The rights of successors in title and classifying non-contracting owners

01.05.2016 Sandy Godfrey

Non-contracting owners as successors in title cannot imply warranties into sub-contracts under section 18D(1) of the Home Building Act 1989 (NSW).

The case The Owners - Strata Plan No 74602 v Brookfield Australia Investments Ltd [2015] NSWSC 1916 deals with the enforceability of the statutory warranties under section 18B of the Home Building Act 1989 (NSW) (HBA) against contractors and sub-contractors.

A developer engaged Brookfield Australia Investments Ltd (builder), to build a residential development under a design and construct contract. Under a sub-contract (Contract).  G James Glass & Aluminium Pty Ltd (sub-contractor) designed and constructed for the builder certain elements of the facade of the building pursuant to a subcontract (Subcontract).

The Owners of Strata Plan No 74602 (owners corporation) claimed damages from the builder for breach of contract, and from both the builder and the subcontractor for breach of the statutory warranties in section 18B of the HBA (Statutory Warranties) and at common law.  The owners corporation's claims arose from water ingress through the window assemblies and the facade as well as other defects.

The owners corporation argued that:

  • the facade of the building needed to be completely replaced;
  • the facts of this case could be distinguished from Brookfield v Owners Strata Plan No.61288 [2014] HCA 36 (Brookfield), where it was held that a contractor did not owe a duty of care to avoid pure economic loss to a subsequent purchaser of commercial property; and
  • the developer was a non-contracting owner under section 18D(1A) of the HBA in respect of the subcontract and that as successor in title to the developer under section 18D(1A) of the HBA, the owners corporation was entitled to enforce the Subcontract and the Statutory Warranties against the subcontractor.

There was no dispute that the owners corporation was entitled to enforce the Statutory Warranties and the Contract against the builder as successor in title to the developer under section 18D(1A) of the HBA.  The builder agreed to pay for the cost of rectification of certain defects identified by the owners corporation but denied that complete replacement of the facade was reasonable rectification or that it owed a common law duty of care to the owners corporation.

The sub-contractor contended that:

  • the developer was not a non-contracting owner under section 18D(1A) of the HBA in respect of the Subcontract and therefore the owners corporation's Statutory Warranties claim against the subcontractor was not maintainable; and
  • in any event, the owners corporation's Statutory Warranties claim against the subcontractor was brought out of time and statute-barred.

The subcontractor also denied that it owed a common law duty of care to the owners corporation.

The court found against the owners corporation:

  • the Brookfield decision was not relevantly distinguishable from this case as the owners corporation was not vulnerable to the possibility of economic loss and there was a building contract in place which contained detailed provisions concerning defects, and therefore the builder nor the subcontractor owed a common law duty of care to the owners corporation;
  • the replacement of the whole facade would be out of all proportion to the benefit to be obtained;
  • the phrase 'contract to do residential building work in' section 18D(1A) of the HBA refers to a building contract, not a subcontract to a building contract.  As the developer was not a party to the Subcontract, it was not a 'non-contracting owner' under section 18D(1A) of the HBA. The owners corporation therefore could not claim against the subcontractor for breach of the Statutory Warranties as the developer's successor in title and
  • in any event, the Statutory Warranties claims against the Subcontractor were barred by statute because the limitation period of 7 years had expired.

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https://www.minterellison.com/articles/the-rights-of-successors-in-title-and-classifying-noncontracting-owners

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