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In brief - Builder and developer of residential resort do not
owe common law duty of care to owners corporation
In a recent decision, the Supreme Court held that a builder and
a developer of a residential resort did not owe the owners
corporation a common law duty of care for building defects in the
common property. Although the owners corporation could not rely
upon a claim for negligence, it had the benefit of statutory
warranties afforded under Part 2C of the Home Building Act 1989 (NSW) against both the
developer and the builder.
Owners corporation alleges breach of statutory warranties and
common law duty of care
On 29 June 2012, the New South Wales Supreme Court handed down
judgment in
Owners Corporation Strata Plan 72535 v Brookfield [2012] NSWSC
712 which dealt with whether the developer and builder of the
'Star of the Sea' development resort were liable for
building defects to the common property.
In commencing proceedings against Hiltan, the developer and
Brookfield, the builder, the owners corporation alleged that there
was a breach of statutory warranties under
section 18B of the Home Building Act and a breach of a
common law duty of care.
Minimum standards and requirements for residential building
works
Under section 18B of the Act, statutory warranties for minimum
standards and requirements are implied in contracts for residential
building works. For the owners corporation to rely upon the
warranties, the contract for the development of the resort must be
one for 'residential building works'.
The 'Star of the Sea' is a strata development which
comprises 52 strata lots, three of which are permanently occupied
as residences by their owners. Since practical completion in 2004,
many of the lots have been resold and have been adapted for use as
tourist, holiday or overnight accommodation, being a holiday
resort.
Construction contract specifies development designed as
residential dwellings
In assessing whether the development was one for
'residential building works', the Court held that it is
necessary to ascertain the subject matter of the contract at the
time it was made. The contract for the construction of the
'Star of the Sea' was held to be residential building work
as the lots within the development had been designed for use as
residential dwellings.
Although after completion the development had been largely
adapted for use as a holiday resort, the contract to design and
execute the works was still one to do residential building works.
Therefore the owners corporation had rights under the Act against
both Hiltan and Brookfield.
No sufficient relationship of proximity between owners
corporation and developer and builder
In considering the liability of Brookfield and Hiltan for
breaches of their common law duty of care against the owners
corporation, the court found in favour of the defendants on three
main points in finding that a duty of care relationship did not
exist among the parties.
The owners corporation was already entitled to benefit from
statutory warranties and therefore, it was not appropriate for the
trial judge to impose an additional common law duty of care.
There was no sufficient relationship of proximity between the
owners corporation and the developer and builder to warrant the
imposition of a duty of care.
A commercial contract had been negotiated between the developer
and builder. As the parties negotiated on what appeared to be an
equal footing, the court held that it was not appropriate for it to
interfere with the contract that was bargained for. As Brookfield
did not owe Hiltan a common law duty of care, it did not owe the
same duty to the owners corporation, as successor in title to
Hiltan of the common property.
Builders and developers do not owe a common law duty of care to
an owners corporation
This decision clarifies that builders and developers do not owe
a common law duty of care to an owners corporation for design and
construction defects associated with the property. Although this
provides some comfort to commercial developers and builders, this
case also highlights that developers and builders of residential
building works must abide by statutory warranties implied in the
Home Building Act to ensure that they are not subject to
claims for building defects.
This decision also clarifies that if a building is designed and
developed for residential purposes but later adapted for use as a
commercial hotel resort, statutory warranties under the Home
Building Act are still available.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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