Financing any form of litigation is expensive, and building defect litigation is no exception. Because these cases often involve multiple rounds of testing, expert reports, and investigations, the associated fees can make them one of the most costly types of legal action for an owners corporation.

Using Reserves

Building defect cases usually arise early in the life of a strata scheme, when capital reserves are often low or non-existent. However, if funds are available in the sinking (capital works) fund, they may be used to finance litigation—but only to the extent that the claim relates to repair, replacement, restoration, or maintenance of major components for which the fund was established.

Bank Loans

Some banks will lend money to strata schemes for the purpose of maintaining and repairing common property. However, this type of lending generally does not extend to financing defect investigations or litigation. Owners corporations and community associations are also prohibited from giving security for such loans, which makes this funding pathway more challenging.

Solicitor’s Finance

Unlike the practice in the United States, Australian construction defect lawyers are unlikely to finance outlays such as testing, repairs, or barristers’ fees. This is due to restrictions in Australia on contingency or success fees. In addition, advancing money for outlays or extending credit for ongoing work can create conflicts of interest, as the lawyer then has a financial stake in the outcome of the case.

Conclusion

Financing building defect litigation can be one of the most difficult challenges for strata schemes. While sinking fund reserves may provide some support, other avenues such as bank loans and solicitor’s finance remain limited. Careful planning and early legal advice are critical to navigating these complex cases effectively.

Thanks to Teys Lawyers for insights on this topic.