systemic defects.

Developing a Strategy for Evidence Collection in Your Strata Building

An owners corporation must develop a clear and thorough strategy for gathering evidence as part of the process for resolving strata building defects & disputes. Key steps include:

• Commissioning expert reports to identify potential defects
• Implementing widespread testing across the strata property

Courts demand concrete proof rather than assumptions, making extrapolation from a small sample size insufficient. For example, in The Owners – Strata Plan 99960 v SPS Building Contractors Pty Ltd [2024] NSWSC 687, the expert recommended assessing all townhouses, but the owners corporation failed to take this step, which weakened their claim.

A proactive strategy ensures adequate testing and investigations to prove a defect is systemic on the balance of probabilities.

Conclusion

Proving systemic defects in a strata building requires navigating significant legal hurdles, as highlighted by the case of The Owners – Strata Plan 99960 v SPS Building Contractors Pty Ltd [2024] NSWSC 687. The key lesson for any owners corporation is that success depends on thorough investigation and robust expert evidence, as courts place the burden of proof squarely on them and will not assume defects are widespread without concrete proof.

Given the complexities and financial commitment involved in these claims, it is essential to consult with PBL Law Group’s experienced strata dispute lawyers for trusted guidance in protecting your strata property’s value and safety. If you require further assistance with defect-specific matters, our strata lawyers can provide targeted expertise to help you navigate your strata defect claim.

Frequently Asked Questions