Taxpayer may foot the bill for Sydney Opal Tower defects

The NSW government may be on the hook for millions to fix the cracks and defects in Sydney’s damaged Opal Tower.

Work been carried out on the tenth floor of the Opal Tower in Sydney Olympic Park. Picture: Jonathan Ng

The NSW government may be on the hook for millions of dollars to fix the cracks and defects in Sydney’s damaged Opal Tower because of a law that exposes it to legal action as owner of the land.

While NSW Premier Gladys Berejiklian has “wholeheartedly” encouraged Opal Tower’s residents to take “every legal opportunity they have”, The Australian can reveal that her government’s own Sydney Olympic Park Authority, and not Ecove — the company that developed the land into Opal Tower — could be sued by apartment owners because of changes in building warranty laws designed to close a loophole.

On Christmas Eve, residents heard loud bangs as large cracks appeared in Opal Tower, forcing more than 300 residents of the tower to evacuate while engineers from Icon Co, the builder, WSP, the structural engineer, and the government investigated.

More than two weeks later, residents are still in hotel rooms and family and friends’ homes, costing the builder hundreds of thousands of dollars for accommodation that could continue, for some residents, for another six weeks.

Investigators appointed by Planning Minister Anthony Roberts are due to give their expert ­report to the government today.

The issue has stoked concerns about the quality of high-rise construction just over two months before the government is due to face an election in which over-development and infrastructure spending are likely to be key issues.

Construction law experts say changes to the NSW Home Building Act and several court judgments in recent years mean the developer that can be sued over a dodgy building is legally defined as the entity that owns the land on which it is built.

Crucially, Sydney Olympic Park Authority owned the land on which Opal Tower was built, and continues to own many of the unsold lots. The developer, Ecove, and its subsidiary, Australia Ave­nue Developments Pty Ltd, which contracted Icon Co, never owned the land.

The revelation throws the independent nature of the NSW ­government’s expert investigation into doubt, as it may be a liable party itself through the Sydney Olympic Park Authority.

Under the Home Building Act, which regulates NSW’s residential building industry, the builder of a home is liable for any defects under statutory warranties while the developer is liable when there are four or more homes or units in the project. Homeowners have two years to bring a claim if there are minor defects and six years for major defects.

Changes to the act in 2010 meant that the owner of the property on which a building is built is considered the developer under the warranties, even if they did not engage the builder.

“Ecove has been described in the media as the developer but without having seen the agreement in place between it and SOPA (the Sydney Olympic Park Authority) to develop the site, in my view given the current state of the law it would appear to have no liability under the statutory warranties to the owners,” said Paul Jurdeczka, a strata lawyer with 20 years’ experience from Chambers Russell Lawyers.

“Presumably SOPA could sue Ecove if sued, and Ecove would sue Icon in turn, but these are all issues for the lawyers. However, one of the three major players in the project has no direct liability to the owners if they had to sue under the statutory warranties, because of a loophole in the legislation and the law.”

Banjo Stanton, a lawyer who specialises in residential defect litigation, confirmed that under the Home Building Act, the owner of the land during construction was considered the ­“developer”.

“If Sydney Olympic Park Authority owned the land during construction, then the government — via SOPA — is definitely on the hook,” he said.

“If the position is that Ecove was not the landowner or the builder, it’s clear on the current state of the law that Ecove will not have any liability under the Home Building Act.”

Searches of the NSW Land Registry Services reveal the Opal Tower site was never owned by Ecove or Australia Avenue ­Developments.

Instead, the site has been owned by the crown and was transferred in 1992 to the newly created Homebush Bay Development Corporation for $1.

It was then passed to Sydney Olympic Park Authority when it was established in 2001.

Since then, some land parcels were joined to form the piece of land on which Opal Tower, a shop, a childcare centre and a bioretention facility are now built.

The NSW government still holds ownership of the shop, the childcare centre and the bio­retention facility, as well as some units in the tower.

While individual apartment owners may be able to sue Ecove through their contracts, Opal Tower’s Owners Corporation can sue the builder — in this case Icon Co — and the developer under the Home Building Act using the statutory warranties.

In 2010, the NSW Court of Appeal highlighted a loophole in home building laws when it ruled a developer was liable only if it both owned the land and con­tract­ed the builder. Developers often created complex arrangements involving one company that owned the land and another that liaised with the builder.

The NSW government rushed to plug the hole, making the owner of the land liable and attempting to make the company that hires the builder liable as well.

“The NSW government tried to fix it urgently in 2010, but only did part of the job,” Mr Jurdeczka said. “Decisions of the Supreme Court in recent years seem to have rendered that attempt futile, and really only the registered owner of the land would appear to be the liable developer under the statutory warranties.”

A NSW Supreme Court decision in October last year found a subsidiary of Sydney-based construction giant Multiplex was “not an ‘owner’ ” of a property in Hurstville that had several alleged defects. The owners’ corporation of that building lost the case for compensation against the subsidiary under the state’s building warranty laws.

Ecove director Bassam Aflak confirmed that at no time did Ecove or any of its subsidiaries own land on the Opal Tower lot.

He said that was “a very standard method” of delivering a project and said it was “absolutely not” an attempt to avoid liability.

“The contractual arrangements note us as the developer,” he said.

A Sydney Olympic Park Authority spokesman said it entered into a Project Delivery Agreement with Australia Avenue Development on its land.

“The PDA requires the developer to assume all risks in relation to those works,” he said. “SOPA’s obligations under those contracts are limited to transferring title.”

A spokeswoman for Better Regulation Minister Matt Kean said both the builder and the developer owe statutory warranties to property owners.

“The causes of the Opal Tower problems are currently the subject of an investigation by experts and it is not appropriate to pre-empt the findings of that investigation,” she said.