Introduction

Construction defects might cause a ruckus for owners, making them scratch their heads over letting the first builder fix the glitches. Knowing the legal ins and outs and picking up wisdom from court cases can steer owners and builders through these squabbles smoothly.

In this article, we will explore key lessons learned from two notable court cases, The Owners – Strata Plan No 76674 v Di Blasio Constructions Pty Ltd and The Owners – Strata Plan 89041 v Galyan Pty Ltd, shedding light on the importance of reasonableness when refusing to allow the builder to undertake the rectification work.

Background to the case

The Owners – Strata Plan 89041 v Galyan Pty Ltd [2019] NSWSC 619 revolved around a residential apartment building in New South Wales and the related Owners Corporation, the builder, and the property developer. The defects were first noticed in February 2014, prompting the Owners Corporation to hire a licensed builder who submitted a defects report detailing 30 building defects that needed to be fixed.

The Owners Corporation invoked their right under the Home Building Act 1989 to require the builder to rectify all faulty or defective workmanship (read our comprehensive guide on your rights under the Home Building Act 1989 here) but the builder only managed to rectify nineteen out of the thirty identified defects. The Owners Corporation, had on several attempts, tried to get the builder to provide an appropriate and adequate scope of work to address the identified defects. After several of these unsuccessful attempts, and with the imminent expiration of the statutory defect liability period, the Owners Corporation decided on refusing to allow the builder on the property to rectify the remaining defects and filed proceedings against the builder in the NSW Civil and Administrative Tribunal. The case was eventually transferred from NCAT to the NSW Supreme Court, where the parties agreed to appoint a referee to determine the existence of defective works, the required scope of work for rectification, the cost of such work, and a detailed construction schedule.

Legal Principal #1: A person who has suffered a loss is under a duty to mitigate its loss.

The first legal principal to consider when determining whether owners can refuse a builder access to property to rectify building defects is that a person must have acted reasonably to minimise the damages. Generally, an owner must provide the original builder with a reasonable opportunity to rectify defects in order to mitigate damages arising from those defects. This principle is based on the understanding that, in most cases, it is more cost-effective for the builder to remedy defects while still working on the project.  In this case, it was determined that the Owners Corporation was reasonable in providing the builder an opportunity to minimise the financial impact of the defects to be suffered by the Owners Corporation by allowing the builder to rectify the thirty identified defects. 

Legal Principal #2: A person who suffers a loss due to a breach of a building contract is required to act reasonably in relation to that loss for it to be recoverable.

In determining whether owners can refuse a builder access to property to rectify building defects, the person who suffers loss due to a breach of contract is required to act reasonably in relation to that loss in order for them to recover that loss. In this case where the Owners Corporation suffered a loss resulting from the builder’s alleged defective work, it was reasonable for the Owners Corporation to refuse the builder access to the property to rectify the defects. This was because the Court accepted the Owners Corporation had reasonably lost confidence in the willingness and ability of the builder to undertake the rectification work. This was based on several factors including:

1. the builder failed to provide an adequate scope of work and relevant information;
2. the initial scope of work provided by the builder was deemed inadequate to meet what the Owners Corporation’s expert had deemed required in rectifying the defects;
3. the builder’s response to the Owners Corporation’s claim was “unnecessarily aggressive”, as observed by the Court in several pieces of correspondence;
4. the quality of previous rectification work performed by the subcontractor was deemed unsatisfactory;
5. the subcontractor failed to show up at the property and individual units at agreed-upon times to carry out the work; and
6. the subcontractor entered the property without permission or authority.

This case highlights that where the behaviour and response from the builder has reasonably made an owner lose confidence in the builder’s willingness and ability to rectify defects, you may be able to refuse to let the builder back to fix any defects while also being entitled to recover losses.

What is considered “Reasonable” in refusing a builder to repair the defects?

What constitutes “reasonable” in refusing a builder to repair the defects differs and is assessed on a case-by-case basis on their specific individual facts. However, there are a few examples from previous cases that assist you in determining whether a refusal to give the builder access to remedy defects is reasonable.

1. Loss of Confidence in the Builders Willingness and Ability to rectify

When owners have experienced a past history of unsatisfactory work from a builder or where the builder had failed to adequately rectify defects in the past, they may reasonably lose confidence in the builder’s ability to remedy defects satisfactorily. Court decisions have recognized that owners should have the option to bring in another contractor instead of granting the original builder an unqualified right to re-enter and remedy defects. For example, there has been cases where it is of a reasonable position that the builder be refused access to rectify defects where they are “plainly incompetent or dangerous”. Allowing the builder an opportunity to rectify defects can be beneficial in minimizing financial losses for both the owner and the builder. However, reasonableness in refusing to let the builder back to fix defects depends on the builder’s conduct and their previous attempts to repair the identified issues.

2. The Builder Denies the Defects Exist

Owners may have a justifiable reason to refuse a builder’s rectification efforts if the builder consistently denies the existence of the defects. In such cases, owners must take reasonable steps to mitigate the losses resulting from the builder’s breach of contract. Court decisions have supported owners’ refusal to allow the builder to rectify defects when the builder refuses to admit the defects until well into the trial. In those cases, the owners were able to contract with another tradesperson to rectify the defects and have those reasonable costs compensated for by the original builder. 

3. The Builder Fails to Return to Site to Rectify Defects

The obligation to mitigate loss applies equally to the builder, and if the builder fails to return to the site and rectify defects, it has been considered reasonable for the owner to refuse the builder access to the site to rectify defects in the future. Further, the builder may be required to compensate the owner for the cost of rectification works carried out by third parties. For example, if a builder was notified of water ingress in the property and chose not to undertake necessary rectification works or proposes inadequate repairs to fix the water ingress, then owners may be justified in engaging other tradespersons to undertake the rectification works themselves and refuse to allow the builder back.

4. The Builder’s Rectification Proposal is Not Reasonable

Owners may be justified in refusing a builder to rectify defects if they reasonably believe a builder’s rectification proposal or scope of work is inadequate or unsuitable. In these situations, disagreements over the proposed manner or method of rectification can be valid reasons for owners to seek alternative solutions to rectify the defects or recover their losses. For example, in cases where the builder’s proposed scope of works significantly deviates from expert determinations or the builder fails to propose a suitable alternative, owners may be justified in refusing the builder’s rectification proposal. Courts have acknowledged that owners are not acting unreasonably in relying on professional opinions or seeking other avenues for rectification when the builder’s proposed method is deemed unsatisfactory.

Conclusion

In conclusion, homeowners and Owners Corporations in New South Wales may have the right to prevent builders from rectifying defects on their property under certain circumstances. The decision to refuse access to the builder should be based on the principles of reasonableness and the specific facts of the case.

While owners are generally required to mitigate their losses and provide the builder with a reasonable opportunity to rectify defects, there are scenarios where it may be reasonable to refuse the builder access. These include instances where owners have lost confidence in the builder’s willingness and ability to rectify, the builder denies the existence of defects, the builder fails to return to the site to rectify defects, or the builder’s proposed rectification plan is deemed unreasonable.

Seeking expert legal advice is essential to navigate through the complex strata law landscape effectively when deciding to refuse builders to rectify defects on your property. At PBL Law Group, we specialize in strata and construction law and have a successful track record of helping lot owners address building defects in New South Wales. Contact us today to discuss your case and protect your rights as a lot owner.