Building a stronger future – an overview of the Building Legislation Amendment Act
The Building Legislation Amendment Act 2023 reflects the NSW Government’s commitment to transforming the building and construction industry. It is the latest in a series of initiatives that address building quality, safety, and consumer protection.
To improve accountability and responsibility, the Act amends several key pieces of building legislation, including:
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Home Building Act 1989 (NSW)
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Building Products (Safety) Act 2017 (NSW)
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Design and Building Practitioners Act 2020 (NSW) (DBP Act)
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Strata Schemes Management Act 2015 (NSW)
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Residential Apartment Buildings (Compliance and Enforcement Powers) Act 2020 (NSW) (RAB Act).
As well as addressing gaps, the Act expands the powers of government agencies such as the new Building Commission.
It builds on the success of stronger regulation of class 2 buildings, which typically includes apartment blocks. In particular, it extends the powers of government agencies to oversee and compel compliance in class 1 buildings, including residential homes.
We provide below a summary of what NSW government agencies need to know about the legislation changes.
Expanded powers under the Home Building Act 1989
The Act introduces several new sections into the Home Building Act (which regulates residential building) that are substantially similar to the DBP and RAB Acts.
Key new sections include:
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Section 49A: the Building Commission can authorise an inspector to investigate residential building work. This means the Commission can enter a residential home where works are underway to assess those works.
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Section 49B(1): the Building Commission can give a rectification order to a contractor requiring them to take certain steps to ensure a defect is rectified.
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Section 129: the regulator may issue a stop work order on residential works.
Before the Act, the power to investigate and compel a residential builder to rectify works in residential homes was substantially limited, often leading to expensive litigation after work was completed. The expanded powers will allow the Building Commission to proactively investigate defects and have them rectified early, reducing the need for later litigation.
Case study – Rectification Orders and the Courts
A recent case dealing with the interaction between court proceedings and rectification orders under the RAB Act may challenge the “proactive intervention” narrative.
In Strata Plan 99576 v Central Construct Pty Ltd [2023] NSWSC 212 a builder applied for a stay on court proceedings for damages where the works in question were also the subject of a rectification order issued under section 33 of the RAB Act.
The relevant facts are:
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the builder undertook works on a strata development
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the plaintiff was an owners corporation who sued in the Supreme Court seeking compensation for building works which it said were defective
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after proceedings began, the owners corporation lodged a complaint with the Department of Fair Trading requesting assistance
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Project Intervene, an initiative of the Building Commissioner, was investigating the defects but no building work rectification order under section 33 of the RAB Act had yet been issued
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the builder sought to stay the Supreme Court proceedings, including on the basis that, “all of the allegedly defective work the subject of the proceedings may be rectified either by the defendants pursuant to a building work rectification order (or pursuant to an undertaking given), or otherwise by the Secretary pursuant to s 42…”
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Outcome: the Court rejected the application and refused to grant a stay.
As more cases are heard, we expect to receive further guidance as to the interplay between the new powers of the Building Commission and the Court. For now, it is uncertain what attitude courts will take to rectification orders while proceedings are under way for the same or similar defects.
Building Products Safety Act – everyone on the supply chain is accountable
Perhaps the most intriguing changes made by the Building Legislation Amendment Act are to the Building Products (Safety) Act 2017 (NSW).
That Act allows the regulator to declare a building product a safety risk and ban its use in building work. It also gives the regulator powers to investigate and issue building product rectification orders.
The most notable product ban is on aluminium composite panels (ACPs) for external cladding.
The amendments require everyone in the supply chain of building products to ensure the building products they design, manufacture, deal with, sell or install are suitable for their intended use.
Key duties include:
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To ensure that a “non-compliance risk” does not exist in relation to a product
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To provide information in relation to building products
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To notify of non-compliances or safety risks
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Various duties in relation to a product recall.
A “non-compliance risk” will exist if:
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The product is or may be non-conforming – including if it does not comply with the National Construction Code (NCC); or
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An intended use of the product in a building is or may be a non-compliant use – including if the “use” of the building product does not comply with the NCC.
Amendments to the SBBIS & Decennial Liability Insurance
Strata Building Bond and Inspection Scheme
The Strata Building Bond and Inspection Scheme (SBBIS) requires the developer on some new strata builds to pay a bond on account of any defects that arise after building is completed.
The Act increases the bond (which is held by NSW Fair Trading) from two percent of the price payable on all contracts for the build, to three percent. The increase is necessary given the rapid rise in building costs and increased risk of insolvency in the construction industry.
The implementation of this change has been deferred until 1 July 2025.
Decennial Liability Insurance
As an alternative to the developer’s bond, a developer may seek approval from the regulator to obtain decennial liability insurance (DLI) for building works. DLI is a policy which:
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is taken out by a developer of a strata scheme in favour of an owners corporation
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insures against serous defects in the building elements of common property for 10 years and on a strict liability basis (see Division 3AA in the Strata Schemes Management Act 2015 (NSW)).
DLI is a new form of protection for strata schemes intended to cover the cost to fix serious defects in critical building elements, including structural elements, fire safety systems and waterproofing.
The extent and value of the insurance coverage makes DLI a viable alternative to the SBBIS. However, its utility is yet to be assessed in practice. The NSW Government considers it may be necessary to make DLI mandatory after a transition period and maintains that a developer should be required to remediate defects in the first instance.
Anti-phoenixing laws
Another significant amendment to the Home Building Act is the introduction of anti-phoenixing laws for contractors.
Phoenixing is sometimes used by a business owner to avoid completing work, remediating defects or paying outstanding debts. The Act aims to prevent phoenixing by allowing the Building Commission to refuse an application, cancel a licence or disqualify a person from holding a contractor licence if they have been involved in the management of a company which has become insolvent in the last 10 years.
Conclusion
The Building Legislation Amendment Act 2023 supports the NSW Government's commitment to improving building quality, safety, and consumer protection through enhanced regulatory powers and responsibilities. These amendments are a significant step toward greater accountability in the construction industry, addressing critical gaps while supporting proactive oversight and defect rectification.
Authors: Sharon Levy and James Duff