The ACT government introduces significant reforms directed at improving outcomes for consumers purchasing new homes in the ACT.
Today, the ACT Government introduced the Property Developers Bill 2003 into Parliament. The Bill will implement the Territory’s 2019 policy to licence property developers involved in the construction of residential buildings, making it the first jurisdiction in Australia to do so. In addition, the Bill creates a suite of accountability measures which are intended to improve the quality of newly constructed homes in the ACT and in doing so, protect the public.
The policy rationale for the Bill is that developers of apartment buildings and dwellings have a significant influence over the quality of the end product and therefore should be accountable for the delivery of safe, compliant buildings. The developer chooses who to engage to design and construct buildings. They can choose reputable, experienced designers, builders, certifiers and suppliers. They can invest in quality assurance practices, independent inspections and third party reviews to ensure the end product not only looks good but also complies with all the requirements in the National Construction Code. Whilst developers are key decision makers in the delivery of new housing, until now in the ACT they have had no accountability for their decisions under the regulatory regime. These reforms will place the responsibility for compliant, safe apartments and homes squarely at the feet of developers.
Critics of the Bill argue the changes will increase the cost of new housing. This is not correct. Upfront costs may increase because non-compliance often arises due to cost cutting practices . However, by minimising defects during construction the real cost of new homes to consumers is reduced. The cost to rectify defects post construction is much higher than getting it right during the building process. The cost to owners to litigate over defects can de debilitating, not just because of legal expenses but because court and tribunal process are notoriously costly to the wellbeing of those involved. The reforms will reduce the prevalence of defects in new residential buildings resulting in a net reduction in the real cost of new homes. For those developers and builders already producing compliant, safe homes, there will be minimal additional costs to pay for a new licence. However, those trustworthy developers will benefit as they will no longer have to compete against the poor performers resulting in an increase in consumer confidence and an overall benefit to industry.
Critics also argue the reforms are flawed. They say the Bill places responsibility unfairly on developers and builders when the fault may lie with designers, subcontractors or others. This is not the case. The Bill does not affect civil rights as between the various parties involved in the design and construction process. Instead it gives the Territory the ability to insist that the developer and builder rectify serious defects promptly. If they then want to seek compensation from others who they argue are at fault they can exercise their contractual rights separately. The Territory and owners need not be drawn into these arguments about who is at fault, they just need defects fixed promptly.
One of the more controversial provisions proposed in the Bill will be the ability of the registrar to issue rectification orders on directors personally where the developer or builder becomes insolvent or is wound up. This will incentive directors not to wind up companies to avoid liability. A relevant consideration in issuing an order on a director will be whether the project has decennial liability insurance. This will incentive the uptake of this insurance. Whilst it may be argued that director liability is a step too far, it is consistent with current laws in the ACT which enable the director of a licensed building company to be issued with rectification orders. In many respects these reforms take existing obligations on licensed builders and extend those to the developer as well. This is intended to encourage developers to work with builders to ensure their practices are directed towards compliant outcomes at every step of the process for the benefit of end users.
This package of reforms comes ahead of the next wave of housing construction that will be fuelled by significant federal and territory government funding to address housing supply issues.
It is evident that the approach of the NSW government to developer accountability has influenced the content of the ACT Bill, although developer licensing is a national first and the ACT government has not followed the NSW government’s decision to introduce a bond scheme or a statutory duty of care. The NSW government-promoted developer rating scheme and latent defects insurance products (both offered by the private sector on a voluntary basis) have been endorsed through these ACT reforms. It is proposed that there be an ability to require ratings reports as part of the licensing assessment process and the uptake of latent defects insurances is also encouraged through the power to issue rectification orders to directors personally where this insurance is not in place. The new enforcement powers in the Bill are very similar to those in the NSW Residential Apartment Buildings (Complaince and Enforcement Powers) Act 2020,suggesting that the ACT has plans to follow the work of the NSW building Commission to proactively inspect buildings to identify and require rectification of serious defects ahead of buildings being issued with a certificates of occupancy.
These reforms are impressive and if passed will see the ACT as having a nation leading model for residential developer accountability. Other governments should consider the ACT Bill as part of their policy development with a view to having harmonised laws in this area. In particular, the Queensland Developer Review panel has recommended to the Queensland government that it also introduce an accreditation scheme for developers. Also, just this week, Victoria’s Building System Review Panel made recommendations to the Victoria government that it take steps towards the registration of developers and other accountability measures.
