Almost every contract for building work on common property in NSW is subject to the provisions of the Building and Construction Industry Security of Payment Act 1999 (SOPA). This legislation sets out strict rules and timeframes that Owners Corporations must follow when dealing with payment claims from builders.

What Does SOPA Require?

Under SOPA, once a builder submits a payment claim:

• The Owners Corporation has 10 business days to serve a payment schedule if it intends to dispute the claim.
• The payment schedule must clearly set out:
  • The amount the Owners Corporation is prepared to pay,
  • Why the amount differs from the claimed amount, and
  • The reasons for withholding any payment.
• If no payment schedule is served within 10 business days, the Owners Corporation becomes liable to pay the full claimed amount and loses the right to raise any cross-claim or defence.
• Even if a payment schedule is served, the builder may still apply for adjudication. Importantly, no new defences can be raised at adjudication that weren’t already included in the payment schedule.
• Once an adjudication application is made, the Owners Corporation has just five business days to lodge its response.

The Problem

SOPA timeframes are short and cannot be extended. In practice, this can leave Owners Corporations in a difficult position. Preparing a compliant payment schedule or adjudication response often requires legal assistance, which may cost more than the amount authorised under Regulation 15 of the Strata Schemes Management Regulation 2010. If approval to engage legal advice is not in place, the Owners Corporation risks losing its legal rights simply because the time limit expires.

The Solution

Whenever an Owners Corporation enters into a building or construction contract for common property, it should proactively protect itself by:

• Passing a general meeting resolution authorising the engagement of legal advice for SOPA matters, based on a fee estimate provided by a solicitor.
• Including a motion about legal advice on the agenda whenever construction contracts are considered or negotiated.
• Ensuring the Strata Committee understands the strict SOPA deadlines and the consequences of non-compliance.

Final Word

SOPA can be unforgiving. Missing a deadline can mean paying the full claim amount, regardless of whether the builder’s claim is valid. By preparing in advance and authorising legal assistance before problems arise, Owners Corporations can safeguard their rights and avoid costly mistakes.