NSW: Do AGM defect warranty agenda items apply to remedial works or only to original construction?

Question: The Act requires AGM agendas to include an item considering building defects and warranty periods. Does this only apply to original construction defects, or does it also cover subsequent major remedial works?

I own a lot in a strata scheme that carried out major remedial works later in the building’s life. I want to understand whether Schedule 1, clause 6(d) of the Strata Schemes Management Act 2015, which requires certain items to be considered at an AGM, applies only to original construction defects or whether it also covers defects arising from remedial works carried out after the building was completed. Does the answer change if a Home Building Compensation Fund policy was taken out when the remedial works commenced, providing statutory warranty coverage for those works?

Answer: Clause 6(d) is not confined to original construction defects. It applies to any later work that attracts statutory warranties under the Home Building Act.

Schedule 1, clause 6(d) of the Strata Schemes Management Act 2015 (NSW) (the Act) is not, on its text, confined to original construction defects. It requires each AGM agenda to include, until the end of the warranty periods for applicable statutory warranties under the Home Building Act 1989 (NSW) for buildings of the strata scheme, an item to consider “building defects and rectification”.

Original building defects are the most common and obvious application of the clause, particularly during the initial post-registration period for a new strata scheme. However, the statutory language is broader: it is directed to applicable statutory warranties under the Home Building Act, not merely warranties arising from the original construction contract.

Schedule 1, clause 6 provides that the agenda for each AGM must include certain mandatory items. Relevantly, clause 6(d) requires:

“until the end of warranty periods for applicable statutory warranties under the Home Building Act 1989 for buildings of the strata scheme, an item to consider building defects and rectification”.

The operative concepts are:

1. “applicable statutory warranties”;
2. “under the Home Building Act 1989“;
3. “for buildings of the strata scheme”; and
4. “building defects and rectification”.

None of those words expressly confines the obligation to defects arising from the original construction of the strata building.

The Home Building Act 1989 statutory warranty regime applies to “residential building work” within the meaning of that Act. That can include original construction, but may also extend to later residential building work, such as alterations, additions, renovations, repairs, remedial works, or other building work, provided the work falls within the statutory warranty regime.

Accordingly, where later work on a strata building gives rise to statutory warranties under the Home Building Act, clause 6(d) is capable of applying to that work. Examples may include:

• original construction of the strata building by the developer/builder;
• major remedial works to common property;
• façade, waterproofing, roofing or structural rectification works;
• later additions or substantial alterations to the building;
• other residential building work undertaken for the owners corporation or otherwise affecting common property, if covered by the Home Building Act warranties.

The better construction is that clause 6(d) is concerned with ensuring that the owners corporation turns its mind, at each AGM, to any current statutory warranty rights relating to building defects and rectification before those rights expire. That purpose is consistent with commentary noting that the item intends to ensure defects within warranty periods are considered and limitation periods are addressed.

For a new strata scheme, clause 6(d) will usually require an AGM agenda item addressing original construction defects until the relevant Home Building Act statutory warranty periods have expired.

For an established scheme, clause 6(d) may still be relevant if there has been subsequent residential building work on the building that attracts statutory warranties. In that case, the AGM agenda should include an item to consider defects and rectification in relation to that later work until the applicable warranty periods expire.

Clause 6(d) does not require every maintenance issue or physical defect in the building to be treated as a Home Building Act warranty issue. Its mandatory operation is tied to applicable statutory warranties. Therefore:

• if the defect does not arise from residential building work covered by the Home Building Act, clause 6(d) may not be engaged;
• if the relevant statutory warranty periods have expired, clause 6(d) no longer mandates that particular AGM item, although the owners corporation may still include defect or maintenance items on the agenda;
• ordinary repair and maintenance obligations may still arise under other provisions of the Strata Schemes Management Act, including the owners corporation’s duty to maintain and repair common property, independently of clause 6(d).

This post appears in Strata News #799.

Pierrette Khoury
Khoury Lawyers
E: pierrette@khourylawyers.com.au
P: 0415 459 486