The Building Legislation Amendment Act 2023 (NSW) (BLAA) introduced a range of building reforms covering builders, developers and contractors. These wide-ranging reforms continue the transformation of the building sector which had been promised by the NSW Government. The BLAA came into force on 11 December 2023, with some provisions expected to come into force in 2025.
Building Commission Anti-Phoenixing Powers
The Building Commission is granted additional powers to prevent ‘phoenixing’ under the BLAA through amendments to the Home Building Act 1989 (NSW) (HBA). The number of insolvencies in the construction sector has typically been higher than average and there have been some instances where directors attempt to ‘phoenix’ construction companies, which involves intentionally liquidating an existing company and then starting a new company to carry on the business of the liquidated company while they avoid completing work, remedying defects or completing existing obligations.
Under HBA s 22(2A)(a), as inserted by BLAA sch 1(3), the Building Commission is conferred the power to cancel contractor licenses if the holder of the licence was a director of or a person who managed a body corporate at the time of or in the 6 months before:
- The body corporate became a Chapter 5 body corporate e.g. was wound up; or
- The body corporate or one its directors committed a Corporations Act 2001 (Cth) offence.
The Commission may also disqualify partners in a partnership from holding an authority (other than an owner-builder permit) if another partner in the partnership has become bankrupt, applied to take the benefit of a law for the relief of bankrupt or insolvent debtors, compounded with the partner’s creditors or made an assignment of the partner’s remuneration for the creditors’ benefit: HBA s 33A(1C), as inserted by BLAA sch 1(4)
Building Commission Inspection Powers
The BLAA provides the Building Commission with greater powers to prevent defects by allowing the conduct of investigations at any time: HBA s 49A(1), as inserted by BLAA sch 1(11). Previously, investigations were only allowed in relation to a building dispute: HBA s 48D(1). These additional powers aim to ensure that defects are more readily identified before occupiers move into the building.
If the Building Commission is satisfied that there are defects or damage, or there is the possibility of defects or damage, a rectification order can be made to ensure the work or defect is rectified: HBA s 49B(1), as inserted by BLAA sch 1(11). Failure to comply with rectification orders may result in fines under HBA s 49E or other disciplinary action under HBA ss 51 and 56: BLAA sch 1(11).
The Building Commission may also make stop work orders under HBA s 129(1), as inserted by BLAA sch 1(15). These orders can be made if the work is, or is likely to, result in significant harm or loss to the public or occupiers of the building, or significant damage to property. Like with rectification orders, failure to comply with a stop work order may result in fines under HBA s 129(9) or other disciplinary action under HBA s 56: BLAA sch 1(15).
These reforms, in amending the HBA, are applicable to class 1 buildings under the National Construction Code. These are similar to the existing powers in relation to class 2 buildings under the National Construction Code that exist in the Residential Apartment Buildings (Compliance and Enforcement Powers) Act 2020 (NSW) (RABA), such as the rectification orders powers in RABA s 33 and the stop work orders powers in RABA s 29.
Building Product Safety
The reforms also include widespread changes to building product safety law in NSW, and are enacted primarily through amendments to the Building Products (Safety) Act 2017 (NSW) (BPSA). These reforms did not come into force on 11 December 2023, unlike the other provisions of the BLAA, and are to come into force ‘on a day or days to be appointed by proclamation’: BLAA s 2. Currently, the reforms are scheduled to come into force in 2025.
Building Product Safety: Chain of Responsibility
The BLAA introduces duties for those in the prescribed ‘chain of responsibility’ in the supply of building materials. The reforms cover many individuals in the supply chain for building materials and aim to increase accountability for product safety at each stage.
Per BLAA sch 2.1(7), the future BPSA s 8B states that the ‘chain of responsibility’ includes:
- A person who designs or deals with the product and knows, or ought reasonably to know, the product will, or is likely to, be used in a building;
- A person who prepares a building design that incorporates or recommends the use of the product in the building e.g. building designers, engineers and architects;
- A person who uses the product in a building e.g. a person who installs, or coordinates or supervises the installation of, the product in a building during construction; and
- A person specified in the regulations.
Per BLAA sch 2.1(7), some of the duties owed include:
- A duty, under the future BPSA s 8E, to ensure that ‘non-compliance risks’, as defined in the future BPSA s 7A(4), do not exist, which is owed by those in the ‘chain of responsibility’; and
- A duty, under the future BPSA s 8F, to provide information regarding building products when:
- A person who designs a product gives the design to another to effect the design;
- A person who deals with a product sells, supplies or transfers the building product, or a person facilitates such sale, supply or transfer;
- A person who prepares a building design incorporating a product gives the design to another who is to give effect to the design; and
- A person who uses a building product in a building, in which case the person must ensure the owner of the building is given information regarding the product.
