Financiers of development and construction projects throughout New South Wales should familiarise themselves with the new building compliance requirements before lending to the sector. Partner Emma Donaghue explains how the new framework impacts financiers.

Background

The number of Occupation Certificate Audits (OC Audits) taking place in New South Wales is on the rise following the commencement of the Residential Apartment Buildings (Compliance and Enforcement Powers) Act in September 2020 and the planned commencement of the Design and Building Practitioners Act on 1 July 2021. The new legislation is designed to help restore confidence in the New South Wales building and construction sector following several well publicised issues with the quality of developments in that State.

The lack of confidence has led Construct NSW to move from an 'education and inform' methodology to an 'accountability, consequences and trustworthiness' framework and has seen an increased use of statutory powers by the Building Commissioner (eg OC Audits). As part of Construct NSW's plan to promote the long-term quality and durability of development, OC Audits have increased the focus on the project as a whole rather than the individual parts.

Failure by developers to adhere to the new regulatory framework is likely to see a significant increase in the time taken for the respective project to receive an occupation certificate (OC). Additionally, under the new legislation, developers must give six months' notice before applying for an OC. The notification period is designed to give the Building Commissioner time to conduct an audit on the development before the certificate is granted.

Impact on financiers

OCs are an important part of construction financing. Generally, the failure to obtain an OC for a development before a specified time is considered an event of default under the loan documentation giving rise to the possibility of enforcement action by the financier.

Because of the importance of OCs, financiers should familiarise themselves with the new legislation and actively monitor borrowers who are engaging in developments to ensure their projects comply with the regulatory requirements.

Practical steps

Some practical steps financiers can take to mitigate OC risk include:

• Imposing obligations on borrowers to provide copies of documentation in relation to Construct NSW, OCs, and OC Audits.
• Ensuring building and construction documentation is compliant with the new legislation setting out compliance requirements.

Our skilled banking and finance lawyers can help you understand these requirements and how to mitigate OC risk.