Building defects – who can be held responsible?
10 Dec 2019
- Building & Construction
- Business Law
In late October 2019, the Building and Construction Legislation Amendment Bill 2019 (‘Amendment Bill’) was introduced into the ACT Legislative Assembly. ACT Minister for Building Quality Improvement, Gordon Ramsay, announced an intention to reform building legislation in the Territory in a bid to ‘crack down on dodgy builders’. In this article Gene Schirripa discusses the implications of this Bill.
The amending legislation proposes to amend the following:
- Building Act 2004
- Building and Construction Industry (Security of Payment) Act 2009
- Construction Occupations (Licensing) Act 2004
- Construction Occupations (Licensing) Regulation 2004.
Liability for defects
Under the proposed Amendment Bill, directors of companies would be made personally liable for building defects and could potentially incur financial penalties.
The Amendment Bill proposes to insert a new section 126B into the Construction Occupation (Licensing) Act 2004. The practical effect of that new section is as follows: if a company is convicted of an offence under the Act and a penalty is imposed on the company (and is unpaid), liability will then be passed to each individual who was a director of the company at the time when the offence was committed and the penalty was imposed.
Offences under the Act include:
- Pretending to be licensed or not carrying the proper licence
- Advertising without details
- Allowing unlicensed people to provide construction service
- General breach of a licence condition or building code.
Other changes affecting directors include:
- Insertion of section 58AA into the Construction Occupations (Licensing) Act 2004, enabling ACAT to make occupation discipline orders against director of company
- Amendment of section 35(3) of the Construction Occupations (Licensing) Act 2004, enabling the registrar to make rectification orders against directors.
Jim, Jane and Jill are the directors of JJJ Constructions. They employ a construction manager to manage the day-to-day affairs of the company. JJJ Constructions is building across three big sites around Canberra. The directors spend a lot of time overseas and interstate and leave the affairs of the company largely in the hands of the manager.
One day, the directors receive a notice that there are significant defects present on two of the sites that require major rectification works. It subsequently becomes known that the manager arranged for unlicensed builders to carry out works and this caused many of the issues.
Jim, Jane and Jill, despite not having stepped foot onto any of the sites recently, may be held personally liable for carrying out rectification works and for the payment of penalties imposed by the ACT Government.
What this means for builders
The Amendment Bill marks a serious crackdown on the part of the ACT Government to reform building legislation in the Territory and increases avenues for consumers to seek remedies against directors of building companies personally for defective works.
Directors of companies holding a building licence will need to ensure that their employees and subcontractors are diligent at all times, as any issues with the building process may have significant consequences for directors of the head contractor. Directors may no longer be protected by the ‘corporate veil’ and company structure. If the amendments are passed, increased scope for personal liability will become a reality and directors of building companies must be on notice.