Canada: Do Property Developers Owe A Duty Of Care To Subsequent Property Buyers?

On May 25, 2022, the Alberta Court of Appeal (“the Court”) released its decision for Condominium Corporation No. 0522151 (Somerset Condominium) v JV Somerset Development Inc., 2022 ABCA 193 (“JV Somerset”). Roberto Noce, Q.C. and Michael Gibson of Miller Thomson LLP acted for the appellant, Condominium Corporation No. 0522151 (the “Corporation”). The decision leaves open the possibility that a property developer, who was not involved in the construction of the property, may owe a duty of care to subsequent property buyers with respect to the proper construction of the property.

Factual background

In JV Somerset, the developer, JV Somerset Developments Inc. (the “Respondent”), constructed a 215-unit condominium, in  which units were sold to members of the public in late 2004. Approximately eight (8) years later, significant water damage to the units' balconies was  identified due to deficiencies in the waterproof membranes. The Corporation replaced all the balconies and sued the Respondent for the cost of repairing the deficiencies, while framing its claim in tort and breach of fiduciary duty.

The Corporation  asserted that the identified defects were dangerous and created a substantial risk to the health and safety of the occupants of the condominium, including potential loss of life, which was reasonably likely to materialize within the useful life of the balconies. The Corporation sought the costs of rectifying the identified defects.

The Respondent did not deny that it was the “developer” of the condominium building or that the balconies were deficiently designed or constructed and in need of replacement. Instead, the crux of its defence was that it did not act as the general contractor and was not involved with the design, construction or inspection of the condominium building. The developer argued that, while a contractor may have tortious duties to the ultimate owners of a building, the developer that initiated the development of the building is not liable in tort for deficiencies unless it was actually involved in the physical construction itself.

The Respondent's  application for Summary Judgment was granted on the basis that “there was no evidence that the developer was actually involved in the physical construction” of the building. The chambers judge accepted that “a developer who is not actively involved in the 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.”

Judgment of the Court

The Court overturned the chambers judge's decision, holding that “the liability in tort of a developer like the respondent for repairing construction deficiencies that pose a real and substantial risk of harm is unclear” and that it was “not possible to dispose of the [Corporation's] claim on a summary basis.” The action was ordered to continue to trial. In reaching this conclusion, the Court relied on the principles established by the Supreme Court of Canada in Winnipeg Condominium Corporation No. 36 v Bird Construction Co., [1995] 1 SCR 85 (“Winnipeg Condominium”).

In Winnipeg Condominium,  an action was brought against a general contractor and its subcontractors for the cost of replacing the building's cladding when a large section of the cladding on the ninth floor fell to the ground. However, the developer in Winnipeg Condominium, who played a similar role to the Respondent, was not sued. The Court found that a contractor could owe a duty in tort to subsequent purchasers 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. If the danger actually manifested itself and caused personal injury or damage the contractor would be liable.” Alternatively, if the damage was identified and remedied before actual injury or damage occurred, then that cost was recoverable. The duty in tort to construct a building in such a manner to not contain dangerous defects was found to arise independently of any contract.

The Court reasoned that if there was sufficient proximity between the contractor and subsequent owners of the units in Winnipeg Condominium, it is arguable that there would be sufficient proximity between the developer and subsequent purchasers in the case before it. If a duty of care was thus found, the standard of care would then need to be determined, where the lack of a hands-on role will be relevant to setting the standard of care.

The Court declined to provide a definitive answer on whether a duty of care was owed by the developer to subsequent buyers, and what the applicable standard of care would be. A more complete record was required to determine these issues.

Key Takeaways

The decision in JV Somerset illustrates how the duties of care which have been found to exist between some stakeholders in the construction industry can be extended to other stakeholders in analogous situations. The standards of care to be met may vary depending upon the involvement of the particular stakeholder. However, it would be incorrect to assume that a stakeholder can automatically absolve itself of all related and potential duties of care due to its apparent lack of involvement in a particular aspect of a construction project. JV Somerset illustrates that the Courts are prepared to adopt a much more nuanced analysis.

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.