Opal Tower reveals cracks in the system

Strata living is a rough deal in the absence of constructive regulations.

“Overall, the protections for unit owners have been seriously eroded over the last seven years.” Picture: Gordon McComiskie

On Christmas Eve, some of those living in the Palermo building at Wentworth Point in western Sydney watched as news broke that loud bangs and a web of cracks had prompted the mass evacuation of Opal Tower, an apartment block at Olympic Park.

More than 300 residents in the shiny new 36-storey, 392-apartment building were terrified, Palermo’s residents heard, fearing their home would collapse.

Only 3km separate the two buildings, but they will be brought even closer in coming months as residents share an unpleasant common experience.

After years of issues with water damage, fire dampeners, a crack, general chaos among residents and a lawsuit against the developer, subsequently placed into administration, the lives of those living in Palermo are back on track as millions of dollars of remediation work begins to fix their problems. “It’s been a long process,” one owner says.

The two cases — and there are hundreds more — have exposed cracks and structural flaws in the building industry. During the past two decades, laws protecting homeowners gradually have been watered down to such a degree that that the apartment owner is responsible for fixing (and paying for) almost all faults, such as cladding, waterproofing or cracking.

“It’s a pendulum between builders and developers, and owners,” says Colin Grace, a partner at property and strata law firm Grace Lawyers.

“And the pendulum has swung too far towards the developers and builders.”

Adding to that, in Sydney in the past 10 years there has been a fourfold increase in the number of high-rise apartments approved, from 6287 to 23,637. Nationwide, the number of apartments built increased from 30,000 to almost 90,000 between 2007 and 2015.

In the same period, private certification has increased exponentially, improving the efficiency of building approvals but blurring the lines between developers, builders, engineers and the people who ultimately sign off on every aspect of an apartment building: the fire standards, acoustics, electrical work and structural integrity, for example.

Although the principal certifier is often blamed for a building’s problems, they are often a “postbox” for the paperwork of individual certifiers, one expert says.

So far no one is keeping track of the number, type or scale of defects in strata buildings in Australia, crucial information in any attempt to reform an industry.

In 2012, a group of University of NSW researchers from City Futures added, almost as an afterthought, a few questions about defects in a survey of 1550 people living in strata apartments. Their findings were astounding.

Of those who answered, 72 per cent had “one or more defects” at some stage, a figure that grew to 85 per cent for those in buildings built since 2000.

“We were surprised to see it, but a number of our research partners — those in the industry — were not surprised,” associate professor Hazel Easthope, one of the report’s authors, says. “They saw it confirming what they already knew.”

Last month the same group of researchers were awarded a grant for a fresh two-year study into defects in NSW apartment blocks.

“We want to get to the bottom of exactly what’s happening and why, so we can make recommendations,” Easthope says.

“The scale and the nature and the causes.”

The worrying trend towards defective buildings is compounded by the fear of publicity.

Although several construction and strata lawyers interviewed by Inquirerspoke of hundreds of “horrifying” cases involving unlivable and dangerous buildings, few residents are willing to go public with their experiences, as any reporting could harm the value of their biggest asset: their home. Likewise, successful lawsuits are almost always resolved confidentially.

In the past 20 years, the way courts have interpreted state strata and construction laws increasingly has benefited developers and builders. The NSW government in 2012 weakened statutory warranties — the period in which apartment owners could sue if they found defects — from seven years for everything to six years for “major defects” and two years for everything else. “Major defects”, however, have come to mean only issues that are so bad the building is uninhabitable. Opal Tower’s cracks, one lawyer says, quite conceivably could fall outside the current legal definition of “major defects”.

Grace acted for the Owners Corporation in a landmark decision known as the Brookfield Multiplex case, which reached the High Court back in 2014. The full bench of the High Court found the contractor did not owe a duty of care to the owners of a building to avoid losses caused by defects.

“It had a huge impact,” Grace says. “It took out negligence claims against almost anybody and left just the statutory warranties for residential developments only.”

The Brookfield Multiplex decision had a cultural impact, says Chris Duggan, president of Strata Community Australia (NSW).

“It had a significant notional impact. It implied builders don’t have a statutory duty of care to the end user,” he says. “Though it hasn’t changed or influenced the way contracts are written.”

