Lessons from US Construction Defect Cases

Litigation by Australian strata corporations for building defects is still in its infancy compared to the USA.  So, there's some very useful lessons to learn from US strata experiences with making, settling and funding building defects litigation.

In this useful article by Berding Weil Attorneys from California they cover the issues facing strata corporations when deciding how to pay the legal costs of building defect litigation.

It's an interesting exposition in the 2 main options: Pay for Service or Contingency Fees - and I recommend it to anyone running a strata building defect claim.

Leaving aside any legal restrictions on contingency fees in Australia, it's important to understand that many US strata corporations agree to contingency arrangements because they simply can't afford to fund the defect case themselves.  So, unless they are prepared to abandon the building defect claim or accept whatever settlement is offered, they have to agree to give away part of their recovered damages to successfully run serious defect claims.  

In my view, that's a situation many Australian strata corporations are now finding themselves in for the following 4 reasons.

1.  Since builders, developers and insurers are fighting claims harder, it's getting more difficult  (and therefore more costly) to successfully run those claims.  

2.  Strata corporations don't have the funds to run these harder claims (without owners paying special levies) and so don't do so, or run them poorly (and cheaply) and lose.  

3.  That also leads to strata corporations settling building defect claims early and more cheaply than they could or should.  

4.  And, because commercial viable contingency arrangements are not permitted in Australia (contingency arrangements being mostly limited to a 10% surcharge on normal fees and not related to outcomes) there's no low cost option for running those cases.

It's a difficult cycle for strata corporation with building defects and we need some innovative solutions.  Any ideas ???


Francesco ...

Graffiti Croatian Style

There's street art everywhere.  And, here's some from Croatia.

Enjoy, and thanks to my daughter, Peta Andreone, for some of the images.

Francesco ...

Strata Words, Minutes, Poetry & Prose

I've haven't thought much about the poetry or prose of the written strata word, since my focus has been on technical accuracy and legal compliance. But, nowadays I believe that we can do all that and still make it a more enjoyable read.

After all, even if we just focus on strata meeting minutes, you'd have to admit that there's been a lot of words and pages written by a lot of people that no-one would choose to read unless they absolutely had to (and even then probably not read all of it).

So, why not make them easier to read, more informative and enjoyable (even just a bit)?

This recent post on HOA Brief by Robert M. DeNichilo called What Makes For a Good Set of Meeting Minutes is a good start.  Whilst it's US focused, the general guidelines about what should go and what should stay out are of universal value.

Next comes the formal requirements that apply to in your part of Strataland since you need to make sure the box tickers and strata auditors can't fault the records.  I'm assuming that you're already doing that by using templates and checklists.

And, finally how about a bit of wordsmanship?  Partly that's good grammar, modern expressions, first person voice and the present tense.  And, partly that's imaginative expression, story telling and creating a mood.  If you paid attention during all those creative writing classes you'd know what I mean.

I like to imagine Shakespeare writing the minutes of his strata meeting and the other owners eagerly waiting to read them.  Perhaps they'd read something like this -

A quorum once achieved, shortly after the half hour, the meeting thus began
No proxy was valid, but all men and women were appropriately financial for the day
The last minutes, after debate, were agreed by all present
And insurances were approved, but with two objectors
Yet considerable consternation ensued with the expenditures
Leading two objectors to propose amendments reducing the numbers
The amendments defeated, but there ensued a vote by poll demanded by the pair
Resulting, after time spent in scrupulously counting, in approval of new expenditures
2 score in favour and, but 3 opposed
So, fellow owners will pay, four times in the year 
On each eve of January, April, July and October
$100 dollars for each entitlement they hold
No more to discuss, the meeting then ended on the next hour
And all thee present returned to the bosom of those they love

My apologies to the old bard for this.

But seriously, I'm sure with just a bit of effort we could make our strata writing a lot better for everyone.

Francesco ...

A Very Victorian Strata Symposium

Some Victorians might not be amused by strata people getting together and having some fun.

But on 21 September 2012 SCAVIC is holding its 2012 Symposium at the Peninsula, in Docklands called Exploring the Boundaries.  They say that the Symposium will focus on knowing the limits that apply to strata corporations and stakeholders so they don't go too far - which is a good thing (I think).  

You can find out more and register here, but you need to do so before 14 September (presumably for security checks).

See you in Docklands doing the Victorian strata things.


Francesco ...

Developers - Love or Hate Them?

Most people in strata have (or should have) a love-hate relationship with developers.

You gotta love them because they take on the commercial risks to develop and build strata buildings and if they do it right we get great high density living for many people.  They make the (strata) magic happen.

But, there's many reasons to hate them too because of complaints that strata buildings are not built properly, they don't provide the new strata owners with the documents and information they need, strata levies are set too low, unreasonable and unfair long term contract get imposed and they sometimes try to interfere with strata corporation decisions.

