There is a deluge of legal and insurance claims from ownership’ corporations and individual apartment owners about high-rise construction defects. A UNSW City Futures Research Centre report found defects in 85% of apartments built since 2000.

In the firing line are builders and contractors.

Negotiating early and rectifying defects promptly, where possible, is a prudent approach to settlement. This will reduce the chance of claims costs escalating through legal processes and inflation.

First high-rise building in 20 years to secure construction insurance

When news hit in March that a 192-apartment in Sydney’s Castle Hill, Grand Reve, secured building warranty insurance, it was the first time in over two decades. That’s a policy against building defects. 

The cover is available for buildings over three storeys so far only in NSW. As of March this year, the Grand Reve was one of five high-rise building projects with the cover. It goes further than the 2% strata building bond for high-rises that the state government introduced in 2018.

To replace the strata building bond, the NSW Government has proposed liability insurance for new class 2 apartment buildings to allow owners’ corporations to claim within the first decade. The cover would apply even if the builder or developer is no longer trading. 

There are two models up for public comment – mandatory or voluntary. Builders would secure the mandatory insurance option between development application approval and before the first construction certificate is issued. 

Meanwhile, the voluntary insurance option would see the current strata building bond scheme lifted from 2% to 5%. The bond would extend from two years to six, as well.

You can find out more about the ten-year (decennial) liability insurance here. The deadline for public comments was 2 October.

What does it offer for builders?

Builders need to carry out some checks to secure this insurance. With the Castle Hill project, the insurance agency had its own building expert check every stage of construction. 

High-rise builders who have this insurance will stand out from their competitors in quality and consumer confidence.

What does it mean for investors & homeowners?

The defects cover is an insurance safety net for consumers, particularly if they’re buying high-rise apartments off the plan. Having access to insurance and a rating system, such as iCirt, gives homeowners and investors in high-rises less concern about their choice of builder. 

The insurance cover means if a defect arises up to 10 years after the building handover, the owners will simply be able to make a claim for its speedy repair. Common defects include around fire collars and waterproofing, design failures or materials defects.

Tackling Australia’s escalating construction defects

Defect claims against contractors are increasing in Australia. The lengthy claims process, especially if it’s through the courts, means contesting defects is expensive if it’s not covered by an insurance policy such as Latent Defect Insurance. Inflation only adds to the costs.

The return of the defects policy heralds a new era in high-rise building, and this is a positive step forward. However, be sure to check insurance options for your state or territory as rules and laws differ.

We can help your construction company with the right insurance to protect your valuable assets and interests. Tap into our risk management advice.