Buying an apartment of acceptable building quality is not as easy as many people think. Rather, the quality of the 5,000 apartment complexes Tyrrells have inspected depends upon:

• developer’s budget, management team and building experience
• contractor’s quality assurance process and management of subcontractors
• buyer’s commitment to making sure serious issues are promptly rectified.

Some developers/contractors do not understand how to attain reasonable quality in their buildings. Many are delivering buildings with problems which:

• take many years and hundreds of thousands of dollars of management and owner time to identify and resolve
• remain a concealed time bomb because quality assurance of key stages of the work was overlooked
• can never now be easily rectified.

After assessing many thousands of units Tyrrells offer the following warning to purchasers and their legal advisers:

• choose a developer and contractor with a reputation for high quality work – preferably who also has a formal quality process
• obtain and audit all Certification from the relevant consultants and contractors
• verify quality independently including assessment of key areas of Common Property
• do not settle unless all serious issues are fixed
• instruct new owners to work together within the first year of ownership to seek the necessary advice which will alert them to any new incomplete or defective items which the contractor should attend to
• negotiate hard to repair or incomplete and defective work firmly with the contractor
• avoid use of the Department of Fair Trading process wherever possible.

Adherence to the above may reduce the frustration of living with and trying to resolve these many problems which continue to be unacceptable to all parties.

From the 2 April 2002 the Department of Fair Trading has made a number of changes to the Home Building Warranty Insurance. We have prepared a summary of the changes in the following Table.

We also remind all practitioners that for the contract between a consumer and contractor to be enforceable,* the contract must:

• be in writing and describe the extent of the work;
• state contract price and completion date;
• include contractor’s current DFT licence number and be executed in name of the licensee;
• list all statutory warranties required by the Home Building Act.

Fortunately, with careful advice about risk management and quality assurance, your clients, both contractors and consumers, will rarely, if ever, need to rely on this type of insurance.

* The Director of the Department of Fair Trading can vary these rules upon application.

Hazards in buildings are a fact of life. They can be easily prevented if purchasers are properly advised about and owners identify these liabilities before an unnecessary accident occurs.

Twenty years ago when Tyrrells were developing the best way to inspect buildings, we believed defects which could injure or harm the occupants or their visitors were an important part of pre- purchase advice.

However, the Australian Standard on Property Inspections does not require building consultants to advise purchasers about hazards and unsafe parts of the buildings they are buying.

This is inconsistent with the Building Code of Australia which sets safety of occupants and users as a clear objective of proper building practice.

In any event, failure to advise an obvious hazard is unlikely to protect a building consultant of a recently inspected building from being joined in a liability claim if someone is seriously injured.

Of course, unreasonable claims about acceptable risks are unlikely to be successful and should be discouraged.

To reduce unnecessary risk, we suggest that purchasers are advised that:

• their building consultant should be requested to report hazards such as non complying balustrades and glass, missing smoke detectors, defective or missing pool fencing or gates, severely rotted deck/stairs/handrail timbers.
• during ownership, they or their managers should periodically assess:
  • their properties (or those they manage) for new hazards
  • common areas (strata or company title complexes)Careful building consultants who thoroughly inspect their clients’ properties will provide a surprising amount of useful information which will help make ownership safer and less trouble.

Tyrrells has assisted with over 5000 building disputes and claims against contractors, architects and consultants.

The lessons learnt from these matters are not surprising.

Win or lose, consumers

• are usually very unhappy with the process;
• say they will never be drawn into this type of process again.

Strangely, this information is rarely analysed to allow all the advisors to benefit from their mistakes and successes.

Consumers are becoming much harder to please.

We have identified a number of reasons that make clients happy with an outcome:

• the issues are quickly identified before everyone has been misadvised by their inexpert friends and relatives;
• legal and expert advisors objectively but politely exclude unreasonable complaints and attitude;
• in the most successful cases, the legal adviser works closely with one expert paid for by both parties;
• the legal advisors then facilitate rectification of any issues by the party responsible. Both parties pay for quality assurance because it is in everyone’s interest to get it fixed properly this time.

The financial and time savings are so significant that the commercial benefit to the community cannot be ignored. Besides, most parties say it was the extended stress on their families and businesses that was the hardest to bear.

Your customers are so much happier when they are listened to and given the solutions they need.

We have been watching the delivery of home building warranty insurance (HBWI) for consumers building or renovating their home for over 20 years. This insurance was provided by the Department of Fair Trading (DFT) until 1 May 1997 and by private insurers approved by the DFT after that date.

In almost every claim on this type of insurance both parties have expressed distress and dissatisfaction with the outcomes.

Criticism extends to every aspect of the process including:

• the claim process is unpublicised, unclear and can change without notice
• claims are slow (this is an understatement), expensive and very stressful to participants and family
• consumers have difficulty identifying the extent of the problems they need to claim on and the best way to fix them up to stop recurrence of the problems
• home building warranty insurance is no guarantee the work is of good quality – there may still be many areas of defective and incomplete work which will not be found until much later eg when reselling the property or when an unexpected failure occurs such as a termite infestation

It is better to prevent parties who are building or renovating from needing to make a home building warranty insurance claim. This is best achieved by:

• quality assurance of the documents and building work
• careful selection of contractor (and client if you are a contractor)
• early issue identification to avoid escalation of what usually starts out as only a minor problem
• solution driven negotiation by legal representatives
• careful management including quality assurance of the rectification
• appropriate financial pressure such as withholding payment until problems are properly resolved.

