Canada: Developer Liability For Dangerous Defects: Questions Remain Unanswered

Can a construction developer be found liable for latent deficiencies even if they were not involved in the actual construction of a building? The Alberta Court of Appeal considered this question in Condo Corp No 0522151 (Somerset Condo) v JV Somerset Development, 2022 ABCA 193, which involved construction deficiencies that were identified approximately 7 years after the building was constructed.

Background

The defendant, JV Somerset Development (the "Developer"), was the developer of a new condominium building. Majority of the units were sold to the public in 2004 and 2005. The balconies on these units were described as 'common property' and were under control of the plaintiff, Somerset Condominium (the "Condominium Corporation").

In 2012, the balconies began having issues with water infiltration and rot. Engineers were retained for assessment and determined the waterproof membranes were faulty which led to damage to support beams. The Condominium Corporation took steps to repair the balconies to a state which met the applicable building code.

The Condominium Corporation filed a claim against the Developer along with a variety of contractors, architects, engineers, project managers, and the City of Edmonton to recover the costs of repair. The Developer brought an application to have the claim against it dismissed. This application was granted by a chambers judge on the basis that the Developer had no active role in construction and could not be held liable for the resulting defects. The Condominium Corporation appealed the chambers judge's decision.

Court of Appeal

The Court of Appeal was asked to reconsider the chambers judge's decision to dismiss the Condominium Corporation's claim against the Developer. The main issue on appeal was whether a condominium developer may be liable for construction deficiencies arising years after the initial sale of the condominium units to purchasers.

The Court of Appeal noted 3 avenues for establishing liability against a developer: contract, statutory duty, and tort law. The Court of Appeal determined that a claim based in contract was not able to be considered because no party submitted any specific contracts into evidence. Further, a claim based in contract would have issues because the Condominium Corporation was not a party to any contracts with the Developer (the contracts were between the Developer and the original owners of the units).

The Court of Appeal also determined that a claim based on statutory duty was unavailable because all the statutes cited by the Condominium Corporation were inapplicable.

The remaining and most relevant avenue for liability was tort law, whereby the Court of Appeal relied on Winnipeg Condo v Bird Construction, [1995] 1 SCR 85, ("Winnipeg Condo") a decision of the Supreme Court of Canada. In Winnipeg Condo, the Supreme Court of Canada held that a contractor owes a duty to subsequent purchasers of a building to take reasonable care to construct the building in such a manner that it does not pose a substantial danger to the occupants.

The Court of Appeal also relied on 1688782 Ontario v Maple Leaf Foods, 2020 SCC 35, a case in which the Supreme Court of Canada held that the duty arising in Winnipeg Condo can only be found in situations where there is sufficient proximity between the parties.

Decision

With those two cases in mind, the Court of Appeal first considered the issue of whether the alleged deficiencies in the balconies posed a substantial risk of danger to the occupants of the building. The Court of Appeal determined that it was "not implausible" for the balconies to pose a substantial risk of danger, because a balcony could potentially collapse while someone was standing on it.

Secondly, the Court of Appeal considered the issue of whether there was sufficient proximity between the Developer and the Condominium Corporation for the Developer to owe a duty to the Condominium Corporation. The Court of Appeal held that since there can be sufficient proximity between a contractor and a subsequent owner, then arguably there can be sufficient proximity in similar circumstances involving a developer. The Court of Appeal further held that the mere fact that the Developer had no hands-on involvement with the construction of the building does not preclude the Developer from liability.

Lastly, the Court of Appeal noted that, if the Developer did owe a duty, then the question of the standard of care required by the Developer in discharging that duty remained in issue. In this regard, the Court of Appeal highlighted a number of points for consideration:

1. is it sufficient for a developer to merely hire competent contractors,
2. do developers need to retain skilled engineers to monitor the course of construction,
3. was the developer supervising construction work themselves and if so, did they do it competently, and
4. overall, how hands-on was the developer in the actual construction?

Ultimately, the Court of Appeal found in favor of the Condominium Corporation, and overturned the chambers judge's decision to dismiss the Condominium Corporation's claim against the Developer.

Summary

Overall, the takeaway from Somerset Condo v JV Somerset Development is there is not yet any clear and authoritative case law to determine whether a developer can be held liable to subsequent owners for construction deficiencies. Practically, without any clear answer from the Court, developers still have liability risks to be aware of, even from subsequent owners years after completion and sale. It is important for developers to remain aware of their level of involvement in a project, and to ensure that any participation on their part is done properly.

On the other side, condominium corporations and property owners should be aware that it remains open to them to pursue a developer for dangerous defects. However, they must still establish that the developer had relatively unique duty, and show that the developer acted improperly in executing their involvement. The potential for a developer to avoid liability remains.