What are my legal rights for defects if my builder is in liquidation?

9 January 2023

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The recent downfall of a number of large building companies has left owners asking the question – who may I turn to for future defects if a new builder takes over and completes my build?

What are my rights against a builder?

In order to answer this question, the first step is to understand your general right to make a claim for building defects against a builder.

The right to make a claim against a builder that is most commonly relied on is found in section 5 of the Building Services (Complaint Resolution and Administration) Act 2011 (WA).

This allows a person to make a complaint to the Building Commission about a regulated building service “not being carried out in a proper and proficient manner or being faulty or unsatisfactory”.

Importantly, this section gives a right of complaint to people who do not have a contractual relationship with the builder, as well as those who do. This is important to owners of apartment buildings, who usually sign a contract with a developer, and not the builder (more on the claim against the developer below).

If a complaint is successful, the Building Commission or the State Administrative Tribunal would usually make an order requiring the builder to fix the defective work. If the builder does not then do the work ordered, or does not do it properly, the Building Commission or the State Administrative Tribunal may order the builder to pay the cost of a third party to fix the Building Defects.

Who is responsible for future defects if a new builder takes over a completes the build?

If your builder has entered into liquidation in the middle of the build, and you want to continue with the build, you will need to find a new builder to complete the build.

If a defect then arises in the future, it is important to know which builder will be responsible for those defects.

The State Administrative Tribunal recently answered this question in VC Build Pty Ltd and The Owners of 27 Pollard Street, Glendalough Strata Plan 69356 [2022] WASAT 35.

The builder who completed the building work will be responsible for all of the building defects, including defects that arise from work that was completed by the builder that had entered into liquidation.

What about claims against the developer?

If you have purchased an off the plan apartment building, it is likely that you signed a contract with a developer. The developer usually then signs a contract with a builder, which means that you do not have a contract directly with the builder.

The contract with the developer will commonly include a clause that the developer will use reasonable endeavours to ensure that the development was constructed by the builder in a good and workmanlike manner.

If this clause is in the contract you signed with the developer, you may have a claim against the developer for building defects. However, the claim will probably not be available to subsequent purchasers of an apartment.

If you are thinking about signing a contract with a developer, you should look out for this clause, and ensure that a clause along these lines is included in the contract with the developer.

How can I minimise my risk?

There is a risk that a new builder, or the developer, may also go bust by the time the defects arise, or will not have the money to pay to fix the defects. This may leave you without any claim for defects.

In order to limit this risk, you might consider whether to take out insurance to cover defects in the event that the new builder or the developer enter into liquidation or cannot complete the works.