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In the context of strata, it goes without saying that a dispute regarding building defects can have major ramifications on all involved, hence the necessity to resolve matters promptly before they get out of control. Alternative Dispute Resolution or ADR as it is commonly referred to, is a growing means of resolving disputes. In this podcast, Sachs Gerace Partner, Anne Fernando discusses how ADR can assist Owners Corporations in such dispute matters.
Transcript:
Intro: Need help with a strata law issue or a building and construction matter? Sachs Gerace Lawyers is a leading Sydney law firm that can help. With over 20 years experience, Sachs Gerace Lawyers focus on commercial litigation, building and construction, strata law, and local government regulation issues. Now, here is your podcast.
Dan: In the context of strata, it goes without saying that a dispute regarding building defects can have major ramifications on all involved, hence the necessity to resolve matters promptly before they get out of control. Alternative dispute resolution, or ADR, as it is commonly referred to, is a growing means of resolving disputes. To learn more, I’m with Sachs Gerace Lawyers Partner, Anne Fernando. Anne, what can owners’ corporations do other than taking legal proceedings when building defects are discovered?
Anne: There are a few options, Dan. Now, I’m assuming here, of course, that there’s no urgency to commence legal proceedings such as the expiry of a limitation period, because that would mean that the owners’ corporation would have to commence legal proceedings to try to protect any legal rights it has against a builder and/or a developer. So assuming that there’s no such urgency, then the first step is that the Owners Corporation may want to get a quote for rectification of defects and consider whether it’s worthwhile to organise getting the defects fixed themselves. Now, they can compare this to a fee estimate from a solicitor, so they can try and figure out whether it would be worthwhile to run the legal proceedings or whether it would be worthwhile to just get the defects fixed. Now, with respect to strata schemes that have flammable clotting, the government has a programme in place called Project Remediate, where it offers 10-year interest-free loans to fund remediation work. Also, they provide quality assurance and project programme management services delivered by experienced professionals. So if the Owners Corporation decided to go with something like that, they’d still have to pay for the rectification of the cladding, but they’d receive an interest-free loan to assist them to do so, and they would have the expertise that Project Remediate would provide.
Now, if it’s not practical to fix the defects, for instance, it might just be too expensive, then the Owners Corporation should send the builder and the developer, if it’s relevant, a letter of demand asking them to provide a proposal as to how they intend to rectify the defects. Or otherwise, if the Owners Corporation has already got some expert reports, they can ask that the defects be fixed in accordance with those reports.
Dan: Are there any other options for the Owners Corporation to take in?
Anne: Well, But I can also consider having a settlement conference with the builder, and as I said, if it’s relevant, the developer. Now, in the past, I’ve organised settlement conferences prior to the expiry of the limitation period in which you can take legal proceedings, the building defects. Now, in a case where I acted for an owner’s Corporation, I met with representatives for the builder, the strata manager, members of the strata committee, and two experts, one for the builder and one for the owners’ corporation. The limitation period was due to expire in a few weeks from that meeting, so the aim was to resolve the dispute prior to the expiry of the limitation period. One of the critical issues with this kind of meeting with an impending expiry of a limitation date is getting the timing right. So at the meeting, it became apparent that it was necessary for the experts to carry out further investigations to determine the scope of work for rectification. Now, the experts had very limited availability, but luckily, there weren’t too many defects for them to inspect. So part of what I organised was a timetable for the experts to meet and provide us with an agreed upon scope of work for rectification of defects within the next week, which would then give us enough time to prepare a settlement date for the parties to execute prior to the expiry of the limitation period.
From the owners’ corporation’s perspective, it was critical to make sure that the deed covered the special requirements of the owners’ corporation, such as organising access, which can be difficult when you’ve got multiple units and some are tenanted, and also things like noise and cleaning up to make sure that the strata scheme is accessible and is not cluttered up by various debris. The deed also included causes for the work to have what are called hold points for expert inspections. Now, these are points where the builder would pause the work to enable an expert to come in and inspect the work to make sure it’s been carried out properly. Also, something else that was important was for there to be certification at the completion of the work to ensure that it’s been carried out in accordance with all legal requirements. Now, a clause like that is actually favourable to both the builder and the owners’ corporation. Because both parties then have certainty that the work has been properly carried out. Of course, in this particular case, we were able to organise for inspections to take place in a very limited time frame. That’s not always possible, though.
So another option if inspections can’t be carried out in time is to put the process for inspections and the preparation of the scope of work into the deed itself. So the deed could also provide for an independent third party to make a determination as to what the scope of work should be if the parties can’t agree. So it may be the case that you have the scope of works set out in an expert report already, but there’s no agreement between the owners’ corporation and the builder in relation to all the defects. In a case like that, the deed can split the defects by category with different actions to be taken in respect of each category. So for instance, if there’s defects where the builder agrees to rectify them, there’s defects where the builder agrees to rectify but doesn’t agree with the scope of work, that can be referred to an independent expert. If there’s defects which are not agreed to at all, that can also just be referred out to an independent expert to determine the question of whether a defect exists or not.
Dan: Practically speaking, is there anything that the owners’ corporation needs to keep in mind before they enter into one of these deeds?
Anne: Yeah. The owner’s corporation should make sure that there’s been a motion passed at a general meeting resolving to enter into a deed. Now, that’s not strictly required under the Strata Schemes Management Act, but it’s good practice to do it to prevent disputes later down the track within the owners’ corporation itself. So the most efficient way to do this is for the owners’ corporation to pass a motion delegating final decision making to the strata committee. So that motion would allow the strata committee to determine the terms of the deed, like the very specific detail. And that would be subject to legal advice, of course. And then once that motion has been approved by the owners’ corporation, then there’s no delay in execution of the deed once the agreement is reached with the builder and all the developers, the case may be. And that could really make the difference between whether or not it’s necessary to commence legal proceedings to preserve the owner’s corporation’s rights before the limitation period expires.
Dan: How can Sachs Gerace Lawyers help with these forms of alternate dispute resolution?
Anne: Firstly, the most important thing we can assist with is helping the owner’s corporation to determine what legal actions are available to them in respect of building defects to their property and, consequently, what limitation periods apply. So once that’s been determined. We can help by drafting letters of demand or otherwise organising a settlement conference, also drafting a settlement deed, as I spoke about before. And that can try and help to resolve the matter to avoid legal proceedings having to be commenced. Now, if legal proceedings must be commenced because the limitation period is about to expire, then we can also assist with settling those proceedings as quickly as possible to save unnecessary costs from being incurred. So for instance, a settlement conference can actually be held after commencing legal proceedings and also before the parties have incurred significant legal costs.
Dan: Anne thanks for joining me.
Anne: Thanks very much, Dan.
Outro: Thanks for listening. If you have any questions or need more information, simply call Sachs Gerace on 02-9331-5177.
