Classification of work as a major defect gives rise to a 6-year statutory warranty.

Section 18E(1)(b) of the Home Builders Act 1989 (NSW) prescribes a statutory warranty period of 6 years for faulty or defective workmanship which results in a major defect to a residential building. However, to be entitled to the 6-year statutory warrant the defect caused by work on the property must constitute a “major defect”. The classification of defective work as a “major defect” has implications on the liability of the builder as this determines whether the statutory warranty extends to 6 years or only 2.

What constitutes a major defect?  

Section 18E(4) provides a definition to a “major defect”. The effect of this section was considered in Ashton v Stevenson [2019] NSWCATAP 67. In this case NCAT considered that the “definition refers to serious problems which impact upon habitability and use of the building and to its potential destruction” at [60]. To constitute a “major defect” under the act, the following needs to be established:

(1) The defect must comprise of a “major element” of a building. The major elements of a building is listed in s 18E(4) and includes:

  1. An internal or external load-bearing component that is essential to stability of the building or any part of it.
  2. A fire safety system
  3. Water proofing
  4. Any other element prescribed by regulations.

(2) The defect must be caused by the defective design, faulty workmanship, defective material, or failure to comply with the National Construction Code (or a combination of these).

(3) It is not enough that the defect is caused to a “major element” of a building. The defect must have one or more of the following consequences:

    1. An inability to inhabit or use the building for its intended purpose.
    2. The destruction of the whole building or destruction to part of the building
    3. A threat of collapse to the whole or part of the building
    4. A defect prescribed by regulations – only external claddings have been prescribed as major defects in the regulations.

Proving the requisite consequences.

The consequence of a defect requires more than mere inconvenience. The plaintiff must not simply point to hypothetical or potential consequences but must be able to prove causation and thus point to either real damage of the above-mentioned kind, or a threat and likely probability of the abovementioned damage. As stated in Ashton the defect in question “must involve more than a speculative, or pessimistic, assessment of probabilities. The proponent of a major defect should be required to prove that the defect will have the prescribed consequences, or that it will probably have the prescribed consequences” (at [74]). Thus, mere speculation is impermissible when seeking to prove the required damage.

The plaintiff must establish causation by pointing to evidence which typically includes expert reports which detail the consequences of the defect. Pointing to damage caused to a major element is not enough, the damage must be of the requisite kind (listed in s 18E(4)). In relation to “destruction” this does not relate to a minor potential process of deterioration but involves “evidence of a real possibility of destruction, not merely incidental damage or superficial deterioration” (at 73). In this way, it is unlikely corrosion to a steel beam will constitute a major defect where this causes merely superficial and aesthetic effects but corrosion to the beam which threatens the collapse of a structure attached to the beam will likely constitute a major defect by virtue of s 18E(4)(i) or (ii).

In relation to section 18E(4)(a)(i), the plaintiff is not required to show that habitation has become impossible by virtue of the defect, but rather that use of the building or part of it cannot occur for its intended purpose (Panchal v Jones t/as Oz Style Homes [2018] at [87]). So, where a leak in waterproofing occurs in a bathroom, if the leak is minor then usage of the bathroom facilities may not be hampered. However, where the leaking causes major damage to the bathroom or prevents the occupants from engaging in normal hygiene activities a bathroom is designed for, such as using a bathtub or shower, then it may be that the habitability of the room is compromised and thus the room cannot be used for its intended purpose bringing the leaking within the definition of a major defect under s 18E(4)(a)(i).

Fact sensitive finding.

Considering the above, whether a defect in a residential building constitutes a “major defect” to attract a 6-year statutory warranty under s 18(1)(e) is fact dependent which necessarily depends on the locality of the defect, the extent of damage, and the consequences of damage. Although expert opinion such as an inspector’s report may be useful and persuasive in establishing the requisite damage, expert opinion is not determinative of the issue. Ultimately, jurisdiction is vested in the Court and NCAT to determine whether a defect constitutes a “major defect” under the Home Builders Act. Even where a defect does not fall within the meaning of a major defect the work will nevertheless be covered under the s 18E(1)(b) statutory warranty for a period of 2 years.

If you require assistance in relation to your rights and liabilities in respect to defective work performed by or provided by you, please contract our team on 42 222 666 or email us at hansons@hansonslawyers.com.au