New South Wales contractors, designers and engineers are to be subject to a new regulatory framework and an extended duty of care to building owners with retrospective effect.
On 11 June 2020 the Design and Building Practitioners Act 2020 (NSW) (‘the Act’) commenced, with certain provisions commencing from this day, including the extended duty of care, and others to commence from 1 July 2021 or as proclaimed.
Unfortunately, the regulations for this Act have not yet been made and leave many sections without the detail and operative information needed to completely understand full potential implications of the Act.
Nonetheless, it is clear that this Act will have a widespread impact.
The following apply now:
- Extended duty of care: a retrospective duty to exercise reasonable care to avoid economic loss caused by defects in or related to a building for which the work is done. Potentially this gives apartment owners and their owners corporation a right to sue to recover rectification and temporary relocation costs arising from the discovery of a significant defect in their apartment building even where the building and the defects pre-date the Act; and
- Regulated designs: the introduction of “regulated designs” which includes a design that is prepared for a building element or performance solution for building work (including designs for fire safety systems, waterproofing, internal or external load-bearing components, building enclosures or mechanical, plumbing and electrical services (required for compliance with the Building Code of Australia (BCA)).
From 1 July 2021 the following apply:
- Registration: registration requirements for designers, engineers and builders;
- Design compliance declarations: requirements for design compliance declarations from registered designers for regulated designs, including whether or not their regulated design complies with the BCA;
- Building compliance declarations: requirements for building compliance declarations from builders, including:
- whether or not their building work complies with the BCA; and
- for a regulated design used for the building work, whether or not the design was prepared by a registered design practitioner and the building work was built in accordance with the design;
- Variations: requirements for builders to take all reasonable steps to:
- obtain, among other things, a varied design by a registered design practitioner and a design compliance declaration in respect of variations to building work (in relation to a building element or performance solution); or
- record variations to building work (other than in relation to a building element or performance solution) from a regulated design for the building work as set out by the regulations;
- Occupation certificates and other building certificates: the regulations are to prohibit the issue of such certificates unless compliance declarations and/or regulated designs have been provided to the issuer of the certificate;
- Stop work orders: the Act provides for stop work orders to be issued by the Secretary of the Department of Customer Service in certain circumstances, including where the work is, or is likely to be, carried out in contravention of the Act; and
- Indemnification and Insurance: registered practitioners must be adequately insured with respect to a declaration and work of the practitioner. The regulations may impose insurance requirements under the Act.
What does this mean for work done under existing contracts?
This is uncertain until the regulations are made. The Act, other than Part 4 regarding the extended duty of care, applies to the preparation of designs, building work or other work done in respect of a building under an existing contract if the first application for the issue of a complying development certificate or construction certificate (within the meaning of the Environmental Planning and Assessment Act 1979) for the building is made on or after a day prescribed by the regulations.
As the regulations have yet not been made, the reference date for the first application for the issue of a complying development certificate or construction certificate is unknown.
What is the extended statutory duty of care?
Each owner of land and each subsequent owner of land where construction work is carried out is now owed a duty of care by a person who carries out construction work to exercise reasonable care to avoid economic loss caused by defects arising from the construction work. However, the regulations may exclude persons from being owners, such as developers or large commercial entities as previously foreshadowed by the New South Wales Government.
Construction work to which this duty relates includes:
- building work (which includes residential building work);
- the preparation of regulated designs and other designs for building work;
- the manufacture or supply of a building product used for building work; and
- supervising, coordinating, project managing or otherwise having substantive control over the carrying out of any of the above work.
The person owed the duties of care is entitled to damages for a breach of a duty whether or not the relevant construction work was carried out under a contract with the person.
This duty of care applies to construction work carried out before the Act commenced. An owner may use this Act to claim for economic loss arising from the breach of the duty of care where the loss first becomes apparent within the 10 years immediately before the commencement or from commencement of the Act. This retrospective operation is subject to applicable limitation periods established under the Limitation Act 1969 (NSW) and section 6.20 of the Environmental Planning and Assessment Act 1979 which may impose an earlier expiry on rights.
As foreshadowed in the second reading speeches, it is likely that the regulations will ensure that the Act “initially apply to class 2 buildings, which are those buildings that are multistorey and multi-unit residential buildings” including applying to “mixed-use buildings with a class 2 component, such as a shopping centre or office block that has residential apartments located above the block, so that every part of class 2 building is appropriately regulated”. “While the obligations under the bill will initially apply to class 2 buildings, additional classes of buildings, such as hospitals, schools and other multistorey buildings are intended to be included in the new scheme as part of the regulations over time.”
In some respects, this reform legislates out of the existing limitations of the common law position regarding whether a duty of care is owed to subsequent purchasers as established in Brookfield Multiplex Ltd v Owners Corporation Strata Plan 61288  HCA 36.
No contracting out
The Act prohibits contracting out of the new duty of care. It also purports to override any contracting out which occurred prior to the Act.
If you have any questions about how the Design and Building Practitioners Act 2020 (NSW) may affect your project or business, please contact a member of our national Construction and Infrastructure team.
Simon Ralton | Partner | +61 2 8248 3426 | [email protected]
Adam Wallwork | Partner | +61 2 8248 5825 | [email protected]
Luke Aiken | Partner | +61 2 9020 5706 | [email protected]