NSW’s New 10-Year Building Defect Protection: What Owners and Builders Need to Know

Co-Authored by Vishaal Kudupudi

KEY TAKEAWAYS:

• NSW has amended its strata legislation to expand the framework for Decennial Liability Insurance (DLI) for qualifying building defects.

• DLI is designed to provide 10 years of insurance protection for relevant defects affecting building elements of common property.

• The reforms are important for both owners corporations and builders/developers, particularly in relation to responsibility for defects and how those defects may be managed.

• The new DLI framework has commenced, but this does not mean every apartment building is automatically covered by a DLI policy.

• Existing legal rights concerning defective building work continue to apply and should not be overlooked.

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What Is the New 10-Year Building Defect Protection?

NSW’s 10-year building defect protection is provided through Decennial Liability Insurance (DLI). Importantly, DLI is not new in 2026. Under section 211AA(1) of the Strata Schemes Management Act 2015 (NSW), DLI is insurance taken out by a developer in favour of the owners corporation, providing 10 years of strict liability cover for qualifying defects affecting building elements of common property. The insurance must also satisfy the criteria prescribed by the regulations and be in a form acceptable to the Secretary.

The Fair Trading and Building Legislation Amendment Act 2026 (NSW) introduces changes to this framework by replacing the previous concept of a “serious defect” with a broader definition of “relevant defect”. This can include certain defects involving non-compliance with the Building Code of Australia, relevant Australian Standards or approved plans, as well as defective design, workmanship or materials.

DLI is not a general 10-year warranty covering every defect. Whether a particular defect is covered will depend on the statutory requirements and the applicable insurance policy.

 

DLI Does Not Replace Existing Building Defect Rights

The introduction of 10-year insurance protection does not mean that apartment owners must rely exclusively on DLI when a defect occurs.

Depending on the circumstances, an Owners Corporation may have rights under legislation including the Design and Building Practitioners Act 2020 (NSW), the Home Building Act 1989 (NSW), the terms of the construction contract or other applicable laws.

For example, section 37 of the Design and Building Practitioners Act 2020 (NSW) imposes a duty on persons carrying out construction work to exercise reasonable care to avoid economic loss caused by defects arising from that work.

The High Court considered this duty in Pafburn Pty Limited v The Owners – Strata Plan No 84674 [2024] HCA 49, a case involving alleged defects in a residential strata building.

The decision is an important reminder that the legal responsibility for building defects does not simply disappear because other forms of protection or insurance may be available.

For owners, this means a defect should be assessed from all available legal and insurance angles, rather than assuming that DLI will automatically resolve the issue.

 

What Does This Mean for Apartment Owners?

For apartment owners and Owners Corporations, the major benefit of DLI is the potential for long-term protection where serious defects affecting common property emerge after construction.

Building defects can be expensive to investigate and rectify, particularly where they involve structural elements, waterproofing or other critical parts of a building.

The new framework is intended to provide an additional mechanism for dealing with qualifying defects without making the Owners Corporation entirely dependent on pursuing the builder or developer.

However, owners should not assume that a defect automatically qualifies simply because it is serious or because it occurs within 10 years of occupation.

If a significant defect is discovered, the Owners Corporation should consider:

• Obtaining an expert report identifying the nature and likely cause of the defect.

• Checking whether a DLI policy exists and what it covers.

• Preserving evidence, including photographs, reports, correspondence and building records.

• Reviewing construction documents to identify the parties involved and the applicable contractual arrangements.

• Considering other statutory or contractual claims that may be available.

• Acting promptly, as different claims can have different limitation periods.

The key point is that 10-year protection does not mean 10 years to wait before taking action.

 

What Does This Mean for Builders and Developers?

For builders and developers, the reforms introduce another important consideration when undertaking apartment developments in NSW.

The existence of DLI does not remove the importance of proper design, compliant construction, appropriate materials and accurate building records.

Section 37 of the Design and Building Practitioners Act 2020 (NSW) remains particularly relevant to construction work covered by the legislation.

Builders and developers should therefore maintain clear records concerning:

• Approved plans and designs;

• Building materials and products;

• Construction and inspection records;

• Subcontractor arrangements;

• Compliance with applicable standards; and

• Defect complaints and rectification work.

These records can become important if a defect is later alleged.

Developers should also understand the insurance requirements applying to their particular development and how DLI interacts with the broader statutory framework.

The new scheme should not be viewed as a 10-year transfer of all construction risk to an insurer. The underlying legal responsibilities of builders, developers and other construction professionals remain important.

 

How Can Coutts Help

Our Building and Construction Specialists at Coutts can assist Owners Corporations, apartment owners, builders and developers with building defect disputes, construction contracts, statutory claims, negotiations and litigation.

Obtaining legal advice early can help you understand your rights and obligations, preserve important evidence and determine the most appropriate way to deal with a building defect.

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