Tribunal finds owner of land is not a developer and therefore, not liable for building defects

Nick Kallipolitis

In a recent matter, the partition of land before it was subdivided, and the timing of registering strata lots, resulted in a decision where the owner of the land was not considered to be a developer under the Home Building Act (the Act). As such, the owner bears no liabilities regarding statutory warranties in the Act. So what happened, and what are the lessons to be learnt?

What are statutory warranties?

Statutory warranties are warranties that a person is entitled to under the contract with a builder/tradesperson. Even if the warranties aren’t written into the contract, under the law they still apply to the work being done on a home. Statutory warranties are in effect for six years for major defects and two years for all other defects, commencing from the date of completion.

The Act states that anyone who is the immediate successor in title to an owner-builder, a holder of a contractor licence, a former holder or a developer who has done residential building work on land is entitled to the benefit of the statutory warranties as if these parties were required to hold a contractor licence and had done the work under contract with that successor in title.

What happened in this instance?

In 2007, Trilogy Capital (Cremorne Developments) Pty Ltd (TD) and Trilogy Capital Services Pty Ltd (TC) bought land in Cremorne as tenants in common.

Development consent was obtained to build a mix of commercial and residential buildings. TD contracted with a building and construction company, Southern Cross Constructions, to undertake the work.

After the Occupation Certificate for the residential work was issued in October, TD and TC applied to North Sydney Council for two strata subdivisions, dividing Lot 1 into 7 commercial lots and Lot 2 into 17 residential lots. Around the same time TD and TC transferred their respective holdings to each other at the bargain basement price of $1.00 so TC became the full owner of Lot 1 and TD owned all of Lot 2. The strata subdivision was registered at the end of November.

In December strata plans were registered - 79706 for TC’s commercial lots, and 79707 for the residential lots owned by TD.

Work proceeded but things went pear-shaped in 2013 and the Owners Corporation of the residential lots commenced proceedings in the NSW Civil and Administrative Tribunal against the builder. Southern Cross was placed into liquidation so the Owners Corporation pursued TD as the developer. Unfortunately for the Owners Corporation, TD was also in trouble and it too went into liquidation. With only one horse left in the race, the Owners Corporation went after TC in an attempt to rectify the defective works.

So who is a “developer”?

According to the Act; an individual, partnership or corporation is a developer if residential work is undertaken on land they own – even if they haven’t physically been involved in the development. They are also classified as a developer if the work is done on behalf of another person - for example, on behalf of a party to a joint venture agreement with the owner for the development of the land. The person on whose behalf the work is actually done is also a developer.

It’s important to note that the work undertaken must be done in connection with an existing or proposed dwelling in a building or residential development where at least four of the dwellings are or will be owned by the individual, partnership or corporation.

In this matter, the tribunal had to determine whether TC was a 'developer' within the meaning of the Act and as such liable for a breach of the statutory warranties. It also has to establish whether the Owners Corporation was the 'immediate successor" in title.

The outcome

The Owners Corporation argued that the residential dwellings existed by 29 November, 2007 – at which point in time, TC was still a 25% owner of both lots as tenant in common and as such, owned four or more of the residential lots.

TC didn’t dispute the previous ownership however, said that by the time the Owners Corporation became successor in title to whomever owned the residential lots in December, TD was the only owner.

The tribunal member agreed with TC, ruling that statutory warranties weren’t applicable. The Owners Corporation was unsuccessful in appealing the decision to the Appeal Panel which reaffirmed the opinion of the tribunal that TC was in fact, not a developer. The Appeal Panel cited the fact that the strata home units couldn’t be owned until after the strata plan had been registered and TC was never intended to have any ownership after this registration had taken place. 

Whilst the decision is in no way definitive it may allow 'developers' to argue that they are not bound by the statutory warranties where there has been a partition of land or a transfer prior to the registration of the strata plan.

If you have any questions about statutory warranties please contact:

Nick Kallipolitis, Principal
Phone: +61 2 9895 9210
Email: nkallipolitis@colemangreig.com.au