Additional duties which are owed as per BLAA sch 2.1(7) include:
- A duty, under the future BPSA s 8H, to report ‘non-compliance risks’ and ‘safety risks’ to the Building Commission owed by ‘a relevant person for a building product’, which includes those in the ‘chain of responsibility’ as well as any other person prescribed in the regulations; and
- A duty, under the future BPSA s 8I, to not supply or use a product subject to a building product recall, comply with any recall and to repair, modify, replace or refund the product, which is owed by those in the ‘chain of responsibility’.
The reforms also extend the definition of a ‘safety risk’ to include damage or defects which make the building uninhabitable or unusable for its intended purpose or result in the destruction of the building or a mere threat of the building collapsing: BLAA sch 2.1(3). Previously, ‘safety risks’ only arose when the damage or defects may result in death or serious injury to a person: BPSA s 4(1).
Duties are to be discharged as far as is reasonable and considering the ‘risk management factors’ in relation to the matter to which the duty relates per the future BPSA s 8D: BLAA sch 2.1(7). Failure to comply with each of the respective duties is designated an offence.
Building Product Safety: Additional Powers of the Building Commission
The Building Commission is also granted greater powers under the reforms. The Commission can issue ‘building product safety notices’ under the future BPSA pt 3: BLAA sch 2.1(7). ‘Building product safety notices’ include building product warnings, building product supply bans, building product use bans and building product recalls. Contravention of any of these notices is an offence.
Where there has been unlawful conduct relating to the use or supply of building products on more than one occasion, the Commission has additional powers to issue show cause notices under the future BPSA s 41B, requesting the person to show cause why the person should not be prevented from supplying building products: BLAA sch 2.1(19). After providing a show cause notice and considering the submissions made, the Commission may to apply to the Supreme Court for a trading prohibition order under the future BPSA s 41C: BLAA sch 2.1(19). These orders prohibit a person from supplying building products if they are likely to engage again, or to continue to engage, in unlawful conduct in the use or supply of a building product: BLAA sch 2.1(19). These orders have effect either for a specified period or indefinitely, and may involve compensation for loss or damage caused as per the future BPSA s 41C(4)-(5): BLAA sch 2.1(19).
In addition, the reforms stipulate that the Commission must be informed of any voluntary recall conducted by any person under the future BPSA pt 2A div 3: BLAA sch 2.1(7).
Building Product Safety: Additional Powers of Authorised Officers
An authorised officer, appointed under BPSA s 74, is given greater powers under the reforms with respect to the use of building products. The authorised officer can give ‘building product directions’ under the future BPSA s 46B to prevent the use of a building product in a way that poses a ‘safety risk’, to eliminate or minimise a ‘safety risk’, to prevent, eliminate or minimise a ‘non-compliance risk’ or to administer or execute the BPSA or an instrument made under the BPSA: BLAA sch 2.1(22). Such direction could include requiring the person to stop using or supplying the product, to stop using a product in a specific way or to make the product incapable of being used or operated. Failure to comply with a ‘building product direction’ is an offence per the future BPSA s 46D: BLAA sch 2.1(22). However, these directions cannot be given in relation to a building product that has been used in a building that is occupied or fit for occupation per the future BPSA s 46C: BLAA sch 2.1(22).
The powers of an authorised officer under BPSA s 50 to apply for a search warrant will also be extended to allow the issue of search warrants where there is a ‘safety risk’ in relation to building products: BLAA sch 2.1(25)
Under the future BPSA s 53B, an authorised officer may also seize a building product if they believe on reasonable grounds that a ‘non-compliance risk’ exists, a ‘safety risk’ exists, the seizure is necessary to determine whether the ‘non-compliance risk’ or ‘safety risk’ exists, or an offence against the BPSA or regulations under the BPSA has been committed in relation to the product: BLAA sch 2.1(26). Unless there are grounds for not returning the seized product, as listed in the future BPSA s 53D, the seized product must be returned per the future BPSA s 53E: BLAA sch 2.1(26).
After seizure by an authorised officer, the Building Commission can make a forfeiture order to declare the product forfeited to the Commission under the future BPSA s 53G, which prevents the return of the product: BLAA sch 2.1(26). The Commission must give at least 21 days’ notice of their intention to make such an order per the future BPSA s 53H, which allows the owner to apply for an order under the future BPSA s 53F from either the Local Court or the Supreme Court (depending on the value of the seized product) directing that the product be released to the owner: BLAA sch 2.1(26).
