Limitation periods in building actions

Often there is confusion around the limitation period for building actions as there are some different periods for insurance – that is:

  • Does domestic building insurance apply and if so, is it 2 years or 6 years? or
  • Does the 10-year limitation period under the Building Act apply, and if so when does it commence?

Let’s start at the beginning. 

The first two questions you must ask are:

  1. Who is the building practitioner; and
  2. Does the building practitioner still operate?

In Victoria, under section 135 of the Building Act 1993 (Vic) (Building Act), a building practitioner (in specified categories or classes) is required to take out domestic warranty insurance where the building works (again, as defined by the Building Act and the Government Gazette) is worth more than $16,000.  The purpose of this article is not to consider if and when domestic warranty insurance is required (as that is a whole topic on its own), but rather to simply note that most domestic building contracts (over $16,000) will require the builder to have taken out domestic building insurance (commonly referred to as DBI and also warranty insurance).

This insurance is a ‘last resort insurance’ which means that if the building practitioner no longer operates (because the building practitioner has died, is declared insolvent or disappears), then the Owner may have the benefit of the domestic building insurance. 

However, it should be noted that there are some limitations to this insurance:

  • The insurance is capped at no more than $300,000 to fix the defective/incomplete building works (even if the cost to rectify or complete the building works is more than this);
  • The time limitation for structural defects is 6 years; and
  • The time limitation for non-structural defects is only 2 years.

Again, the adequacies (or inadequacies for that matter) of this insurance are not for consideration in this article, but simply to note as there is often confusion around this time period versus the time period that operates under section 134 of the Building Act, where the building practitioner does still operate.

In Victoria, section 134 of the Building Act provides that:

“Despite anything to the contrary in the Limitation of Actions Act 1958 or in any other Act or law, a building action cannot be brought more than 10 years after the date of issue of the occupancy permit in respect of the building work; or, if an occupancy permit is not issued, the date of issue of the certificate of final inspection of the building work”.

The Court of Appeal’s decision in Brirek Industries Pty Ltd v McKenzie Group Consulting (Vic) Pty Ltd [2014] VSCA 165 (Brirek Case) provided some clarity for the position that:

  • If there was a final inspection, then the 10-year limitation period under section 134 is calculated from the date of the final inspection of the building works; and
  • Further, the 10-year limitation period is the position whether the claim is brought under negligence or breach of contract – the only exception is for a claim for damages for death or personal injury, which has no limitation period under the Building Act, (section 130(a) of the Building Act).

But what happens where there is no building permit and therefore no occupancy permit or no certificate of final inspection? Does section 134 of the Building Act apply, and if so, how does it work? 

These questions arise quite a lot, especially for repairs works.  As was the case before Victorian Civil and Administrative Tribunal (VCAT) Member Sweeney in Gledhill v Scotia Property Maintenance Pty Ltd [2019] VCAT 422 (Gledhill Case). 

In the Gledhill Case, the builder was engaged to rectify the owner’s balcony at a property in South Yarra.  There was no building permit (and in turn no certificate of final inspection) for the repairs which were completed in June 2007.  The owner submitted a VCAT Application for defective repairs by the builder in May 2018.  The owner sought to rely on the implied warranties under section 8 of the Domestic Building Contracts Act 1995 (Vic) (DBC Act). The owner argued that as there was no building permit for the repair works, the 10-year period under the Building Act did not commence and therefore the 6-year limitation period under the Limitations of Acts Act 1958 (Vic) (Limitations Act) should apply. The builder on the other hand argued that the 10-year limitation under the Building did in fact apply, and should be calculated from the date of completion of the building works and accordingly the owner was statute barred as the claim was out of time.  Therefore, VCAT Member Sweeney needed to consider whether the 10-year limitation did in fact apply, and if so, when the limitation period commenced.

Member Sweeney concluded that where there is no building permit, section 134 of the Building Act cannot apply, and therefore in such cases, the 6-year limitation period under the Limitations Act must apply.

This means that builders (or contractors performing repair work) should be mindful that repair works which sit outside a building permit (or where no building permit exists) have a 6-year limitation period, which may extend beyond the 10-years from the original building works.

VCAT also explored a further issue with the 10-year limitation period, and that is, what is meant by ‘bring a building action’? This is sometimes a relevant question in Victoria where parties must first lodge their building disputes at the Domestic Building Dispute Resolution Victoria (DBDRV) before a dispute may be referred to VCAT.

VCAT’s Deputy President Catherine Aird considered this issue in Owners Corporation 1 Plan No PS543073S v Eastrise Constructions Proprietary Limited (Building and Property) [2019] (Eastrise Case). In the Eastrise Case, the builder constructed an apartment building (in Caulfield North) in which the occupancy permits were issued in June 2008. A DBDRV Application was made on 29 May 2018, followed by further applications by each individual lot owner on 22 August 2018. On 27 August 2018 the DBDRV issued its certificate confirming the matter was not suitable for conciliation. On the same day, the Owners issued their application at VCAT. However, the builder applied for the matter to be struck out on the basis that the claim was statute barred under section 134 of the Building Act because the VCAT Application was filed outside the 10-year limitation period.

The question VCAT needed to consider was whether (as alleged by the Owners) the DBDRV application was a ‘building action’ under section 129 of the Building Act and therefore the Owners had in fact commenced a building action within the required 10-year period. Deputy Aird rejected the submission by the Owners and held that ‘a building action [under the Building Act] is a claim for loss or damages.  It is difficult to conceive how an application to DBDRV for dispute resolution could be conceived as a claim for loss or damages.  DBDRV’s primary role is conciliation of those domestic building work disputes which it deems suitable for conciliation. It does not determine parties’ legal rights… The prudent approach by the Owners would have been to have made an application to the Tribunal within the limitation period and to have sought a stay pending the lodging of certificates of conciliation issued by DBDRV.’

Lesson to be learnt – don’t delay investigating building defects and make sure you understand your time limitations to avoid being time barred.

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