Other decisions have found engineers and consultants don’t have any contracts directly with the owners, so claims can almost never be brought against them, and have upheld laws protecting developers that can — and do — create elaborate structures, which mean they can avoid liability.

“Overall, the protections for unit owners have been seriously eroded over the last seven years between the watering down of the statutory warranties and the decisions of the courts dealing with the ability to sue either builders or other liable parties for defects,” according to Paul Jurdeczka, a partner at Chambers Russell Lawyers with almost two decades of experience in residential construction law in NSW.

He also points out that larger residential buildings — 300 to 400 units — are now common, and use of pre-made products and lower-quality materials can affect hundreds of apartments rather than just one or two.

“While many owners will buy units in blocks built by reputable builders and containing limited and minor ‘acceptable’ defects,” Jurdeczka says, “there will be increasing numbers of owners having to deal with significant and costly defects where the builder or developer may no longer be around to meet any claim, and their ability to claim against anyone else may be limited, risky and costly or non-existent.”

There are several options canvassed by those in the industry as ways to push the pendulum back towards the consumer and, in the process, improve the overall quality of buildings.

The most promising move has been a meeting of the nation’s construction ministers, the Building Ministers Forum, which in mid-2017 commissioned a national report on the construction industry’s compliance and enforcement.

“After having examined the matters put to us, we have concluded that their nature and extent are significant and concerning,” authors Bronwyn Weir and Peter Shergold found.

They made 24 recommendations, including registering everyone from the builder to the plumber, training them well, regulating them powerfully, and ensuring the designs of complex buildings are independently reviewed. “The building and construction industry needs to actively participate in lifting standards, competency and integrity if it is to produce safe and reliable buildings,” the report says.

A Senior Officers Group has been created to figure out how to implement the recommendations. The ministers are due to meet again early next month.

“I have been reading and participating in inquiries for 17 years,” says Stephen Goddard, a strata lawyer and an outspoken member of the Owners Corporation Network.

He has been pushing, along with Grace, for a statutory duty of care for owners to be created.

“The thing that’s important to come out of Opal (Tower) is that we finally establish a solution. We need to create a duty of care that creates liability for the actions of developers and builders. Why would you expect less?”

Goddard has often said there are more consumer protections for people buying a toaster than for those buying an apartment.

“Until you make the builders, developers, certifiers responsible, this process of chaos will continue. The people of this state and the commonwealth have no reason to have confidence in strata letting as a lifestyle of choice.”

The next decade will be painful for those who have bought apartments, experts warn. In NSW, while the government has created the Home Building Compensation Fund to help those in houses or small blocks of up to three storeys, anything bigger is barely covered.

“People who are buying anything above three storeys don’t have any protection at all,” says Ian Bailey SC, a professor and prominent construction barrister.

Wynette Monserrat was lucky. She bought an apartment in a two-storey block in Narrabeen, on Sydney’s northern beaches, and soon noticed water leaking from balcony doors and windows. “There were major defects,” she says. “The roof leaked, most of the doors were leaking, the bathrooms leaked.”

She and other owners took the builder to court, where a judge described the apartments as “systematically defective”. They ultimately won, but the builder declared bankruptcy and could not pay $550,000, as the court had ordered. They were able to recoup some funds through Homeowners Warranty Insurance.

“Even though it’s only 10 units, we’ve spent well over a million dollars. And a couple of hundred thousand in legal fees,” Monserrat says. “We’ve been watching (Opal Tower), it’s horrendous for people who’ve bought there. Just living through this has been bad enough.”

The industry is bracing for a wave of claims in the next 12 to 18 months.

“I think 2020 will be the year they’ll start,” Grace says.

“We don’t know exactly, at the moment.”

The NSW government has tried to make some changes to help owners, introducing a strata building bond that, theoretically, would compel developers to put aside 2 per cent of the total cost of the building work for a block of apartments that could be used in the first two years of its life.

However, Grace says the scheme is “fundamentally flaw­ed”. “Unless we deal with the fundamental problem of making better construction and better reviews and stages and certification, it won’t change, at all.

“Nothing will change until we go back a bit and have critical stage inspections, critical sign-offs, and total independence of those signing off. We have to go back to the future and bring back consumer rights.”