The Owners  Strata Plan 61288 v Brookfield Australia Investments (New South Wales Court of Appeal, 25 September 2013)

BACKGROUND

SP 61288 is the owner of the common property of serviced apartments, the Mantra Chatswood Hotel (rather than a residential development).  The statutory warranties by the builder under the Home Building Act (which allow a 6 year period for the discovery of structural defects) did not apply to the construction, as those warranties only apply to residential building work.

The building was completed I 1999, and he contract between the developer and the builder limited the defects rectification period to 52 weeks.

In 2004, the strata plan discovered defects in the common property.

THE SUPREME COURT DECISION

Justice McDougall in the Supreme Court concluded that the builder did not owe a duty of care to the strata plan.  His Honour suggests that the strata plan would have a better claim against the builder than the developer’s claim against the builder (which was limited to 52 weeks).  His Honour also gave consideration to the negotiations between builders and developers, which, in this case, were based on the limited defect’s warranty period.  He commented  (at paragraph 92) on the social question of the builder’s cost if there was a ‘transmissible warranty’ and  “the cost to builders and the economic effect of such an extension”.

THE COURT OF APPEAL DECISION

Justice Basten provided the lead judgment, finding that there was a limited duty of care for the strata plan’s economic loss (the cost to rectify the defects), stating:

…there are significant features which militate in favour of the existence of a duty of care covering loss resulting from latent defects which (a) were structural, (b) constituted a danger to persons or property in, or in the vicinity of, the serviced apartments, or (c) made them uninhabitable. The existence of a duty expressed in those terms should be accepted.

THE EFFECT OF THE DECISION

This decision is likely to be limited to:

• commercial strata properties;
• for the losses resulting from latent defects;
• where the defects were structural, constituted a danger to persons or property in the vicinity, or made the units uninhabitable.

In those cases, the owners corporation may be able to recover the costs of the rectification of the defects from the builder, regardless of any limitation periods in the building contract.  The 6 year limitation period for the commencement of proceedings starts once the latent defect is discovered.

The decision is unlikely to apply to residential strata plans.  Residential strata plans have the benefit of the statutory warranties under the Home Building Act, and there is an argument therefore that the warranties under the Act are the limits of the protection for defective residential properties.   Justice McDougall commented that “it was not appropriate for the court to impose some further or more onerous duty of care [than the duty/ warranties under the Act]”.

Peter Bennett, Partner
T: 02 9390 8412
E: peter.bennett@holmanwebb.com.au