So, many people like Michael Teys in his recent blog, think that the developers hang around too long and should be sent packing firmly and quickly.  He's not the only one - with people telling me over many years that the sooner the developer is out of the picture the better.

But I have a different view.  I think that developers should be forced to stay involved in the strata buildings they develop for longer and have responsibilities during that time.  

It's precisely because developers take a short term interest in the buildings they develop and leave almost as soon they're finished that strata owners get poor outcomes.  All of the developer's knowledge and understanding of the building structure and construction, operational plans and issues, their supplier arrangements and connections and their resources are lost.  Plus, they more easily avoid the consequences of inadequate budgeting, compliance or planning and have no responsibility for bad decisions that might be made by the new owners which they could have helped avoid.

I'd rather see developers being forced to have one (and only one) position on the committee, a requirement to provide a 'free' person to assist the committee, positive obligations to provide relevant information on financial, compliance, construction and certification matters for committee decisions and liabilities for the consequences of not doing so - for a few years after the strata corporation begins.  That would change things dramatically for everyone and help ensure better handover of new strata buildings.

Sometimes the counter-intuitive ideas are the best.


Francesco ... 

Great London Steet Art

London may have just hosted an impressive Olympics, but they also have some great street art as these images demonstrate.

Enjoy!   And, thanks Scott Beale.

Francesco ...

Are Strata Renters In or Out?

Why does everyone want to pretend that renters in strata apartments have nothing to do with strata corporation issues and operations?  Are they the silent and unseen strata majority that should be seen but not heard?

In a recent column at Flat Chat called You're not the boss of me! questions were asked about the strata manager communicating with renters which has prompted me to make the following important points.

Recent NSW data suggests that about half the strata apartments are tenanted, so 50% of strata residents are renters.  That means that their rent payments are funding half of the strata corporation budgets as well as providing their strata owner landlords with profits.

As strata residents, renters must comply with strata laws about damage to common property and behavioural matters as well as other laws governing neighbour behaviour.  Renters also have rights to get damaged common property repaired, make application for strata orders and participate in strata disputes affecting them.  They can even be elected to strata committees if an owner nominates them.

The only things they can't really do is attend and vote at strata meetings, and they don't have to pay strata levies.

Interestingly, in British Columbia, Canada long term renters (over 2 years) become de-facto strata owners and can vote and participate in strata meetings instead of the owners.

Maybe it's about time we recognised the significance of renters in Strataland?

Francesco ...

Another OCN Meeting

The Owners Corporation Network is meeting again this weekend and this time they're focusing on Fire Safety Work & Orders.  

You can download the agenda here and the meeting details are as follows.

18 August 2012 - 10:00am
The Station
Jackson’s Landing,
Bowman Street,Pyrmont


Francesco ...

Strata Fees Explained in Canadian

Understanding what your strata levies or fees seems to be a global strata owner problem.  Owners don't understand who they pay strata fees to, what they are for and why they are necessary.

And, funnily enough, the answer seems to be pretty similar all around the world too.

This short video by British Columbia Home Consultants called What is a strata fee?  Where does my money go? is one of the better simpler explanations I've seen.  Plus it's a good example of positive communication to strata owners that tells them what they want (and need) to know without legal and process clutter - so they get it.



You may have to translate some words into your local strataspeak ... but you can work that out pretty easily for yourselves.

Well done guys.

Francesco ...

NSW Construction Industry Inquiry

The NSW Government has become so concerned about the fragility of construction firms  in that state that it has launched a formal inquiry.

The inquiry, announced by NSW Finance and Services Minister Greg Pearce and being led by Sydney barrister Bruce Collins QC, will look at the construction industry insolvency with the aim of safeguarding the interests of sub-contractors in the sector.  But the terms of reference for the inquiry include how initiatives such as insurance schemes, trust arrangements, compulsory contract provisions or other mechanisms, could help to safeguard the interests of subcontractors in the sector.

They're calling for submissions from all parts of the sector and from other interested parties by 14 September 2012 and say that 'the views of legal professionals and insolvency practitioners with first hand experience in this area, together with the views of any other interested parties will also be sought.'

The cynical me thinks that this inquiry is largely motivated by the fact that two of the largest recent construction business collapses, St Hilliers and Reed Group, involved significant government projects and have led to some very messy litigation.  

But, regardless of that, strata stakeholders should take this opportunity to remind the NSW Government of the impact of construction firm collapses on strata corporations that are over 3 storeys and do not have Home Warranty Insurance.  In other words, those strata corporations have no-one to sue for defective work and have to bear the cost of rectifying defects entirely themselves.

You can find out more about the enquiry and lodge a submission here.

Francesco ...

Listen & Learn About City Futures Strata Research

If you don't like reading pages and pages about strata, why not listen to the outcomes of the  City Futures Research Centre at UNSW research project Governing the Compact City?

Here's a short video of Dr Hazel Easthope giving a short overview of the research findings.



And, if you want to know more, you can find out more at my earlier blog and links to the report here.

Francesco...

