Collapsed builder leaves staggering defects in Victorian apartment block
This Aussie thought she had secured for herself a dream home, then she realised the real nightmare had only just begun.
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Rachel* thought the worst thing that could happen to her was being diagnosed with brittle bone disease, a rare genetic disorder that means her bones can break randomly at any time for no reason at all.
“At the moment I have a couple of broken ribs because I was coughing, I also have a broken toe,” the Melbourne resident told news.com.au. “Sometimes you literally wake up with a broken bone.”
Just before she turned 40, wanting to secure stable housing with plans to then go on the disability pension full-time, she bought an apartment in the inner Melbourne suburb of West Footscray for $410,000.
Unbeknown to her the apartment, built by Shangri-La Construction, was riddled with defects, including inadequate water proofing, which came to light several years later.
Water would periodically leak inside her home so badly that she described it as raining in her lounge room, and soon this turned into black mould which spread across her entire apartment.
Since 2020, the place has been uninhabitable and Rachel has been forced to live elsewhere — in rural Victoria, the only place she can afford — while her mortgage and strata fees pile up.
The 77 residents in the same apartment building had begun a lawsuit against the builder — Shangri-La Construction — when the company went into liquidation at the end of March.
This has left the apartment owners, including Rachel, with no way to recover the money needed to carry out building works, leaving them to foot the $4.5 million bill themselves.
Currently, buildings above three storeys are not required to be covered by Builders Warranty Insurance under Victorian law.
That means if a builder goes bust – as in the case of the West Footscray apartment – residents have no insurance to automatically cover building defects.
It matters because 2.5 million Aussies live in an apartment, and half of those people reside in a block of units that is more than three storeys high.
Although this blindspot in the law is nationwide, the Victorian Government is currently looking to reform laws in its building sector. You can sign the petition here.
‘It was raining inside my lounge room’
A specialist told Rachel she had about five years before her disability seriously deteriorated and so she knuckled down to find a forever home, which is how she came across the West Footscray block in 2014.
“Being a new build, I thought it (the apartment) would be good for the repair stuff,” she said, adding that the building passed all its compliance checks.
But pretty soon Rachel knew something was seriously wrong with the building as a waterfall would flow from her ceiling whenever it rained.
“It was raining inside my lounge room,” the now 47-year-old healthcare worker said.
“It would all gush out every three months, I have puddles in my lounge room, it was all just seeping through the ceiling and walls, through the balcony doors, everything.”
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No waterproofing in the apartment block
A defect report obtained by news.com.au dated December 2018 found that Shangri-La Construction’s waterproofing job in the block was woefully inadequate.
“There is no evidence of a waterproofing membrane being installed,” the report states.
“Many of the windows lack correct flashing to their head and sides.
“The waterproofing of the external concrete and the balconies does not conform with National Construction Code … I believe that no provision has been made to install adequate waterproofing to the carpark.
“The construction of the waterproofing of the building has not been carried out in accordance with the requirements of the National Construction Code. Therefore the builder has a responsibility to correct these defects.”
Unfortunately, Shangri-La Construction went bust before residents could compel the business to fix its mistakes.
Trapped in the lift in 38C
Defective lifts have also posed a huge problem for residents.
Garry Potter, 63, moved into the block after the breakdown of a 20-year relationship, nabbing an apartment for $419,000 to head into his retirement.
“This one was within my budget, very handy,” he told news.com.au, but several years later he learned that the extra expenses from the strata fees to fix the defects were far out of his budget.
The lift, which news.com.au understands was not built to Australian standards, according to independent building reports, would constantly break down.
“I got stuck in the lift for one and a half hours in 38 degrees in the summer. There was no phone reception,” Mr Potter recalled.
The emergency phone in the lift did not work and Mr Potter said the only reason help eventually came was because another resident had seen him get inside it.
Franca Comito, 58, also moved into the apartments after a 13-year relationship ended.
“I purchased it because it had a lift,” she told news.com.au. “I had cancer in my leg, climbing up stairs has been difficult.
“But the lift broke down that many times, it was just ridiculous.”
The building was also not built to a standard that was fire safe, as there was only one exit. This meant if one of the buildings caught fire, residents would have to pass by it to escape onto the street.
This has since been rectified, at a cost to residents.
“I don’t see why I should have to pay for a problem made by Shangri-La,” Mr Potter said. “I don’t want to end up on the government pension.
“I wanted to retire, sell and move to Queensland, I’ve been stuck here three years. It’s just horrible.”