If the all too common problems are stopped, there is little or no risk of a claim. And if a claim is unlikely, why worry so much about taking out insurance which historically has never worked.

Increasingly, legal clients are telling us horror stories about the consequences of uninsured advice. Even experts make mistakes. Sometimes customers can be unreasonable about what they are expecting from their advisors.

However, the increase in liability claims against building, and particularly, timber pest consultants or organisations has highlighted how important the choice of your consultant is.

Even though indemnity insurance is important, clients often intensely dislike the time and cost of proving an expert has done something wrong. And what good is insurance to you if you end up losing a good client.

After reviewing thousands of complaints against experts, we are convinced that the most important components of advice are the:

• qualifications and experience of the expert
• research and development behind the systems used
• time spent detecting and identifying the problems
• accuracy and clarity of reporting
• complaint handling process especially how some experts will resolve matters without unnecessary involvement of their insurer
• level of indemnity insurance and specifically the way the insurers handles any complaint.

In the end it is often better to choose someone with a known reputation than to have to work with an unknown. However, if you are recommending building or timber pest experts we suggest that you:

• use consultants with a time tested track record
• ask for details of the organisation’s complaint handling procedure ie Do they have someone specifically responsible for after sales customer advice or complaints? How quickly does the insurer become involved?
• obtain copies of the certificate of currency for indemnity insurance with specific reference to public liability and extent of cover
• consider discussing how the insurer will handle a complaint if it occurs.

Property and timber pest reports may indicate that a property has been affected or damaged by timber pests. These reports will routinely advise further investigation of the damage.

However, this advice can:

• commonly appear unimportant and be obscured in the standard clauses
• rely on the building report to document the damage even if that report has been carried out before the timber pest report
• be further confused when the property and timber pest reports are not carried out by a building consultant with timber pest qualifications
• often be ignored by purchasers and their legal advisors.

Whilst timber pest damage may be minimal, in a significant minority of cases termite, rot and borer damage can be extensive.

Extensive timber pest damage clearly reduces the value of any building structure and can be difficult to control.

Legal advisers play a key role in protecting purchasers from these unexpected liabilities.

If timber pest damage is reported we recommend:

• the purchaser should be warned about possible concealed damage
• the vendor is invited to rectify the damage and control the infestation
• if this is not possible, the extent and cost of timber pest damage should be assessed by an appropriate person experienced with this type of work and the price negotiated to include repair and control
• all control and rectification should be reviewed by an independent consultant and structural repairs certified by a building consultant.

Our previous Cautionary Note 33 summarised the main changes in insurance for building consumers from the 1 May 1997.

Since then, we have been alerted to many problems facing these consumers and their advisers including:

• Building contractors may not necessarily be insured when they commence work.
• Council no longer requires proof of payment of the insurance premium prior to release of the approved plans.
• Work approved prior to 1 May 1997 may not be insured if the construction occurred after 1 May 1997.
• Building work may be uninsured if the DFT has already paid out to the limit of their specific policy.
• Owner builders do not require insurance. If they sell within 7 years they will require an independent verification of quality. This verification of quality may be misleading and not identify the many latent defects affecting the value of the property.
• There is no insurance for building work of value less than $5,000.

Having to claim on insurance can be time consuming, costly and frustrating. It is therefore important if your client is purchasing a recently built or renovating a property to:

• verify that any insurance relied upon can be substantiated and specifically applies to the building work;
• advise your client to independently verify quality of the work and ensure that defects identified are rectified and checked prior to settlement.

Solicitors are increasingly called to obtain expert reports in the many areas of negligence.

As building consultants, we find that some clients are disadvantaged because vital evidence has been destroyed, disturbed or not properly recorded.

Sometimes, matters can be reconstructed from the statements and remaining evidence. However, success and payouts are maximised when all possible evidence is used to illustrate and clarify your client’s case.

The protocol for successful collection of evidence is usually straightforward and the main steps are summarised in the following table.

We are aware of a number of cases or claims where the building or pest consultant were uninsured.

This has led to considerable complications and hardship for clients and loss of reputation for their legal advisers. In one case, the uninsured consultant threatened that in the event of successful legal action, they would wind up their business rather than make any payment to their client.

Whilst the cost and inconvenience of any complaint can be high, every consumer should have the protection of the implied “guarantee” provided by indemnity insurance.

Often what appears to be a mistake or omissions by a building consultant turns out to be a misunderstanding that needs careful handling as part of good after sales support by the building consultant.

We think that competence and an established track record are the best guarantee to your client. However, the safety net of a complaint handling process and satisfactory insurance is essential.

If you intend to engage or advise your client to engage a building and pest consultant, we recommend that you investigate the complaint record including:

• the number of legal matters where a substantial payment has been made to a client;
• whether the firm has a specific complaint handling procedure;
• whether the firm has substantial indemnity insurance including the extent of cover.