This article has been taken from he commissioner for the Body Corporate and Community Management Act and looks at spending limits in a body corporate – both committee spending limits and major spending limits.
Common property defect report
The new requirement
In March 2021, updated regulations came into effect for nearly all body corporate communities in Queensland, you can read more about this here. Among the changes is a new requirement for all bodies corporate to consider commissioning an independent building defect report at their second AGM.
The regulation is not retroactive, so buildings which have already held their second AGM do not need to comply with this requirement – more about that later.
Why was the rule implemented?
As the rate of body corporate dwelling construction increases, more Australians own and live in strata communities.
There can be a tendency in body corporate communities for signs of building defects (e.g. cracks) to go unnoticed, or unreported. That may be because owners expect that the body corporate committee members or the on-site manager (if one is engaged) will undertake these checks and will address any issues.
In reality, most building defect matters are self-reported by owners, and in many cases defects are only noticed and reported after the relevant warranty periods have expired. This late identification increases the chance that the body corporate and all lot owners must pay for the repairs.
The new regulation does not force the body corporate to carry out a defect inspection, but it does force the body corporate to consider a motion to do so. The aim of this requirement is to encourage owners to be more aware of the potential for building defects, and to be more proactive in identification and resolution if any defects are present.
The AGM motion
The new regulation is not prescriptive about how the body corporate should consider this motion, or what exactly the motion should say.
We have written a motion and explanatory note which:
- Conveys the reason for the motion to owners
- Enables owners to clearly vote on whether to commission this report
- Authorises the committee to get quotes and settle on the final scope and cost of the report, within the committee spending limit.
It is our prediction that most bodies corporate will approve this motion, as we think most owners will read the note and take a reasonable view that it is better to inspect and identify any issues early.
Scope of the inspection
The building defect inspection applies to common property only.
Individual lots are generally not inspected, and any defects within individual lots will generally not be identified in the report.
The scope, and cost of a building defect report can vary significantly between different providers.
Consider the following factors that may influence the cost and level of detail included in a report:
- Whether it is a visual inspection from the common property only
- Whether each lot needs to be accessed
- If the ceiling cavity of each lot is accessed
- Whether the roof and gutters are inspected (e.g. via drone)
- Whether the structural integrity of slabs is tested (e.g. via laser level)
- If fencing and landscaping features (e.g. retaining walls) are included
- If each lot needs to be accessed, is there a master key or do appointments need to be made with each resident
- What about specialist areas of construction which would require their own independent inspector:
- Fire detection and fighting systems
- Fire doors
- Plumbing systems
- Electrical systems
- HVAC/air conditioning systems
- If swimming pools are present and inspected
Setting the scope of the report is extremely important, and each report should be custom-tailored to your development.
Imagine a body corporate with 50 townhouses – it would be possible to spend between $1,500 to $50,000 on defect inspection reports, depending on the amount of detail and specialist contractors required.
It is up to the committee to determine how much inspecting should be done, and where the value for money exists in that range.
Our recommendation on the scope is that the committee should include as a minimum:
- Exterior visual inspection of common property buildings
- Visual inspection of common area roadways, paths, and carparking areas
If the committee is aware of a particular concern about the development (e.g. if there has been a previous roof leak), then it is advisable for the committee to add to the scope. For example, if there has been a roof leak on a relatively new building, consider adding a visual inspection of roofs and gutters.
What happens to the report?
The inspection will result in a written report with any findings. Generally if the inspector identifies any issues which are maintenance issues (and not defects), those will be reported also and clearly marked.
The body corporate has a strict legal obligation to maintain all common property in good condition. If the report identifies building defects in the common property, it is the body corporate committee’s obligation to consider:
- Referring to the builder if the issue is covered by a warranty
- Referring to a product supplier if the issue is with a product or material under warranty
- Engaging a contractor to repair the issue if it is not covered by a warranty
Addressing any defects is really a separate topic, and we have written a general advice guide to body corporate defects to assist our committees to navigate that process. The good news is that there are expert resources available to the committee to assist to manage the rectification of any defects which might be identified.
A building defect report is a body corporate record, so it will be available to potential buyers into your community to discover as they do their due diligence. It is therefore important to document the action taken to address any recommendations in the report, to demonstrate that your body corporate is actively addressing any building issues.
The inspection may also find defects or maintenance items which are the responsibility of lot owners, and not the body corporate. These will generally be marked in the report, and in that case the body corporate should provide that information to the relevant lot owner for their own action.
What are the potential pitfalls?
This inspection requirement is very new, so there is not a lot of information known about any pitfalls or drawbacks to this new requirement.
We at BCsystems anticipate that some of the following issues may arise:
- Owners may be less inclined to self-report any defects that they identify, instead assuming that the defect inspection will pick up all issues;
- It may be difficult to locate contractors to provide these report services due to increased demand, or prices may rise. BCsystems will assist with locating and negotiating with contractors on behalf of your committee to assist you.
These potential challenges can be addressed, and our strata managers will work with your committee to assist you with this unique and highly tailored process.
Can the committee authorise the inspection without the general meeting approval?
The new legal requirement forces a motion to be considered at the second AGM, which is a meeting of all owners.
The committee also has the power to commission this report directly, and to do so within the committee’s spending limit.
Some building defects are immediately apparent after construction, and the builder often returns in the first few months after handover to finish off a list of handover defects, which is normal. If the committee decides that is worthwhile to commission an expert to carry out a defect inspection earlier than the second AGM, that is something the committee can do directly, within its committee spending limit.
We anticipate that some buildings will vote “NO” to getting the report done at their AGM, and then the committee may identify a potential defect and then decide that a building defect inspection is needed. In that case, it is reasonable for the committee to independently arrange the report even if the owners did not request the report at the AGM.
What about older buildings
This change is not retrospective, which means if a building had held its second AGM before March 2021, it does not need to consider this motion at an AGM.
However, many buildings which are between 2 and 6 years old may still be within statutory warranty periods.
We recommend your committee consider commissioning a building defect inspection report at any time, whether or not you are captured by this new regulation. If your building is within the warranty period, then a defect report may allow your body corporate to have issues repaired without a cost to the body corporate and owners.
If your body corporate is out of the warranty period, a defect report may assist your committee to plan for necessary upcoming work, and ensure that your sinking fund levies are set at a sufficient rate to pay for that work to avoid issuing special levies to owners to fix building issues.
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