Waterproofing issues across the building
Jess Haire, 49, who also moved into the block in 2014, recalled how “one of my oyster lights was full of water” from the water leaks.
Harishwar Dragula bought a unit at the site in 2015 with the intention of turning it into an investment property.
“As a result of the leaking issues, I lost rental income for eight months,” he said.
Leaks started in his apartment’s bedroom, walk-in wardrobe and from the roof, ruining the carpet.
This caused the tenant to break the lease and upon inspecting the property, he discovered “everything was mould”.
Mr Dragula’s tenant took him to a tribunal and he ended up having to pay them $500 to cover their moving costs.
Jade* and her teenage daughter have been renting another unit in the block for five years. When news.com.au visited, there was a huge spot of mould on her carpet and ceiling.
“I got a speckle there, it was getting bigger and bigger, the guys said it was one of the worst ones,” she told news.com.au.
Jade is on a government housing subsidy so she said “there’s no option to leave” as it is very difficult to reapply for a new rental.
“I’ve been embarrassed to bring people over,” she added. “There was a time where there was a really bad smell.”
Jessi*, a teacher, has also had a nightmare trying to rent out her apartment, with a revolving door of tenants due to the defects and the construction work needed.
Underneath her balcony “it looked like fungus, it was wet (and) smushy, then when it dried it turned to a grey mouldy colour,” she told news.com.au.
“I cried about it.”
Initially, Jessi lived in the apartment, but then moved to a cheaper area and brought in renters.
“In the time that I’ve moved out, I’ve had a turnover of four tenants,” she said.
“The simple sort of damage, like a missing light, upon digging we realised there was water coming through the electrical system.”
She added: “I had one really beautiful set of tenants, they couldn’t physically live in the place anymore”.
As she was on a ground-floor apartment, Jessi had a large courtyard area and had a 10-metre merbau planter box. But when building works were underway to fix the poorly waterproofed courtyard area, the planter box was destroyed.
“I worked on it with my mate, it made my courtyard stand out,” she explained. “It cost about $10,000 to do.”
The petition
Samantha Reece, CEO of The Australian Apartment Advocacy, has started a petition calling for the government to expand the last resort insurance scheme to include apartments of any height.
“We want insurance protection to be equitable whether you buy a single storey house or on the 33rd floor in an apartment building,” Ms Reece told news.com.au.
Currently, 2.5 million people live in an apartment, and half of those people reside in a block of units that is more than three storeys high. An academic report from 2019 found that a whopping 85 per cent of all Australian apartment buildings analysed had at least one defect across multiple locations.
Earlier this year, the Victorian government pledged to reform its building industry laws to tighten consumer protections in light of the collapse of major construction firm Porter Davis Homes, making Ms Reece hopeful that the three-storey law might be abolished.
Shangri-La Construction went bust on March 31 this year, with David Coyne of insolvency firm BRI Ferrier appointed as liquidator.
There are 10 residential apartment blocks, including the Footscray one, that were in various stages of legal actions when the company went under.
One single claim for a block of units was for $10 million worth of damages, at a different location.
“The proceeding concerns a complex construction dispute between the applicants (an owners corporation and a number of individual lot owners) who seek damages from Shangri-La and nine other respondents in relation to alleged defects in a major residential development,” the court document read.
Although court cases usually end once a company enters liquidation – as in the court’s eyes the company has ceased to exist – many are seeking leave to continue the proceedings.
Among those continuing to pursue Shangri-La Construction is the Victorian government because of substantial bills racked up during the process of replacing the dangerous cladding installed within buildings.
Cladding Safety Victoria, a government body established to fix cladding issues, told news.com.au that of the 365 buildings approved for funding so far, 16 are buildings where the original builder was Shangri-La Construction, of which the total funding committed was just over $24.5 million (excluding GST).
According to the liquidator’s statutory report into Shangri-La Construction, there was only $18,000 left in its bank account while the company’s assets have been sold for $146,00.
Unsecured creditors — like all the apartment owners in the West Footscray building — are not expected to recover a cent.
But according to a media report in 2015 on Shangri-La Construction, the business turned over $120 million worth of building work every two years.
When defects emerged at the West Footscray block, the building was still within its warranty period.
The director of Shangri-La Construction declined to provide a comment to news.com.au, as relayed through their solicitor.
The Victorian Building Authority confirmed to news.com.au that investigations into Shangri-La are ongoing.
*Names withheld
alex.turner-cohen@news.com.au
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