The New South Wales government is considering implementing a decennial (10 year) liability insurance scheme for new residential strata developments, marking a significant shift in the way building defects are managed and rectified. This proposal aims to provide better protection for apartment owners against construction defects, ensuring long-term quality and safety in residential buildings. Currently developers are required to lodge a bond in the sum of 2% of the contract (build) price and it only covers defects discovered in the first 18 months.
Decennial liability insurance is a form of insurance that covers structural defects in buildings for ten years from completion of construction. Common in several European countries, this insurance policy requires the builder or developer to rectify any structural issues that arise within a decade, offering substantial peace of mind to apartment owners.
In NSW we have seen high-rise apartments facing numerous issues with construction quality. High-profile cases of structural defects in recent years have highlighted the vulnerabilities in the current system.
The NSW government’s proposal for decennial liability insurance aims to address these challenges by mandating builders and developers to take out a ten-year insurance policy against structural defects. Key aspects of the proposed reform include:
Mandatory Coverage: All new residential strata developments would be required to have decennial liability insurance.
Scope of Coverage: The insurance would cover major structural defects that compromise the stability and safety of the building, including foundational issues, severe water ingress, and significant cracks.
Accountability: Builders and developers would be held accountable for the quality of their work, promoting higher construction standards and reducing the incidence of defects.
First Resort: the policy would be a strict liability policy and could be claimed on without need to establish fault.
Consumer Protection: Homeowners would benefit from a straightforward claims process, reducing the need for litigation and ensuring timely rectification of defects.
If this is to proceed, there will of course be challenges, including cost implications (higher property prices if passed on to purchasers), regularity issues, compliance issues and the question of whether the insurance market is prepared to underwrite such policies.
The proposed decennial liability insurance for strata properties in NSW represents a proactive step towards enhancing consumer protection and improving construction quality.
For more information, please contact Jenkins Legal & Advisory on (02) 4929 2000 or email office@jenkinslegal.com.au.
This article is not legal advice and the views and comments are of a general nature only. This article is not to be relied upon in substitution for detailed legal advice.
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