Strata Buildings – defective common property and claims against the developer

07/09/2018

It is often the case that developers build multi unit apartment blocks and then the purchasers discover that the building work is defective. The usual remedy that purchasers have to recover the cost of rectification of the defects is to sue the builder who carried out defective work.

However often the builder can no longer be found and a claim is impossible.  This happens when the builder is a company and it is in liquidation or the builder disappears or is made bankrupt.

In this case, what remedies do the purchasers have and can the owners claim for the damage to common property caused by the defective work?

The first enquiry is to ascertain whether there is Home Owners Warranty Insurance or Builders Warranty Insurance.  Not all residential building works require the Builder to obtain Builders Warranty Insurance or Home Owners Warranty Insurance.  If there is insurance, a claim can be made.  However please note there are requirements to be complied with before and after the Builder has “disappeared” and time limits apply.

Another avenue that the new owners have in relation to damage both to the lots and the common property is to pursue the developer under the Home Building Act, 1989.

However the developer is not necessarily the entity that automatically comes to mind, which is the person who organises the building of a multi unit development.

The developer under the Home Building Act is something different; it is the owner of the land on which the development takes place.

Section 3A of the Home Building Act provides that where there is residential building work done in connection with a proposed dwelling in or residential development where 4 or more of the proposed dwellings will be owned by a person and that person is the owner of the land, that person is the developer.

So for example, where a company owns land and a builder erects an apartment block and after the registration of the strata plan, four or more of the apartments will be owned by that company, then that company under section 3A of the Home Building Act is the developer.

The important consequence of this is that under section 18C of the Home Building Act, a person who buys from such a developer and discovers defective building work caused by the developer’s builder can sue the developer for his or her losses.  This is the case even if the developer did not have a building contract with the builder for the builder to carry out the work.

The result is that even if the builder is insolvent and cannot be pursued, the new owner who finds defective work in the apartment can still recover against the developer, who is often the person who sold the apartment to the new owner.

This situation has been discussed in various cases in the NSW Court of Appeal. Two cases, one being the MJA Group case in 2011 and another being the King case in 2018 have reviewed the operation of section 3A and 18C.  In both those cases the Court held that the new owner who discovers the defective work can recover against the previous owner in the development, if that previous owner came within the definition of developer in section 3A.

The above applies in the unusual case however, there may be a different outcome in some cases.

Please note that time limits apply and the Home Building Act requires notification of possible claims.  For example, Notification is required before the expiration of
6 months from when the defect first becomes apparent.

Watson & Watson Solicitors are specialists in building and construction law and litigation and can assist you in reviewing contracts and correspondence and advising you on litigation or disputes regarding building law.

Please contact Richard Watson Accredited Specialist Building & Construction and Senior Strata Lawyer or Shereen Da Gloria his personal assistant to discuss your concerns if your newly constructed strata unit is plagued with defective building work/s and you seek advice as to rectification of those defects and importantly, what time limits apply in pursuing the culpable entity, be it the builder or the developer to right the wrong.

This is only a preliminary view and is not to be taken as legal advice without first contacting Watson & Watson Solicitors on 02 9221 6011.