Those who have been involved in disputes over defective building work will be familiar with the general reluctance of courts and tribunals to award the costs of demolition and rebuilding as damages.

A recent decision of the NSW Supreme Court in which Morrissey Law acted for an Owners Corporation, has shown that the Court is prepared to order demolition and rebuild costs.

The Usual Damages for Defective Building Work

The usual measure of damage for defective building work is the cost of work which is reasonably necessary to make the building comply with the contract and, for residential building work, the statutory warranties under the Home Building Act 1989 (NSW).

In accordance with that principle, the courts and tribunals determining claims for defective work have generally refused to order contractors to pay demolition and rebuilding costs as damages, where there is evidence that the defects can be rectified in a less expensive manner. This is particularly the case for buildings that are structurally sound, but aesthetically defective.

Demolition and Rebuild Costs Awarded

In recent NSW Supreme Court proceedings between Owners of Strata Plan No 80609 v Paragon Construction (NSW) Pty Ltd & Glenvine Pty Ltd, Justice Ball ordered the developer and builder to pay the Owners Corporation the costs of demolition and rebuilding of five residential townhouses.

In that case the relevant building suffered extensive fire safety and structural defects, including the use of combustible cladding and inadequate fire resistance levels in all external and dividing walls, load bearing elements and supports to the first floor and roof. The defects were sufficiently serious for the local Council to require that the building remain unoccupied while rectification options were investigated and performed.

The defendants served expert evidence from a fire safety engineer, who proposed an alternative rectification solution which did not require substantial demolition of the building.

Justice Ball ultimately accepted the plaintiffs’ submission that the alternative solution was a ‘doubtful remedy’, which offered no certainty to the plaintiffs that the rectification work would ultimately comply with the relevant codes or be acceptable to Council. His Honour also found that there was no evidence that the alternative solution could be undertaken more cheaply than demolition and rebuilding. In those circumstances, His Honour was satisfied that demolition and rebuilding was the appropriate measure of damages. The total judgement ordered against the defendants for rectification costs, loss of rent and interest, exceeded $4.3 million.

The case is an important reminder to all parties in the construction industry of the serious liability arising from any failure to meet fire safety requirements and the use of combustible building materials.

Disclaimer: This publication by Morrissey Law & Advisory is for general information and commentary only and should not be considered or relied upon as legal advice. Formal legal advice should be sought in relation to any matters or transactions that may arise in relation with communication.