What is the RAB Act about?

The RAB Act is designed to better regulate the construction of residential apartment buildings through proactive investigation and rectification of serious defects before occupation. It is intended that increased regulation and intervention before an occupation certificate is granted will limit the number of defective apartments being sold to purchasers.

The initiative is one of the six reform pillars from the NSW Government to improve the industry and industry standards, protect customers, and elevate NSW to become “a leader in modern construction methods”.[1] Accordingly, the RAB Act imposes notification requirements on developers, and grants the Department of Customer Service extensive powers to investigate and intervene in the construction of residential apartment buildings, stop work, and order the rectification of serious defects. Non-compliance with such orders or directions carries severe penalties and, for offending body corporates, personal liability for managers and directors.

Highlights

• The RAB Act adopts a wide definition of ‘developer’ to include any person who contracts for, arranges, facilitates or causes any building work to be carried out, as well as owners, principal contractors and strata scheme developers.
• A new notification scheme requires a developer to notify the Secretary of the NSW Department of Customer Service with an expected completion notice at least six months prior to the date it intends to apply for an occupation certificate. This is to allow the Secretary time to inspect the building for ‘serious defects’, which may include breaches of the Building Code of Australia, Australian Standards or the approved plans, and defects in building elements that may cause the destruction or collapse of, or inability to inhabit, the building.
• Officers are granted extensive investigative powers to ensure compliance with the RAB Act, including obtaining records, asking questions, entering premises and giving orders.

The Secretary is granted extensive enforcement powers, including to issue:

• a “prohibition order”, prohibiting the issue of an occupation certificate
• a “stop work order”, preventing further building work if that work may result in harm or loss
• a “building work rectification order”, that requires the developer to eliminate, minimise or remediate a serious defect or potential serious defect, and
• a “compliance cost notice”, requiring a developer to pay costs incurred by the Secretary in monitoring and ensuring compliance with a building work rectification order, any investigation that leads to a building work rectification order being issued, and the preparation of the order.

Important considerations for developers

Developers should be aware of the novel responsibilities assigned to them under the RAB Act. In particular, because the RAB Act assigns risk to developers (despite works being performed day-to-day by building contractors) they should carefully consider their contracts to adequately pass on risk if possible. For example, developers should consider indemnities in relation to costs incurred (both rectification costs and penalties) as a result of poor quality work by builders. Developers should also ensure that if builders are responsible for ensuring an occupation certificate is issued, the contract includes timely notification obligations which align with the requirements of the RAB Act.

Developers should also be aware that investigations pursuant to the RAB Act may create delay, and potentially have significant impact on dates of completion. This delay should be accounted for, and any risk appropriately allocated.

Importantly, investigation and enforcement powers granted by the RAB Act can be exercised up to ten years after an occupation certificate is issued. A developer should be aware of potential exposure and rectification obligations, which may remain even after the developer’s contractual rights against the builder have expired.

A year in operation

After a year in operation, it is still too early to evaluate the success (or otherwise) of the RAB Act.

In a report released by Construct NSW [2] in September 2021, NSW Fair Trading has conducted around 80 audits of new residential apartment buildings pursuant to the RAB Act. When those audits were compared to survey data of approximately 1,400 strata managers of buildings completed in the last six years, preliminary data showed that waterproofing-related defects were 29% lower in the audits than the survey data – a possible indicator that the RAB Act and other industry changes may be contributing to improved performance in at least one key area of concern.

NSW Fair Trading has also issued some high profile building work rectification orders, including two orders relating to the infamous Opal Tower building at Sydney Olympic Park, issued to each of Australia Avenue Developments Pty Limited and Icon Co (NSW) Pty Ltd. Those orders allege defects in the extruded aluminium sunshade profiles and fire safety systems. Similarly, “serious defects” were alleged in a new 15-storey apartment development Baulkham Hills, with a building work rectification order issued with respect to an awning in danger of collapse, and waterproofing issues in ensuites and laundries.

The RAB Act is yet to be tested in the Courts in any meaningful way, but two published cases [3] show that NSW Fair Trading is making use of its new powers. It is likely that in the coming months the Courts will increasingly see more activity relating to the application of the RAB Act.

Further information / assistance regarding the issues raised in this article is available from the authors, Sarah Hammond – Senior Associate, Harrison Thomas – Paralegal  or your usual contact at Moray & Agnew.

[1] Kevin Anderson, Minister for Better Regulation and Innovation, Media Release, 21 January 2020.

[2] Construct NSW, Research Report on serious defects in recently completed strata buildings across New South Wales, September 2021: https://www.nsw.gov.au/sites/default/files/2021-10/Serious_defects_in_residential_apartments_research_report.pdf

[3] Australia YMCI Ltd v Secretary of the Department of Customer Service [2021] NSWSC 1114; Eunomia Developments Pty Ltd v Secretary of the Department of Customer Service [2021] NSWLEC 1279.