Wednesday, June 22, 2022

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Nailing Building Defects: What Strata Managers and Owners Need to Know

Defects are becoming more common within the building industry, particularly for new builds. Sharna Hoogenboezem outlines how building defects can impact insurance coverage and how you can address them effectively.

A recent study of multi-unit strata housing by The University of NSW revealed more than a quarter of new apartments in Sydney are likely to have defects. Unfortunately, in the current building and construction market, corners are cut and compromises are made. The resulting defects can vary, and they can affect insurance cover in different ways.

What are building defects?

Building defects normally result from defective or faulty workmanship, defective design, defective materials, or a failure to comply with the National Construction Code. There are two types of defects: minor defects and major defects/structural issues.


Minor/cosmetic defects

Mostly known as cosmetic defects (small and rather simple), these can affect the appearance or function of the building without compromising the integrity of the structure. Cosmetic defects can be fixed without making major changes to the building. These defects will not increase the chance of a building or liability claim occurring. Cosmetic defects are normally only noted on an insurance policy and should not affect the excess or premium

Common minor defects:

  • Non-structural cracks (hairline cracks)
  • Wall dents/wall stains
  • General deterioration (e.g. rust, ageing roofs [microscopic cracks)


Major defects/structural issues

These defects are more severe and may affect the stability of the building. Major defects will likely cause part or all of the building to become uninhabitable or unusable for its proposed purposes. This may significantly increase the insured’s exposure to property or liability claims and major defects are considered ‘hard to place’ risks, resulting in higher premiums, excesses, or exclusions. Some insurers may even refuse cover or provide shorter insurance periods with timeframes in which works need to be completed.

Common major defects/structural issues:

  • Concrete cancer
  • Sagging roofs
  • Fire safety risks (absence of sprinklers in common areas, unsealed penetrations, etc.)
  • Waterproofing issues


What should you do if you are aware of minor or major defects?

  • Immediately obtain a defects report from a qualified professional.
  • Disclose any information you have to your broker and provide any documents/reports you have on file about the defects.
  • Ensure recommendations within the defects report are actioned as a matter of urgency.
  • Strata Managers, Council of Owners, and owners must disclose any known defects to their broker so the insurer can be informed.
  • Check with your strata manager if your strata complex is within its warranty period. If you are within the warranty period, the builder/developer can be approached to rectify the defects. Otherwise, the owners must rectify all defects.

Sharna Hoogenboezem 

Client Executive 

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