You’re buying an apartment in a 6-year-old building. The building inspection reveals water ingress issues, cracked render, and balcony defects. The owners corporation is in disputes with the developer.

Should you proceed? What are your rights? What happens if defects get worse after you buy?

The answers aren’t as clear as they should be, and buyers often end up carrying unexpected costs.

The 6-Year Statutory Warranty Period

In NSW, developers provide a 6-year statutory warranty for major defects and a 2-year warranty for minor defects. Similar frameworks exist in other states with varying time periods.

This warranty runs from completion date, not purchase date. If you buy an apartment in a 5-year-old building, you have roughly 1 year of remaining major defect coverage.

Major defects: Structural issues, waterproofing failures, anything that makes the building uninhabitable or unsafe.

Minor defects: Cosmetic issues, minor fittings problems, things that don’t affect habitability.

The warranty applies to the building, not individual owners. The owners corporation pursues warranty claims on behalf of all owners.

What Happens After Warranty Expires

Once the 6-year period ends, the developer’s obligation ends. Any defects discovered or worsening after that point become the owners corporation’s financial responsibility.

This can mean:

• Special levies to fund repairs ($10,000-50,000+ per apartment depending on extent of defects)
• Ongoing maintenance costs if defects weren’t properly fixed
• Depreciated property values if building develops a reputation for defect issues

If you buy an apartment in year 5 and serious defects emerge in year 7, you’re liable for repair costs even though the defects existed before you bought.

Existing Defect Disputes

If the building already has known defects and the owners corporation is pursuing the developer, this creates risk for buyers:

If the dispute succeeds: Repairs get done at developer’s cost. Good outcome for you.

If the dispute fails or settles inadequately: Owners corporation may lack funds to complete repairs properly. You end up with a building that has known, unfixed defects and potential special levies.

If the dispute drags on: Years of uncertainty, repair delays, and ongoing building issues while litigation proceeds.

Ask the selling agent for details about any existing defect disputes. They’re required to disclose material facts about strata issues. Get copies of:

• Recent owners corporation meeting minutes
• Building inspection reports commissioned by owners corporation
• Any legal correspondence or NCAT proceedings about defects

Your Legal Recourse as a Buyer

If you buy an apartment and subsequently discover defects that weren’t disclosed:

Against the seller: Limited recourse unless they deliberately concealed known defects. General caveat emptor (buyer beware) applies. Your building inspection should have caught obvious issues.

Against the builder/developer: You don’t have direct contractual relationship with them. The owners corporation does. You can’t independently sue the developer for defects unless you’re part of an owners corporation action.

Through owners corporation: This is your main avenue. The OC pursues warranty claims collectively. You participate as an owner but don’t control the process.

This means your ability to get defects fixed depends on:

• Whether the OC is willing to pursue claims
• Whether they have funds to engage lawyers/engineers
• Whether claims succeed within warranty period

As an individual owner, you have limited independent power.

Pre-Purchase Due Diligence

Get a thorough building inspection: Not just your apartment, but common property and overall building condition. Inspectors can identify water damage, structural issues, and poor construction quality.

Review strata records: NSW allows buyers to request strata reports showing financial position, insurance, disputes, and planned works. Other states have similar provisions. Pay for this ($180-300) — it’s worth it.

Check for special levies: Has the OC levied owners for repairs? Are future levies anticipated? This indicates financial strain from defect issues.

Insurance claims history: Multiple water damage claims or building defect claims are red flags.

Age of building: Buildings 3-8 years old are in the highest-risk period. Initial defects are emerging but warranty period is expiring or expired.

Developer reputation: Research the developer and builder. Some have track records of defect-plagued buildings and reluctance to honor warranties.

Red Flags to Watch

Strata levies significantly higher than comparable buildings: Often indicates expensive ongoing repairs or building up reserve fund to address defects.

Very low contingency reserves: Should be 6-12 months of levies. Lower reserves mean inability to fund unexpected repairs.

Recent special levies exceeding $5,000 per unit: Indicates serious problems that required significant expenditure.

