When is a residential building defect a ‘major defect’?

The issue of building defects is a hot topic in the wake of evacuations from apartments in Sydney, NSW, including Mascot Towers in June and Opal Tower in December 2018. A 2012 study by the University of NSW City Futures Research Centre showed 72-85% of owners’ corporations had identified major defects in their buildings, with water leaks the source of the worst problems, followed by structural cracking and water penetration from outside.

The Home Building Act 1989 (NSW) (the Act) gives home owners the benefit of a number of statutory warranties for residential building work. These warranties apply regardless of the particular terms of the building contract.

If a builder breaches any statutory warranty, the home owner may commence proceedings against the builder in the NSW Civil & Administrative Tribunal (Tribunal). But time limits apply. Proceedings must be commenced within the statutory warranty period, or the Tribunal may not be able to hear the proceedings.

The length of the warranty period depends on the nature of the defect. For ‘major defects’, the warranty period is six years from completion of the work. For all other defects, the warranty period is two years from completion of the work. So it’s important to identify as soon as possible whether or not the defect is ‘major’.

What is a major defect?

A ‘major defect’ is defined in the Act to mean a defect in a ‘major element’ of the building. That defect must be likely to cause an inability to use the building for its intended purpose, or destruction or threat of collapse of all or part of the building. The defect can be the result of defective design, defective or faulty workmanship, defective materials or failure to comply with the National Construction Code.

A ‘major element’ of the building means load-bearing components such as foundations, footings, floors, walls and beams, as well as fire safety systems and waterproofing.

Guidance from the appeal panel

The Appeal Panel of the Tribunal has recently handed down two decisions which provide guidance in determining whether a defect is a ‘major defect’, allowing the longer six year warranty period.

In Vella v Mir [2019] NSWCATAP 28, the Appeal Panel explained that, in deciding whether the Tribunal can hear a breach of statutory warranty claim, the following sequence of analysis will be applied:

  1. Decide when the statutory warranty period starts;
  2. If a statutory warranty has previously been enforced, decide whether s18E(2) of the Act applies to allow a claim for breach of statutory warranty in respect of a different defect;
  3. Decide whether each of the alleged defects is in a major element of the building;
  4. Decide whether each of the alleged defects in a major element is a major defect; and
  5. Decide whether the proceedings have been commenced in time – referring to the statutory warranty period start and end dates, and the date proceedings commenced.

Importantly, the Appeal Panel said that in order for the Tribunal to accept that a defect is a ‘major defect’, the evidence needs to engage with the ‘major element’ and ‘major defect’ definitions in the Act, and must clearly set out the reasoning process to support a conclusion that the defects are major defects. To that end, expert evidence will be relevant to the Tribunal but not determinative.

In Ashton v Stevenson [2019] NSWCATAP 67, the Appeal Panel said that, for a defect to be ‘major’, the evidence must show that the defect has had, or will probably have, an actual impact or consequence on the integrity of the building or the ability to inhabit or use the building (or a part of the building) for its intended purpose.

Alternatively, the evidence must show that there is a real or imminent possibility of destruction to the building (or a part of the building) caused by the defect. The Appeal Panel stressed that mere inconvenience, or mere speculation of an impact on the use or habitability of a building will not be enough to prove that a defect is a ‘major defect’. Similarly, evidence of incidental damage or superficial deterioration to the building (such as celling water stains) will not be sufficient.

Notably, the Appeal Panel emphasised that whether a defect is a ‘major defect’ will not only be a matter for expert evidence. Instead, it will be a matter of fact that requires evidence from the home owner(s) or occupant(s) of the building, for example, as to the extent and frequency of water penetration and its actual impact on living in the building.

So what does this all mean?

In order to succeed in a claim that a defect constitutes a ‘major defect’ for the purposes of the Act, evidence in proceedings before the Tribunal must:

  1. Expressly engage with the Act’s definitions of ‘major element’ and ‘major defect’
  2. Show that the defect is in a ‘major element’ of the building
  3. Show that the defect:
    1. has had, or will have, an actual impact on the integrity of the building or the ability to inhabit or use the building (or part of the building) beyond mere inconvenience, and/or
    2. has caused, or will likely cause, destruction to the building (or part of the building) beyond just incidental damage or superficial deterioration, and
  4. Evidence will be from the home owner(s) or occupant(s) of the building, as opposed to solely expert evidence.