Abstract
A development located in Caulfield South, Victoria, constructed by Shangri-La Constructions and completed in 2015, has attracted significant media attention recently. It has shed light on potential deficiencies in the regulatory oversight of apartment buildings in Victoria, with the primary concern being the defects within the development, which has resulted in tragic outcomes.
Content
In 2015, Shangri-La Construction completed the construction of a residential apartment complex located in Caulfield South, Melbourne. However, upon moving in, apartment owners discovered that this newly built project was riddled with numerous defects. An owner who moved in during late 2015 shared with media that “they had a substantial flood in the bedroom six weeks later, it was water running through the bedroom and that was because they had just not connected a drainpipe, there was a hole with no drainpipe connected”.
Cladding Safety Victoria (CSV) published a report in 2020 and found this building’s façade system was deteriorating rapidly attributed to water ingress. The presence of mould can be identified visually on the surfaces of internal structures. Beyond the waterproofing defect, the CSV report also suggested the removal of combustible external cladding products.
The owners of this building had to have a legal fight with Shangri-La Construction, addressing allegations of defects in this complex, involving parties like the waterproofing contractor and building surveyor responsible for the occupation permit. The legal and professional fees cost more than $500,000 and the process takes years to be finalised. Shangri-La Construction faced insolvency and ceased operations on 31 March 2023. The collapse of the building company led to significant defects that Caulfield South apartment buyers had to deal with.
In the current regulatory framework in Victoria, residential buildings comprising four stories or more are exempt from the Domestic Building Insurance scheme. This insurance protects homeowners when their builder becomes insolvent, dies and disappears. The introduction of Latent Defects Insurance (LDI), also called Decennial Liability Insurance (DLI), can fill a gap in the insurance market by addressing defects and systemic issues. LDI ensures insurance coverage to rectify serious defects over a period of 10 years at the completion of the building. The serious defects relate to structural and building envelope elements as well as the waterproofing.
LDI policy operates on the principle of strict liability, meaning that it does not require the establishment of fault or negligence on the part of the builder and/or developer. This strict liability bypasses the need for dispute resolution to determine responsibility for a defect before remediation can commence. It can benefit apartment owners by a speedy and effective remediation process, as opposed to long and expensive litigation proceedings.
In recent years, repeated apartment buildings with serious defects in Australia have resulted in lower customer confidence. For these apartment owners, the consequences often involve financial hardships and years entangled in legal battles. The LDI product is designed to protect consumers in response to defect cases.
