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Vivekananda v Insurance Australia Limited t/as NRMA Insurance: meaning of “substantial alteration” in ACT Building Act and Regulation

The Building Act 2004 (ACT) (Act) and Building (General) Regulation 2008 (ACT) (Regulation)) specify that in certain circumstances, if the alterations constitute a “substantial alteration”, then the entire building must comply with the Building Code of Australia so as to obtain the required certification.

Up until 28 February 2014, what constituted a substantial alteration had not been considered by the Courts. On 28 February 2014, in Vivekananda v Insurance Australia Ltd t/as NRMA Insurance [2014] FCA 16, the Federal Court of Australia delivered a decision that clarified how “substantial alteration” in the Act and Regulation is to be interpreted.

Under the Regulation, any alteration of a building is considered to be a substantial alteration if:

  1. for a class 1 building—the total floor area of the proposed alteration, not including any internal alteration, is more than 50% of the floor area of the original building.  The floor area of a building means the area of floor measured from the outer walls of the building and includes the area on each storey of the building if there is more than 1 storey; and
  2. neither refitting a building nor replacing the internal elements of the building is an alteration of the building unless the layout and function of the internal spaces of the building are changed.

The issue that arose is whether the replacement of the entire roof of a building is a substantial alteration.

In Vivekananda, the Applicant’s home was damaged by fire and a claim was made on NRMA Insurance under the policy. NRMA Insurance did not dispute that it was liable to indemnify the Applicant under the policy, but did dispute the amount it was liable to indemnify the Applicant.

The crux of the dispute was whether, pursuant to the terms of the policy, it was enough for the damaged parts of the home to be repaired (NRMA Insurance’s position) or whether the entire home had to be demolished and rebuilt in accordance with the current BCA (the Applicant’s position).  Key to that dispute was whether the Act and Regulations required the entire home to be demolished and rebuilt.

It was agreed that the minimum amount of work that needed to be done to the home was what NRMA Insurance said was necessary – which included the replacement of the entire roof.  The Applicant argued, amongst other things, that upon a proper interpretation of the Act and Regulation, the replacement of the entire roof meant that the entire floor area was altered and therefore constituted a “substantial alteration”. Conversely, NRMA Insurance argued that a “substantial alteration” contemplated additions to a building that resulted in an increase to its floor area of more than 50% and that this was consistent with the examples provided in the Regulation.

The Court held that, in interpreting whether the replacement of the entire roof constituted a substantial alteration, in line with the words used in the Regulation and examples provided, the actual floor area of the building needs to increase by 50% before the work constitutes a “substantial alternation”.   In the current circumstances, this was not the case and the home did not have to be demolished and rebuilt.

The decision is currently being appealed; however, the decision provides some further guidance for certifiers, builders and other stakeholders as to how substantial alteration ought to be interpreted.

William Roberts Lawyers represented NRMA Insurance in this case.

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