New Building Legislation Amendment Act 2023 - key changes for NSW construction industry

In November 2023, the NSW Parliament passed the Building Legislation Amendment Act 2023 (NSW) (Amendment Act). 

All players in the building industry in NSW are affected by the significant changes arising from the Amendment Act, some which came into effect early this year. Others, which were to come into effect on 1 July 2024 have been deferred to now commence on 2 November 2024. 

Decennial Liability Insurance and Strata Building Bond Inspection Scheme - Strata Schemes Management Act 2015 (NSW)

The Strata Building Bond and Inspection Scheme (SBBIS) is related to new strata builds and provides that a developer must pay a bond to be held by NSW Fair Trading against defects which may arise at the property. Previously, this bond stood at 2% of the total price payable on all contracts for the build. The Amendment Act has increased the amount payable under the bond to 3% of the total price payable on all contracts for the build. This change comes into effect on 2 November 2024.

The developer is given the opportunity to rectify any defects, and an interim and final inspection must occur prior to access being granted to the bond. However, the increase to 3% is a necessary amendment given the rapid rise in building costs and increased risk of insolvency in the construction industry.

The Amendment Act has also introduced an alternative to the SBBIS by way of decennial liability insurance (DLI). DLI is insurance that covers the common property of strata apartment buildings against defects for a period of 10 years and is obtained by a developer prior to occupation of a building. It is intended to cover the cost to fix serious defects in critical building elements, including structural elements, fire safety systems and waterproofing. A benefit of this insurance is that it covers rectification of defects up to the contract cost of the apartment building even if the developer or builder becomes insolvent or ceases operation. This is significantly more than the 3% value of the bond paid under the SBBIS. Another benefit of the policy is that it attaches to successive owners of a building.

Decennial liability insurance is a viable alternative to the SBBIS for contractors and owners corporations alike due to the extent and value of the insurance coverage. However, this is a relatively new introduction in the NSW construction industry, and its utility is yet to be assessed in practice. The NSW Government considers that it may be necessary to make decennial liability insurance mandatory after a transition period, and maintains that a developer should be required to remediate defects in the first instance.

“Anywhere, Anytime” Powers and Anti-Phoenixing Laws - Home Building Act 1989 (NSW)

One of the primary focuses of the Amendment Act was on modifying the Home Building Act 1989 (NSW) (Home Building Act) to address significant issues within the industry.

The first of these changes was the introduction of an ‘anywhere, anytime’ inspection power conferred on NSW Building Commission inspectors. Inspectors can now enter Class 1 buildings, which include for example, freestanding houses, duplexes and terraces, where construction work is being undertaken, to investigate the quality and compliance of the building works. If the inspector identifies defective building works, work that could result in a defect, or other structures which have been damaged by another defect, the inspector can issue a rectification order to the contractor, or in certain circumstances a stop work order.

This ‘anywhere, anytime’ power does not extend to instances where a building is occupied. If this is the case, the inspector will need to obtain the permission of the occupant or obtain a search warrant. This acts as a safeguard for the occupant’s right to privacy and quiet enjoyment of their property. This new authority provides inspectors with substantial powers and aims to diminish the occurrence of defects by putting contractors on notice that an inspector can enter at any time.

Another significant amendment to the Home Building Act is the introduction of anti-phoenixing laws for contractors. Phoenixing is an illegal practice sometimes used by company directors to intentionally abandon an existing company which is facing hardship and carry on that business in a new company. In this way, directors attempted to avoid completing work, remediating defects or paying outstanding debts, including subcontractor wages.

The Amendment Act aims to prevent phoenixing by allowing regulators to refuse an application, cancel a licence or disqualify a person from holding a contractor licence if that person has been involved in the management of a company which has become insolvent in the last 10 years.

By requiring applicants to demonstrate they are not at risk of future insolvency, the process to obtain a contractor’s licence is more challenging in the hope that it will decrease the practice of phoenixing.

Suspension Powers - Building and Development Certifiers Act 2018 (NSW) and the Design and Building Practitioners Act 2020 (NSW)

Certifiers and practitioners registered under the Design and Building Practitioners Act 2020 (NSW) (DBP Act) can now have their registration immediately suspended whilst disciplinary action is being finalised. These powers already exist for contractors under the Home Building Act and is now replicated to ensure equal regulation across the board. The power can be exercised in the following circumstances:

• the registration holder has been issued with a show cause notice

• the person engaged in conduct that would constitute grounds for a suspension

• the person is likely to continue to engage in the conduct

• there is danger of significant harm if the registration holder continues to work.

This power has previously proven to be useful in respect of the suspension of contractors under the Home Building Act by reducing the risk of harmful and dangerous behavior. It is expected to maintain utility in respect of certifiers and practitioners registered under the DBP Act.

Key takeaways

The changes implemented under the Amendment Act aim to better regulate the building and construction industry and implement more effective measures to address defective works in residential builds. Like any legislation amendment, it will take time to measure the effectiveness of any changes, particularly with new introductions like the decennial liability insurance scheme. However, it is evident that changes are being made to better protect the interests of both contractors, owners and occupants alike.

If you need assistance with the changes to the legislation, or legal assistance generally with building, construction or strata issues, feel free to contact us.

Authors: Sharon Levy & Morgan Griffiths