Leon Ng

Leon Ng

Director and OC Manager at Melbourne Owners Corporation Management

Builders and developers going bust

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More builders and developers will choose to “go bust” instead of being held accountable to Owners Corporations for dodgy building defects

An Owners Corporation recently found out the hard way, when the builder it had taken to VCAT for building defects slipped into voluntary liquidation shortly before the Hearing commenced, leaving the Owners Corporation out of pocket and unable to chase any other wrongdoers in the matter.

In my view, this is a cautionary tale for consumers and investors of apartment buildings and the lessons ought to be heeded by other Owners Corporation otherwise the same thing could happen to them.

A company constructed a three-storey residential apartment building in 2011 at Caroline Springs. Soon after the occupancy of the brand-new building, complaints about defects including water leaks, blocked pipes and flammable cladding emerged. It took the Owners Corporation three years to bring proceedings against the builder for damages in respect to the defects and a further three years before the claim was finally set to be determined at a hearing in VCAT in late 2018.

The architect and building surveyor had also been joined to the claim but had ultimately acted to settle their share of the liability before the Hearing outside of the proceedings.  

The OC was left with approximately $2million in out of pocket costs, and the building company tipped itself into voluntary liquidation shortly before the commencement of the VCAT hearing. This meant that VCAT was left with no option but to strike out the Owners Corporation’s claim, leaving the OC with no way of recovering the outstanding costs from the builder.

Three key lessons can be taken away from this experience. OCs and owners that find themselves in a building defects dispute with a builder should:

  1. Act quickly to bring a claim against the liable parties. One of the problems in the case above, was simply the amount of time that it took for the OC to commence proceedings.
  2. Retain good building experts and engineers to provide the OC with accurate and timely reports that can be used as evidence in legal proceedings.
  3. Be open and flexible in negotiations and settlements because of the unavoidable danger of the respondents going into liquidation.

This is not the only recent example that OCs have to learn from. Hickory (a large construction company) placed its subsidiary H Buildings Pty Limited into voluntary administration in late 2018, around the same time as 13 claims for the rectification of cladding and building defects were being made against it by various Owners Corporations in VCAT. It should be noted that Hickory say that its subsidiary was liquidated due to unrelated mounting legal costs in an unrelated case in Western Australia.

In the meantime, if a defect arises in your building be sure to use the small window of opportunity to bring a claim, do your due diligence on the ability of the builder and other concurrent wrongdoers to meet the costs of the claim, and remain open minded and practical when conducting negotiations and settlements.

Source: Tom Bacon – https://www.stratatitlelawyers.com.au/

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