Ongoing waterproofing issues: Water ingress problems rarely improve without expensive remediation. They usually get worse.

Combustible cladding: Buildings with combustible aluminium composite cladding face replacement costs of $30,000-100,000+ per unit. Some are uninsurable.

Selling agent vague about defect issues: If they deflect questions about building defects or disputes, that’s a signal to investigate thoroughly.

When to Walk Away

Building has known major defects and warranty period has expired: You’re buying into guaranteed future repair costs with no developer liability.

Multiple owners in the building are trying to sell simultaneously: Suggests widespread awareness of problems and owners want out.

Owners corporation is in NCAT proceedings with developer with no resolution in sight: Years of litigation ahead, uncertain outcome, meanwhile defects worsen.

Your building inspection reveals water damage in multiple areas: Water ingress rarely stays localized. It spreads, causes mold, damages structure. Expensive to fix properly.

Building has combustible cladding and no funded remediation plan: This is a massive financial liability and insurance risk.

Some of these can be negotiated around with significantly reduced price, but often it’s better to walk away.

Negotiating Price for Known Defects

If you’re proceeding despite known issues:

Get written quotes for repair costs from independent builders/engineers. Use these to negotiate price reduction.

Account for special levies: If the OC is planning a $30,000 levy to fund defect repairs, factor that into your offer.

Consider resale implications: Apartments with documented defect histories sell for less and take longer to sell. This affects your future exit.

A $50,000 price reduction might seem generous, but if repair costs plus special levies plus resale difficulty total $100,000, you’re still overpaying.

Insurance Complications

Buildings with significant defects may struggle to get building insurance or face dramatically higher premiums. If the building becomes uninsurable:

• You can’t get a mortgage (banks require building insurance)
• Existing mortgages may be called in
• Property value plummets
• Building becomes effectively unsaleable

Check whether the building’s insurance has increased significantly or whether there have been coverage issues. This is disclosed in strata reports.

The Owners Corporation’s Role

The OC is responsible for common property maintenance and pursuing defect warranties. But OCs vary enormously in competence and willingness to act.

Well-run OC: Actively pursues defect claims, properly funds repairs, maintains the building, communicates with owners.

Dysfunctional OC: Ignores problems until they’re critical, underfunds maintenance, has disputes among committee members, doesn’t pursue warranty claims because it’s “too hard.”

You can’t easily change a dysfunctional OC. You’re inheriting whatever governance structure exists.

Attending an OC meeting as a prospective buyer (with permission) gives insight into how the building is run. Are they organized? Do they address issues proactively? Is there owner engagement?

Special Levies and Financial Impact

Special levies for defect repairs can be substantial:

• $10,000-20,000 for waterproofing repairs
• $20,000-50,000 for facade remediation
• $30,000-100,000+ for combustible cladding replacement
• $50,000-150,000+ for structural repairs

These come on top of regular strata levies. You need liquid funds to pay them (usually within 3-6 months of levy being struck) or you face interest charges and potential legal action from the OC.

If multiple special levies hit within a few years, financial stress is real. Factor this risk into your affordability calculation.

The Uncomfortable Reality

Buying into a building with known defects or defect risks is gambling that:

• Issues won’t get worse
• Repair costs will be manageable
• Developer will honor warranties
• Owners corporation will handle things competently
• You can resell without major loss

Sometimes this gamble works out. Often it doesn’t.

The property market discounts defect-affected buildings for good reason — they represent genuine financial risk and ongoing liability.

If you’re proceeding despite warnings, do so with eyes open, significant price reduction, and financial buffer for future special levies. Don’t assume “someone else will fix it” or “it’s not that bad.”

Buildings with significant structural or waterproofing defects are money pits. Unless you’re getting them at deeply discounted prices that account for full repair costs plus resale difficulty, you’re better off buying a building without these issues.

Your conveyancer and building inspector should be your allies in due diligence. If they’re raising concerns about defects, take them seriously. They see these situations regularly and know how they typically play out.