I wrote a few weeks ago about the diligence needed by
prospective purchasers of commercial property. However a unanimous
decision by the High Court indicates that commercial investors will
have to be just as careful, particularly when drafting their
contract to protect their own interests.
The case of Brookfield Multiplex Ltd v Owners Strata Plan
61288  HCA 36 concerned the construction of an apartment
complex under a design and construct contract. The apartments were
to be operated collectively as serviced apartments and the lots had
been sold to investors.
An 'Owners Corporation' was formed following the
registration of the strata plan and acted as the manager of the
scheme, as well as the agent for the owners of the serviced
Structural defects in the common property that was registered to
the Corporation, were discovered and this is where everything
The design and construct contract was detailed in its scope for
the quality of work owed and what would be needed to fix any
defects found. Each owner was also owed contractual rights under
the contract for sale in relation to both their own lots and the
Despite this, the High Court still determined that that the
builder had no duty of care to the Owners Corporation for the cost
of repairing the defects in the common property.
The Court determined that a Duty of Care should be confined to
cases where the property is residential, and the subsequent owner
is evidenced to be vulnerable to a builder's lack of reasonable
care. The Court was of the opinion that the Corporation should have
protected their own interests through contract, and held that it
wasn't vulnerable to a builder's lack of reasonable
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Warranties can be risk-shifting mechanisms when the party giving the warranty is not the party at fault for the defect.
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