Cracks emerging in Sydney’s high-rise building boom
Apartment owners are being stranded with no place to stay and rising legal bills due to building defects - and the problem is only likely to get worse.
NSW
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- Mascot Towers residents votes for special levy
- Opal Tower resident says building faults will continue to happen
The $60 million apartment tower’s facade was cracking and crumbling to the street, the spa was leaking into the function rooms below and metal cowlings on fire safety shutters
were corroding.
Years after construction giant Brookfield Multiplex built Chatswood’s serviced apartment and residential Chelsea tower in 1998, it found itself in court, being sued for $10 million over alleged defective and shoddy work.
The owners’ corporation fought for years to prove Brookfield owed them a duty of care and should pay compensation to fix the problems. The owners were defeated in the Supreme Court, but won on appeal.
In a system already heavily stacked against the rights of owners, Brookfield took the fight to the highest court in the land and the outcome would sink what little was left of those rights.
The High Court found in 2014 Brookfield had no duty of care to fix the defects outside of six years after building the tower. The decision left the serviced apartment owners $8 million legal costs and another $6 million bill to fix the defects.
The state’s construction sector is worth $25 billion and high-rise apartments have tripled over the decade.
The sad reality for the ballooning number of apartment owners is that defects and the lawyers’ picnic they trigger is a problem as unstoppable as a crack growing up the wall.
MORE PROTECTION BUYING A FRIDGE
“We are now in a situation where public confidence in strata living is significantly undermined,” strata lawyer and Owners Corporation Network spokesman Stephen Goddard says.
“You have more consumer protection buying a refrigerator than a million-dollar apartment.”
The Brookfield case would be chilling news for hapless owners of Mascot Towers, and to a lesser extent, those at Opal.
Opal’s owners had paid between $800,000 and up to $2.5 million when massive cracks in the concrete exploded and residents were evacuated before Christmas, four months after the building was finished. Because the building is new, the owners are within the
six-year statutory limit on defects claims under warranty.
Mascot Tower’s owners first began the fight to fix defects in 2011, three years after the building was finished, before residents were last week evacuated because persistent cracking had suddenly worsened.
“The problem has escalated over the past 20 years. Opal was a turning point and Mascot was the last straw,” Goddard says.
Professor Bill Randolph of the University of NSW’s City Futures Research Centre says: “Defects of some description are very common.”
His research found 85 per cent of buildings have problems. That was in 2012 and he is now updating that data — but says because there is no central source of information he must chase it from numerous stakeholders, some of whom have a vested interest in keeping mum on defect issues.
“It’s proving extremely difficult to unearth information about how many defects and in what blocks,” Randolph says. He says a central register of defects is needed so consumers can be better informed on what they are buying.
Better to say nothing?
Goddard says Opal proves it is in owners’ interest to keep defects quiet: the value of their apartments has been stripped, with one owner reporting he has been offered $1 for his unit since the evacuation.
“There are people living with water penetration in the bedroom and lakes on the balcony,” he says.
“They are remaining silent about it, a) to protect their values, and b) they can’t afford to do anything else. They have a vested interest in remaining silent, quietly sucking it up.”
A basic case of pursuing a builder over a defect can chew up $100,000 in legal bills, just to get advice on whether the statutory warranty period exists and covers such a claim, Goddard says.
“It’s enabled successive governments to turn a blind eye to the issue of building defects, openly denying they exist,” he says.
Goddard says state governments were motivated to bury the issue while they pocketed a “stamp duty bonanza”, and federal governments stay silent while clipping the residential property market ticket through capital gains tax.
A landmark report in February last year, called Building Confidence, by respected academic Peter Shergold and lawyer Bronwyn Weir, documented the worrying extent of the problem.
“We have read numerous reports which identify the prevalence of serious compliance failures in recently constructed buildings. These include non-compliant cladding, water ingress leading to mould and structural compromise, structurally unsound roof construction and poorly constructed fire resisting elements,” the report states.
