In brief - Builder and developer of residential resort do not owe common law duty of care to owners corporation
In a recent decision, the Supreme Court held that a builder and a developer of a residential resort did not owe the owners corporation a common law duty of care for building defects in the common property. Although the owners corporation could not rely upon a claim for negligence, it had the benefit of statutory warranties afforded under Part 2C of the Home Building Act 1989 (NSW) against both the developer and the builder.
Owners corporation alleges breach of statutory warranties and common law duty of care
On 29 June 2012, the New South Wales Supreme Court handed down judgment in Owners Corporation Strata Plan 72535 v Brookfield  NSWSC 712 which dealt with whether the developer and builder of the 'Star of the Sea' development resort were liable for building defects to the common property.
In commencing proceedings against Hiltan, the developer and Brookfield, the builder, the owners corporation alleged that there was a breach of statutory warranties under section 18B of the Home Building Act and a breach of a common law duty of care.
Minimum standards and requirements for residential building works
Under section 18B of the Act, statutory warranties for minimum standards and requirements are implied in contracts for residential building works. For the owners corporation to rely upon the warranties, the contract for the development of the resort must be one for ‘residential building works’.
The 'Star of the Sea' is a strata development which comprises 52 strata lots, three of which are permanently occupied as residences by their owners. Since practical completion in 2004, many of the lots have been resold and have been adapted for use as tourist, holiday or overnight accommodation, being a holiday resort.
Construction contract specifies development designed as residential dwellings
In assessing whether the development was one for 'residential building works', the Court held that it is necessary to ascertain the subject matter of the contract at the time it was made. The contract for the construction of the 'Star of the Sea' was held to be residential building work as the lots within the development had been designed for use as residential dwellings.
Although after completion the development had been largely adapted for use as a holiday resort, the contract to design and execute the works was still one to do residential building works. Therefore the owners corporation had rights under the Act against both Hiltan and Brookfield.
No sufficient relationship of proximity between owners corporation and developer and builder
In considering the liability of Brookfield and Hiltan for breaches of their common law duty of care against the owners corporation, the court found in favour of the defendants on three main points in finding that a duty of care relationship did not exist among the parties.
- The owners corporation was already entitled to benefit from statutory warranties and therefore, it was not appropriate for the trial judge to impose an additional common law duty of care.
- There was no sufficient relationship of proximity between the owners corporation and the developer and builder to warrant the imposition of a duty of care.
- A commercial contract had been negotiated between the developer and builder. As the parties negotiated on what appeared to be an equal footing, the court held that it was not appropriate for it to interfere with the contract that was bargained for. As Brookfield did not owe Hiltan a common law duty of care, it did not owe the same duty to the owners corporation, as successor in title to Hiltan of the common property.
Builders and developers do not owe a common law duty of care to an owners corporation
This decision clarifies that builders and developers do not owe a common law duty of care to an owners corporation for design and construction defects associated with the property. Although this provides some comfort to commercial developers and builders, this case also highlights that developers and builders of residential building works must abide by statutory warranties implied in the Home Building Act to ensure that they are not subject to claims for building defects.
This decision also clarifies that if a building is designed and developed for residential purposes but later adapted for use as a commercial hotel resort, statutory warranties under the Home Building Act are still available.
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