New consumer protections in place for off-the-plans development in 2022: How does this affect you?
New consumer protections in place for off-the-plans development in 2022: how does this affect you?
The Opal Towers and Mascot Towers scandals, which exposed a significant loophole in consumer protection when purchasing high-rise apartments, severely harmed confidence in the off-the-plan market in NSW.
However, with the housing problem still unresolved, the NSW government has intervened with a number of significant initiatives set to launch this year that could boost confidence. Two of the major initiatives are described below:
Announced developer rating system
The introduction of a new public rating system for developers complements the new Decennial Insurance programme and will enable customers to easily learn how well the developer's prior projects performed. This is a significant improvement because, up until now, buyers were unable to easily access the developer's track record.
Deicorp, Helm, and Ultra Building, three significant developers, have finished the Equifax Independent Construction Industry Rating Tool as of today (iCIRT). They all scored more than three out of five stars, which is the minimum requirement to be considered "trustworthy."
This is a very encouraging step forwards for the market and will be a crucial tool for both customers and insurers to analyse the operational risks of builders and developers.
New insurance regime
The fact that buyers in NSW do not have recourse to the Home Building Compensation Fund (the HBC Fund) in the event that the developer or builder disappears is one of the main issues with buying high-rise flats off-the-plan. Most new home buyers receive a 6-year statutory warranty from the builder for significant flaws (2 years for minor defects). These warranties, however, are of little use if the builder disappears or becomes bankrupt. In that event, the HBC Fund can be used as a backup insurer by the majority of buyers.
Late last year, the NSW Government declared that it would be presenting Decennial Obligation Protections for private apartment buildings in NSW, possibly with impact in late 2022. Decennial obligation protections are a shape of protections taken out by an engineer or builder for a period of ten years after the completion of a building, in support of future proprietors of the building. The arrangement would cover the building completely or in part collapsing, or where the building contains basic absconds that influence the building’s steadiness or security (i.e. the kind of things that happened to Opal & Mascot Towers).
A critical perspective of decennial risk protections is that it insures liability on a strict liability basis. As a result, proprietors of buildings are not required to demonstrate any carelessness/ negligence or fault by the engineer or builder to trigger a decennial risk insurance claim. This likely cut down the expensive litigation that results when body corporates have to sue their builders and obligation is challenged.
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