What are defects and how does a defects liability period work?
Every builder dreams of the perfect build without so much as a single fault being found with their work. However, the reality of most construction projects is that at some stage issue will be taken with some or all of the work, and a complaint of a defect will arise.
It is therefore important to understand exactly what is meant by the term ‘defect’, how a contractual ‘defects liability period’ works in practical terms, and whether there is any right to claim damages for covering the costs of rectifying a defect.
What exactly is a ‘defect’?
Ordinarily where the term ‘defect’ is used in a construction contract, it refers to work that has not been performed in accordance with the standards and requirements of the particular contract.
Matters to take into consideration in determining if there is a defect may include:
- the quality of any work and the standard of workmanship;
- whether design directives have been followed and correct materials have been used; and
- whether the works have been performed in accordance with contractual specifications and drawings.
The ‘defects liability period’ and how it works
Most experienced builders and contractors would be familiar with the term ‘defects liability period’, as the term commonly appears in construction contracts including contracts based on pro forma Australian Standards building and construction contracts.
A defects liability period is the time period specified in the contract during which a contractor is legally required to return to a construction site to repair any defects which have appeared in that contractor’s work since the date of construction. Usually a defects liability period will start either at practical completion or upon reaching standard completion.
Even if you are familiar with the term it is important to check each new contract carefully to ensure you understand how long the defects liability period is and what is expected of you during that period.
A contract will specify the length of any defects liability period. Anywhere from 12 to 24 months is a fairly common period, although longer or shorter periods are also possible.
The length of any defects liability period will depend on the nature of the build, the type of work a particular contractor carries out and whether it is likely that any inherent defects may take time to be detected. For example, it is not uncommon for contracts involving complex builds and large government contracts to specify longer defects liability periods than a simple domestic building contract.
Why specify a defects liability period in a contract?
A defects liability period gives both a principal and contractor a degree of certainty as to the process that will be followed for making good any defects which may not be apparent at the date of practical completion.
In addition, a defects liability period can also be useful in providing a means of making good any defects that are apparent at the time of practical completion but which either do not need to be rectified prior to practical completion or perhaps cannot be easily rectified due to the presence of other contractors and trades still working on the build.
Wherever possible, it also makes practical sense to have a contractor who carried out the original work return to fix any defect as this contractor will be familiar with the site and the work in question. This should mean that rectification by this contractor is likely to be the most cost-effective approach to any rectification work. Also, a contractor may prefer to be the sole party authorised to carry out rectification work within a given period as the quality of the work and any subsequent repairs will potentially affect their reputation.
Once a defect is fixed does a new defects liability period commence?
Whether a new defects liability period applies to rectified work will depend on what the parties agreed, as reflected in the terms of each particular construction contract. It is important that both the principal and contractor are clear on this point prior to entering into a contract.
What right to damages exists for covering the costs of rectifying a defect?
Ordinarily any defect would be a breach of contract.
There have been several cases where the courts have considered whether the existence of a defects liability period in a contract alters or removes the need for a common law right to damages, with individual cases appearing to turn on their particular facts and the behaviour of the parties to the contract.
Generally, damages for any defects will cover the amount needed to ensure that the work is brought up to the standard that a contractor was initially required to provide under the contract.
Depending on the particular circumstances of a build, damages could include:
- Recovery by the principal of any reasonable costs of demolition and rebuilding work; and
- Any secondary or incidental costs, for example loss of income if the property is unable to be rented out due to the rectification works, or ancillary costs such as relocation expenses (such as where tenants are involved) or additional consultant’s fees directly related to the rectification works.
If circumstances dictate that carrying out rectification work in respect of the defects is not reasonable, for example if a building is so damaged or defective as to make the work needed impossible or impractical to carry out, a principal may be able to recover damages for any loss in the value of the building. In very limited circumstances, they may also claim for loss of enjoyment or inconvenience suffered, if there is no actual loss in value of the subject property but the principal, for whatever reason, is unable to use and enjoy the building as previously planned.
Help is available
It is always prudent to seek advice prior to entering into any contract to ensure that you fully understand your rights and responsibilities.
If you have already entered into a contract or carried out work and a complaint has now been made that your work is defective, you may be concerned about both your professional reputation and any potential financial implications for your business.
If you find yourself in a situation where this could be an issue, we recommend you seek legal advice as soon as possible.
If you or someone you know wants more information or needs help or advice, please contact us on +61 (0)2 9248 3450 or email [email protected].