On May 25, 2022, the Alberta Court of Appeal reviewed a Chambers Judge's summary dismissal decision in Condominium Corporation No. 0522151 (Somerset Condominium) v JV Somerset Development Inc., 2022 ABCA 193 (“JV Somerset”). The Issue on appeal is whether the developer of a condominium building is liable for construction deficiencies that emerge many years after the units are sold to the original owners.
The Respondent to this appeal was the developer of a 215-unit condominium which was completed in 2005. The units were sold in late 2004 to early 2005. Starting in 2012, significant damages were identified due to alleged deficiencies in the design and construction of the condominium's balconies. It was alleged that the balconies were not constructed with the specifications used to obtain the building permits. The Condominium Corporation (the Appellant) decided to completely replace all of the balconies and sue the Respondent for the cost of repairs. The Appellant commenced their claim in tort and breach of fiduciary duty in 2014, almost 10 years after the building was constructed.
The Respondent brought a summary judgment application and the Chambers Judge dismissed the Appellant's claim on the basis that a developer is not involved in the physical construction but rather initiates the project and is the vendor of the units to the initial purchasers. Effectively, the Chambers Judge found that a developer that is not actively involved in construction has no duty of care to detect or prevent defects in construction, and is not vicariously liable for any breaches by the contractor or subcontractors.1
The Appeal Decision
The Court of Appeal explored potential liability of a developer for construction deficiencies under three categories:
- Contractual duties, including contractual covenants implied by law,
- Statutory duties, or
- Breach of a duty in tort.
The Court of Appeal noted that the Appellant's claim did not plead breach of contract and there was no legislation at the time of construction that imposed a statutory duty on developers regarding the quality of construction. The Court of Appeal then turned to determining if there was any potential liability in tort.
The Court of Appeal considered principles contained in Winnipeg Condominium Corporation No 36 v Bird Construction Co, 1995 CanLII 146 (SCC) (“Winnipeg Condominium”). In Winnipeg Condominium, it was found that a “contractor could owe a duty in tort to subsequent purchasers of the building if it was foreseeable that a failure to take reasonable care in constructing the building would create defects that posed a substantial danger to the health and safety of the occupants”.2 A finding of duty of care is predicated on there being a “real and substantial danger”.3
In the same way, the Court of Appeal in JV Somerset found that it could be possible that a developer, even one not actively involved in construction, could owe a duty of care to subsequent purchasers if it was foreseeable that a failure to take reasonable care would create defects that posed a real and substantial danger.
The Court concluded, “liability in tort of a developer… for repairing construction deficiencies that pose a real and substantial risk of harm is unclear”.4 The appeal was allowed, and it was found that the action must continue to trial.
The Court of Appeal overruled the Chambers Judge's reasoning that a developer that is not actively involved in construction has no duty of care to detect or prevent defects in construction, and is not vicariously liable for any breaches by the contractor or subcontractors. By doing so, the Court of Appeal followed the reasoning of the Supreme Court of Canada and allowed for the possibility that a developer that is not actively involved in the construction of a building could be liable in tort for construction deficiencies that pose a real and substantial risk of harm.
Given that JV Somerset is a summary dismissal appeal, the ultimate question of whether a developer owes a duty of care to subsequent purchasers remains to be seen.
1 Condominium Corporation No. 0522151 (Somerset Condominium) v JV Somerset Development Inc., 2022 ABCA 193 at para 12.
2 Ibid at para 26.
4 Ibid at para 40.
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