Building Product Safety: Liability of Directors and Managers
BPSA s 59 liability for directors and others who are involved in the management of a corporation in a position to influence the conduct of the corporation has been extended by BLAA sch 2.1(27). This liability applies to offences prescribed in the BPSA as ‘executive liability offences’: BPSA s 59(1)(a). Several new offences under the BLAA in relation to building product safety are prescribed by the BLAA as ‘executive liability offences’ for which directors and managers may also be held liable.
Building Product Safety: Disciplinary Action
In addition to the aforementioned penalties, disciplinary action can be taken against individuals who have used or supplied building products in contravention of a building product use ban, a building product supply ban, or a building project recall under the BSPA. Action can be taken against:
- Practitioners within the meaning of the Design Building Practitioners Act 2020 (NSW) (DBPA) under the future DBPA s 64(g1): BLAA sch 2.2;
- Holders of a contractor licence under the future HBA s 56(p): BLAA sch 2.3(1); and
- Holders of a supervisor or tradesperson certificate under the future HBA s 57(h): BLAA sch 2.3(2).
Decennial Liability Insurance
The BLAA introduces decennial liability insurance (DLI) as an alternative to the current Strata Building Bond and Inspection Scheme (SBBIS) in the Strata Schemes Management Act 2015 (NSW) (SSMA) for Class 2 buildings under the National Construction Code. The NSW Government has signalled that it intends for DLI to be phased in over the next 5 years (during which developers may choose between the SBBIS or DLI) with a view to completely replacing the SBBIS with DLI after 5 years.
The SBBIS requires developers to pay a bond, which is a percentage of the contract price, to cover the cost of defects identified during SBBIS inspections: SSMA s 207(2). During the transition period, developers can still opt for the SBBIS rather than obtain DLI but the BLAA has increased the percentage of the contract price for a bond from 2% to the ‘prescribed percentage’ of the contract price: SSMA ss 207(2) and (4), as amended by BLAA sch 3.1(1). The ‘prescribed percentage’ is 2% for a bond given before 1 February 2024 or 3% for a bond given after 1 February 2024: Strata Schemes Management Regulation 2016 (NSW) (SSMR) reg 54, as inserted by BLAA sch 3.2(1).
Instead of the SSBIS, developers can obtain DLI, which is insurance taken out by the developer of a strata scheme in favour of the owners corporation to insure against ‘serious defects’ in the ‘building elements’ of the common property for 10 years on a strict liability basis: SSMA s 211AA(1), as inserted by BLAA sch 3.1(4). DLI must not permit cancellation and must be issued before an application is made for an occupation certificate under the Environmental Planning and Assessment Act 1979 (NSW) (EPAA): SSMR reg 55A, as inserted by BLAA sch 3.2(2). When developers have obtained DLI, they will be exempt from the SBBIS: SSMA s 211AB, as inserted by BLAA s 3.1(4).
The advantage for owners of DLI as opposed to the SBBIS is that DLI covers the cost of rectification even if the developer or builder becomes insolvent, as opposed to the SBBIS which only covers the cost of rectification up to the value of the bond.
Before an application is made for a construction certificate under the EPAA, the developer must now inform the Building Commission as to whether the developer intends to obtain DLI for the work and, if so, providing the certificate of currency for the DLI: SSMR reg 55B, as inserted by BLAA s 3.2(2).
In addition, a developer cannot apply for an occupation certificate under the EPAA unless the certificate of currency for the DLI is provided to the Building Commission: SSMR reg 55C, as inserted by BLAA s 3.3(2). Failure to comply may lead to the issue of a prohibition order: Residential Apartment Buildings (Compliance and Enforcement Powers) Regulation 2020 (NSW) reg 51A, as inserted by BLAA sch 3.3. This order prohibits the issue of an occupation certificate: RABA s 9.
Conclusion
A full copy of the BLAA can be found here.
If you require any advice on the reforms in the BLAA, including if you have a potential claim or have a claim made against you pursuant to the reforms, please do not hesitate to contact us at admin@valorumlaw.com.au or voregan@valorumlaw.com.au. Our expert construction lawyers will be on hand to assist you.
The information contained in this article is general information only and not legal advice. The currency, accuracy and completeness of this article (and its contents) should be checked by obtaining independent legal advice before you take any action or otherwise rely upon its contents in any way.
Contributors: Harry Chen