Bondi Beach Graffiti

Here's some of the graffiti you'll find at Bondi Beach.

Enjoy.

Francesco ...

Nice Strata Pools ... But What About Leaks?

I'm a sucker for extravagant architecture and this concept for balcony infinity edge pools in new strata apartments by James Law Cybertecture in Mumbai looks fantastic.  

You can find out more about them in this SMH Domain article and at the Cybertecture website.  I'm sure that the structural requirements and water supply, recirculation and filtration can be easily handled.  But I'm not so sure about the waterproofing.


After all if most builders can't consistently make sure that windows, balcony doors and planter boxes are waterproof, then what chance to do they have of keeping a few tonnes of water in these balcony pools?


I guess you'd be a bit worried (and wet) if there's one on the balcony above you.


Francesco ...

Melbourne Graffiti on Show

Here's some examples of the great graffiti you'll see on the streets of Melbourne.

Enjoy!

Francesco ...

OCN Manifesto About Strata Law Changes

The Owners Corporation Network has made a detailed submission to the NSW Government about its proposals to change strata laws.


Representing the position of strata owners and executives, OCN brings a different perspective to the strata agenda from the usual stakeholders: developers, managers and regulators.  So, it's worth considering what OCN says (and doesn't say) and why to better understand theses issues.


OCN summarises the key points in its submissions as follows and you can read all the submissions here.

Strata Review - OCN Submission – Key Points

Strata ownership and strata living in NSW is now well-established but in many ways problematic:

• Owners in new strata schemes are exposed to major building defects and long-term building management agreements, put in place at the behest of developers, which are contrary to their interests. Lack of consumer protection in this area exposes owners to unacceptable costs and is giving strata ownership a bad name.
• Due to its minimalist style, the Strata Act is not an effective governance instrument for guiding Executive Committees managing the operation of strata schemes. Some provisions regulating the operation of strata schemes are ineffective and open to abuse. Combined with a general lack of appreciation of the nature of strata ownership this often leads to mismanagement and unnecessary disputes in strata schemes.
• Ambiguities in the Act lead to confusion and misinterpretation of its intent, resulting in unnecessary complexity and cost in the operation of strata schemes. NSW Fair Trading does not have the power to definitively clarify the Act and CTTT decisions are sometimes arbitrary and ignore practical consequences. This results in excessive legal cost for owners and owners corporations and excessive dispute resolution costs for government.
• The unanimous agreement required to terminate or renew strata schemes is unattainable in practice, resulting in strata schemes that are no longer viable to operate.

The measures needed to address the problems and deficiencies would deliver high impact benefits to the public at relatively low cost and generate political goodwill for the government:

• A public awareness and education campaign to improve the level of understanding of strata ownership, strata living and strata management.
• An overhaul of the building construction approval and certification process to ensure that when an Occupation Certificate is issued for a new strata building, prospective purchasers can assume that it is essentially free from defects. In the exceptional cases where defects are uncovered by owners, building insurance should cover rectification costs for 10 years for structural defects and 5 years for non-structural defects.
• Reshaping and augmenting the Strata Schemes Management Act:
  • As an effective governance instrument that provides guidance for the organisation and operation of various types and size of strata schemes
  • To prevent long-term service contracts to be implemented in new schemes before the new owners, independent of the developer, gain effective control of the scheme
  • To streamline general meeting voting and procedures, and other governance arrangements, in strata schemes
  • To clarify the boundary between lots and common property and the intent of the Act by defining terms where ambiguities exist (e.g. section 65A of the Act)
  • To implement more realistic provisions for the termination or renewal of strata schemes that would require agreement by 80% of lot owners (rather than 100%) for strata schemes consisting of more than 4 lots.
  • To address the numerous items outlined in OCN's submission and others.

Let's see if the Government is listening to the (strata) people's manifesto.


Francesco ...

Selling Mini Strata Penthouses

It seems that we're all downsizing - even strata penthouse owners.  Well, at least some strata penthouse developers.


In this article by Stephen Nicholls in SMH Domain he explains how after slow sales at Australia Towers II in Sydney's Olympic Park have decided to change the set up of the prestigious upper floors - from 4 dual level penthouses to 8 one bedroom apartments.


It's an interesting statement about current real estate market conditions - which are challenging. 


But, to me, this news is even more important for the disturbing lesson it teaches us about strata urban planning outcomes. That the kind of strata buildings and apartments we usually get are mostly dependent on what developers can sell today rather than what governments, planners, architects and other experts on urban planning, design and mix really think we should have for the best outcomes.  Or, what developers say they want to and will build.  It's very short term thinking.

So right now in Sydney because a few penthouses haven't sold for 6 months and the developer wants to sell the space, that building will have small one bedroom apartments on its upper floors.  It's probably an outcome that the apartment owners in that building will regret in the medium term as a poor space planning decision.


After all, if there's no market for a few high priced penthouses why is there a market for even more high priced small one bedroom apartments?



Francesco ...