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Developers and owners

Construction Law News | February 2016


With the explosion in the number of new apartment buildings being constructed in our cities, questions have arisen regarding the warranties on the quality of building workmanship which must be provided by Developers to the Owners Corporation of an apartment building.

Where a developer has engaged a builder to perform residential building works, sections 18B and 18C of the Home Building Act 1989 (NSW) [“the HB Act”] require the developer, as well as the builder to provide statutory warranties which relate to the quality of these building works. The statutory warranties relating to quality of workmanship are outlined in section 18B of the HB Act.

Section 18D of the HB Act entitles a person who is a subsequent owner of a residential building which has been built by a “developer” to receive the benefit of these statutory warranties against the developer, as if the developer was the builder and subsequent owner was the developer who contracted with the builder. The subsequent owner is referred to as “a successor in title”.

The recent decision from the NSW Civil and Administrative Tribunal [NCAT] in The Owners-Strata Plan No.79707 v Trilogy Capital Services Pty Ltd [2015] NSWCATAP 171 considered the questions of “who is the immediate “successor in title”” and “who is the “developer”?”, particularly where the development is registered as a strata plan and the Owners Corporation becomes the successor in title. The outcome of this case may be unwelcome news to lot owners in new strata plan developments.

Who is a developer?

Under section 3A of the HB Act, a developer is an entity on whose behalf a builder performs residential building work in connection with an existing or proposed dwelling, where four or more of the dwellings are or will be owned by the said developer.

This question has been recently investigated in the case above, where two companies, Trilogy Capital (Cremorne Developments) Pty Ltd [“Trilogy Developments”] and Trilogy Capital Services Pty Ltd [“Trilogy Services”], purchased some land in Cremorne NSW in unequal shares and divided it into commercial and residential lots.

Trilogy Developments engaged a builder to construct a five-storey residential and commercial building on the land. Trilogy Services’ lot [“Lot 101”] intended to be the owner of the 7 commercial lots and Trilogy Developments’ lot [“Lot 102”] intended to be the owner of the 17 residential lots.

In 2007, Trilogy Services owned 100% of Lot 101 and Trilogy Developments owned 100% of Lot 102. Trilogy Developments registered the strata plan 79707 for the 17 residential lots. The immediate successor in title for strata plan 79707 [formerly Lot 102] became the Owners-Strata Plan 79707 [“the Owners Corp”].

In 2013 the Owners Corp commenced proceedings for defective work against the builder of the residential lot. The builder had been placed into liquidation and so the Owners Corp joined Trilogy Developments to the proceedings as a “developer” within the meaning of section 3A(1A) of the HB Act. Trilogy Developments had also been wound up and no longer held any assets.

The Owners Corp then attempted to join Trilogy Services to the proceedings, alleging that there were a “developer” under the HB Act and were liable for the defective work to Lot 102. The Owners Corp also argued that because Trilogy Services were also a registered proprietor of the land, when the building work was performed on their behalf by the builder.

To support their claim, the Owners Corp had to establish that:

a. They were an immediate successor in title to Trilogy Services [s18C of the Act]; and

b. Trilogy Services were a corporation on whose behalf the builder performed the residential building work in connection with an existing or proposed dwelling in a building or residential development, where four or more of the existing dwellings are or will be owned by Trilogy Services [s3A(2) of the Act].

Trilogy Services argued that whilst the building works were performed in relation to proposed dwellings in a residential building, it was not their intention to be an owner of any of the proposed dwellings and so they were not a developer for the purposes of section 3A(2) of the HB Act.

Conclusion

In this case, the NCAT Tribunal Member considered that, pursuant to section 18C of the HB Act, a person who is the immediate successor in title to a developer who has done residential building work on land is entitled to the benefit of the statutory warranties as if the developer was the builder and had done the work for the successor in title.

The NCAT Tribunal Member also considered that Trilogy Services did not ever intend to be the owner of any of the residential lots in Lot 102 and found that Trilogy Services were not the developer under the Act, as it was not the owner of Lot 102 prior to the registration of the strata plan and the Owners Corp were not the “immediate” successors in title to Trilogy Services. Trilogy Developments was the intervening owner before the Owners Corp.

As a result of the decision in this case, in circumstances where a developer has engaged a builder to perform residential building works, owners corporations, or other successors in title, need to be aware that they can only sue the developer in circumstances were they are an “immediate” successor in title to that developer and there is no intervening owner or other developer.

Forum Law can advise and assist builders, sub contractors, architects, engineers and consumers in home building and commercial construction law. If you have any questions or concerns about legal matters regarding building and construction law give us a call for an obligation free chat for up to 30 minutes on the phone or make a time to visit us in Leichhardt on 02 9560 3388.

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