The recent announcement that the Victorian Building Authority (VBA) would be replaced by a new, ‘one stop shop’ regulator for the building industry caught the eye of most property and construction industry participants.

That announcement was coupled with a strong indication that further significant changes were in the air, building on the reforms recommended in each of the Stage 1 and Stage 2 Reports produced by the Victorian State Government’s Building Reform Expert Panel. The Stage 3 Report, being the last chapter in the work conducted by the Expert Panel, is yet to be released.

The Stage 1 and Stage 2 Reports contain recommendations for significant reforms that will directly impact developers, with key themes being:

• Accountability - developers will be held accountable for building compliance to a much greater degree than ever before on the basis that developers will be expected to use their commercial power to demand better quality building.

• Liability – developers will have legal obligations (and therefore liability) to purchasers, as well as subsequent owners, for building work compliance. Previously, in a residential context, those obligations and liabilities were held by building practitioners alone.

• Approval processes will change – there will be increased regulator oversight of building approvals and building permit processes, as well as inspections, particular for perceived ‘high risk’ projects, such as apartment buildings.

Each key theme is underpinned supported by evidence of non-complaint building work across Victoria and inadequate processes and systems for enabling consumers to seek recourse against those responsible for that work. The findings of the Lacrosse and Grenfell fire cases, as well as the insolvency of a number of large domestic builders, including Porter Davis, have further fuelled appetite for reform.

The biggest reforms for developers from the Stage 1 and 2 Reports

• Additional controls for multi-storey residential buildings – these controls include:
  • a bond scheme to procure rectification of defects post completion or settlement of each apartment. For example, developers may be required to provide a bond to a central government body for 5% of the building cost, held for a specified number of years (eg: 5 or 10) to secure rectification work;
  • additional staged inspections by the relevant building surveyor for stages such as pre-plastering, pre-waterproofing and pre-occupancy permit;
  • mandated appointment of an independent building inspector with obligations to routinely inspect the works and produce reports regarding compliance.
• A statutory duty of care owed by developers to purchasers and subsequent owners, along with the extension of warranties under the Domestic Building Contracts Act 1996 so that those warranties are also given by developers – if implemented, these reforms will, for the first time in Victoria, make developers squarely liable and accountable, along with others involved in the delivery of building projects and require developers to take strong, downstream control over building risk.
• Powers to compel developers to rectify defective building work post completion. Currently, there are no legislative powers to compel a developer to take action to rectify defects in work for which settlements have already occurred.

Whether the Stage 1 and 2 Reforms are implemented in their current form (or at all) remains unclear, although it appears clear that significant further reform in the sector is certain. Other States and Territories in Australia, namely NSW and the ACT, have already implemented a number of the above measures, so there is precedent for Governments to adopt those policies.

We’ll report further when more information becomes available about the future direction of the reforms and the release of the Stage 3 Report.