Shergold and Weir found operators were laughing at the rules, regulators were missing in action and private certifiers were mired in conflicts of interest.
“We have heard suggestions that large numbers of practitioners operating in the industry either lack competence, do not properly understand the NCC (National Construction Code) and/or have never had proper training on its implementation.
“Those involved in high-rise construction have been left largely to their own devices. Where there has been supervision, this has generally been by private building surveyors whom critics argue are not independent from builders and/or designers.”
When 71 people died in London in the Grenfell Tower fire the issue of shoddy building could no longer be ignored. Shergold and Weir cited Dame Judith Hackitt’s conclusions on the disaster from her December 2017 report: “Manifold deficiencies have contributed to a mindset
which is willing to do things as cheaply as possible and pass on responsibility for problems and shortcomings to others.”
New Minister for Better Regulation Kevin Anderson has trumpeted the state government’s commitment to implementing “some of those” 25 recommendations in Shergold and Weir’s report, claiming it amounts to the “biggest shake-up” of the construction industry in the state’s history.
REGULATIONS, BUT THE WRONG ONES
“I do think the construction industry and the building boom that we’ve seen in Sydney has raced ahead of regulations that are in place,” Anderson says.
Chief among the reforms is the appointment of a building commissioner who will “ultimately look at the quality, the transparency, the accountability of the construction industry in NSW”, Anderson says.
But so far all he has committed to is the appointment of a single person, with Fair Trading expected to pick up the policing slack from its existing resources, with no new allocation of funding in this week’s Budget.
He says once the building commissioner is appointed he will take their advice on the resources required to do the job.
Anderson says under the reforms, building inspectors, engineers, designers and draftspeople will no longer get away with not being registered.
“I don’t think that’s acceptable in 2019 when we are seeing what’s happening in and around the construction industry. We want to know that those buildings are structurally sound, we want to know that they’re safe,” he says.
Anderson says the government was not calling time out on its demands that local governments ramp up the amount of higher density housing in their council zones until the construction industry was in better shape and the reforms implemented: “This is the great Australian dream … we want to make sure that people in NSW have the confidence to still be able to pursue that great Australian dream.”
Goddard says Anderson’s reforms do not go far enough and apartment owners need laws which enshrine the duty of care builders owe them.
“We need to introduce responsibility, accountability and respect for the end user,” he says.
Goddard says the slide in property values has ramped up the pressure on all stakeholders — as values slide, no one wants to be footing the bill for fixing defects.
FOLLOW THE 10-YEAR RULE
“Property values are not wallpapering over the problem anymore,” Goddard says.
He warns consumers thinking of buying to look only at apartments that are more than 10 years old, because by this stage serious defects had usually reared their ugly heads.
“Defects take a long time to percolate to the top. Many of these defects are hidden behind gyprock and not visible and it can take years for somebody to realise … there’s a latent defect that is critical to remediate,” he says.
Read the strata minutes before you buy and where possible buy in buildings under three storeys high which have better warranty protections, Goddard says.
Randolph says buying off the plan is hugely problematic.
If you were buying a car that was yet to be built you would be shown a picture and when the car was manufactured in three years’ time you would get a car that looked like the picture. Not so with apartments, where developers, designers and builders regularly change plans and can construct something that barely resembles what you paid hundreds of thousands of deposit dollars for.
“That’s driven by lenders,” says Randolph, who require developers to sell a minimum proportion of apartments before financing can move forward. “We have to get the consumer back to the front of the queue. At the moment all the professionals are trying to shift blame and at the end of the day consumers are picking up the bill.”
He says there are many good developers out there doing the right thing but says the bad guys need to be called out, which would also better inform consumers.
“How about naming and shaming directors and companies that consistently do the wrong thing,” he suggests.
Originally published as Cracks emerging in Sydney’s high-rise building boom
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