If other jurisdictions do not act to follow the lead of NSW and now the ACT, they may find themselves to be the next haven for untrustworthy developers who have been run out of town by the NSW and ACT governments. These two governments are showing a determination to improve outcomes for consumers and industry.
A summary of the key features of the Property Developers Bill 2023 follows:
New licensing provisions
1. The Bill requires property developers to be licensed in relation to residential building work if they are entering into contracts for off-the-plan sales, applying for a development approval or a building approval. It will also be a condition of a development approval or building approval that the work the subject of the approval must be carried out or arranged by a licensed property developer.
2. The definition of a property developer is very broad and includes any entity constructing or arranging for the carrying out of residential building work. Exemptions can be provided for in regulations.
3. The registrar will be able to require that persons (including corporate entities) seeking a property developer license provide a ratings assessment by an approved, regulated ratings agency;
4. The process for issuing licences will also enable the registrar to assess the credibility of related entities and key persons involved in the development entity which includes parent companies, subsidiaries, officers and any persons having influence over decisions of the development entity;
5. Property developers will have to abide by a code of conduct and may be required to undertake continuing professional development or hold prescribed competencies;
6. Once licensed, property developers will be required to notify the registrar when related entities or key persons change and when they are commencing any new development activity;
7. Licenses can be issued for up to 7 years;
8. There may be more than one entity involved in any given development that is required to hold a property developer’s licence;
9. The registrar will have broad powers to impose conditions on licensees restricting the type of development work a licensee may undertake or requiring them to have design documentation independently reviewed or increase inspections during construction;
10. There are a broad range of triggers for taking disciplinary action against licensed property developers which may result in fines, compensation orders, suspension or cancellation of licence. There are also powers for automatic suspension where the licensee does not pay annual fees or goes into external administration; and
11. The Registrar must publish an information register with details about licensees and any regulatory actions taken against them.
New enforcement powers
12. Part 6 of the Bill creates enforcement powers including the ability to issue stop work and rectification orders to property developers, which are defined in this part to include the owner of the land and the principal builder.
13. Orders will be able to be issued where there are ‘serious defects’ and the registrar will also be able to accept undertakings.
14. Notably, the Bill states that directors of corporate entities which are property developers will be able to be issued with orders personally if the corporate entity goes into external administration or is wound up. In deciding whether to issue a rectification order to a director, the registrar can have regard to whether the development has latent defects insurance in place which will operate in relation to the serious defects that have been identified.
15. There are powers to enter building sites to inspect without the need for consent and to require information. The new enforcement powers apply to buildings under construction or existing buildings for 10 years post completion.
Enhanced litigation rights for owners
16. The Bill amends the Building Act to reverse the onus of proving defects onto the builder and property developer. In the first 2 years after completion of a residential building, an owner may give a notice to the builder and any property developer claiming the building work is defective and it will be presumed that it is defect unless the contrary is proven.
17. Also in consequential amendments to the Building Act, the Bill provides that the breaches of statutory warranties implied into contracts for residential building work may also be claimed against the property developer. This will bring the ACT into line with NSW, the only other jurisdiction in Australia where breach of statutory warranties can be claimed against both the builder and property developer.
Other notable changes
18. Other amendments to the Building Act introduce the requirement for a building manual to be approved by the appointed building certifier before a certificate of occupation can be sought from the Territory.
19. The Building Act will also be amended to give a power to make regulations to mandate a requirement for latent defects insurance for residential building work. This will allow the Territory to switch this on in the future when the latent defects insurance market has matured.
Scope and timing
20. Subject to any exemptions which may be provided for in regulations, the Bill applies to residential building work which is defined as class 1 and 2 buildings and mixed use buildings containing class 2.
21. The Bill has been introduced on the last sitting day for 2023. The Bill will be subject to the inquiry process which will allow for scrutiny and debate over several months in early 2024.
22. If the Bill is passed, the Minister may commence provisions at any time by written notice. In the absence of such notice the licensing requirements will commence 3 years and other provisions 2 years after the Bill is passed.
Published by Bronwyn Weir, Director, Weir Legal and Consulting on 30 Nov 2023
