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Construction Law News October 2012

A new perspective on Strata Owners' ability to claim for Defective Works

Claims for defective building works brought by strata Owners’ Corporations against builders and developers of strata complexes may be brought either pursuant to the statutory warranties under the Home Building Act 1989 Part 2C, or by way of common law negligence claims. This is to be distinguished from the Home Owners Warranty Insurance which is not required to be provided for residential buildings over 3 storeys and 2 or more dwellings.

Claims brought pursuant to the common law of negligence have often been brought due to the fact that many defects do not become apparent until the statutory warranty period under the Act has expired, or it is difficult to calculate the date on which the defects liability period commenced. However, the recent Supreme Court of NSW decision of McDougall J in Owners Corporation Strata Plan 72535 v Brookfield held that builders and developers do not owe a strata plan owners corporation a duty of care with respect to defective works, which means that the only recourse a body corporate may have against builders and developers if to bring a claim under Part 2C of the Act.

The law previously rested on cases such as Bryan v Moloney and Woolcock Street Investments v CDG Pty Ltd, which held that a duty of care could be owed by builders and developers to subsequent owners of the properties they constructed, due to the vulnerability of subsequent owners to financial or “pure economic” loss caused by negligence on the part of the builder, surveyor, engineer or designer responsible.

In Brookfield, however, McDougall J did not consider the issue of whether or not the vulnerability of the owners corporation as subsequent owner of a building warranted builders and developers being liable for defects in negligence, but considered whether or not it was appropriate for courts to extend the liability of builders and others where the Parliament had expressly legislated for builders to be liable in certain instances. His Honour held that it was not appropriate for courts to extend the liability of builders and developers here beyond the limits of liability imposed by Parliament under statute.

If allowed to stand, this decision will confine owners corporations to bringing claims under Part 2C of the Home Building Act only, with respect to defective works. This limitation of the rights of owners corporations to pursue builders and developers for defects is compounded by recent changes which limit defects liability periods to 2 years for non-structural and 6 years for structural defects for contracts entered into after 1 February 2012.

Please do not hesitate to contact Forum Law to discuss any problems you may have relating to defective building works, whether they affect a Strata unit or Torrens Title property.

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