Old claims and new building laws

1 June, 2016
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Keeping up to date with the law and understanding where claims arise is good risk management.

The LPLC sees claims every year where practitioners have failed to properly advise a client about building issues. Some claims arise at the beginning when advising a client entering into a building
contract while others relate to advising a client involved in a building dispute.

Knowledge of the law

Sometimes mistakes occur where the practitioner was not aware of the relevant law and/or changes to the law.

In one claim the practitioner was not aware of s18 of the Domestic Building Contracts Act 1995 (Vic).

Section 18 provides that a building contract does not give rise to a caveatable interest by the builder. The practitioner had advised the client to settle a dispute with a builder who had lodged a caveat so that settlement of the sale of the property could proceed. Had the practitioner known about s18 the advice would probably have been different.

Clarify retainer

In another claim, advice was sought from a practitioner about a building contract for a commercial building. The cost of the building works was approximately $2 million. The client was known to the firm and the builder was known to the client.

During the course of construction the practitioner was engaged to advise on various contract management issues that arose because of substantial delays by the builder in completing the works. In an attempt to progress the works the client engaged another builder as a sub-contractor to assist the builder to complete the works. At about the same time the original builder went into liquidation.

It was at this point the practitioner made inquiries about the builder’s registration and insurance to discover that the builder was unregistered. In the practitioner’s view, it was the building surveyor’s role to check that the builder was registered and held the appropriate insurance.

The unhappy client then requested the practitioner hand over his file. It was unclear at this stage whether the client would bring a claim against the practitioner for failing to check whether the builder was registered.

Ultimately no claim was brought against the practitioner but it highlights how important it is to always inform the client of the need to check whether a builder is registered and holds appropriate insurance. It is also important to determine whether the practitioner or client will do the checking.

Owner builder

Claims also arise where owner-builder issues are not properly dealt with. Practitioners failed to:

• ask the client whether any works have been done in the previous seven years by the vendor as owner-builder
• bring a claim against the home warranty insurer prior to the expiration of the period of insurance
• advise the vendor of the need to comply with the owner-builder requirements.

For more information about owner-builder claims, refer to the LPLC practice risk guide, Claim free conveyancing.

Proposed changes to laws

In addition to knowing the current applicable laws, good risk management dictates that practitioners should also be aware of proposed changes.

Did you know that the Victorian government has introduced a Bill which contains wide sweeping changes to the Building Act 1993 (Vic) and the Domestic Building Contracts Act 1995?

The Building Legislation Amendment (Consumer Protection) Bill 2015 (Vic) received royal assent on 19 April 2016.

According to a media release by the Victorian Building Authority (VBA) on 11 December 2015, the VBA welcomes the reforms and believes they will “. . . strengthen the protections afforded to consumers and ensure the quality of buildings across Victoria”.

Important changes contained in the Bill include:

• establishment of a new dispute resolution service –see Part 2 Division 1 and Division 10
• abolition of the Building Practitioners Board – see ss17 and 18
• strengthening of builder registration requirements –see Part 3 Division 3
• a new measure ensuring owner-builders are appropriately qualified – see Part 3 Division 4
• a builder will no longer be entitled to appoint a building surveyor for the owner – see Part 3 Division 5.

The changes are expected to commence on 1 July 2017.

Tips

• Keep up to date with changes to the law in your area of practice, especially if you practise in the property and building area.
• Ensure your retainer agreement sets out the scope of your role and the matters to be attended to by the client.