Beware Implied Terms in Building Contracts
Assisted by Nicole Monteiro
On 27 February, 2019, the Supreme Court of Victoria handed down a decision in Zeng v Leeda Projects Pty Ltd (2019) VSC 106 involving a breach of an implied term to complete building within a reasonable time and determined to award damages against a builder in relation to the homeowner’s loss of use and enjoyment of property.
In 2011, Yun Zeng (Ms Zeng) purchased a whole floor apartment in Melbourne for almost $6,000,000. At the time of purchase, the apartment was a shell and required renovations to be completed prior to Ms Zeng occupying the apartment.
In 2013, Ms Zeng engaged and entered into a building contract with Leeda Projects Pty Ltd (Leeda) to carry out fit-out works which included a residence and private gallery. The building contract provided for the works to be completed by 3 December, 2014. However, the works took an extra 130 weeks to be completed.
Victorian Civil & Administrative Tribunal (VCAT)
Ms Zeng initiated proceedings in the VCAT, asserting that there was an implied term of her contract with Leeda such that the works would be completed within a reasonable time and claiming damages for the loss of use and enjoyment of her apartment.
The Senior Member in VCAT agreed the weekly rental value of Ms Zeng’s apartment was between $2,500 to $3,000 but rejected her claim for damages for loss of use of the apartment. Ms Zeng was ordered to pay for sums owed to Leeda under the contract while Leeda was ordered to pay Ms Zeng a sum of $100 as nominal damages.
Appeal to the Supreme Court of Victoria
Ms Zeng appealed the VCAT decision with the Supreme Court of Victoria. The Supreme Court overturned the VCAT judgement and held:
- There was an implied term in the contract requiring the building works to be completed within a reasonable period; and,
- Damages were to be awarded to Ms Zeng for the rental value of her apartment during the period of delay by Leeda.
Interestingly, the Court ruled in Ms Zeng’s favour despite there being no loss of residential income as Ms Zeng never intended to lease the apartment and she hadn’t incurred any expenses with alternative accommodation as she had her own residential property in Melbourne.
The Court found that Leeda was of the understanding that the apartment was to be used as a residence and gallery and any reasonable person would have anticipated the loss of use of the apartment due to the breach of works.
If the building contract had been met, Ms Zeng would have had an extra 130 weeks to use the property for both her residence and private art gallery. The Court therefore held that Ms Zeng had suffered a loss and awarded $145,555.80 in damages in her favour - a sum proportional to the lost weekly rent for the 130 weeks.
When entering into contracts it is important that parties fully understand both the express and implied terms.
If you need assistance in understanding your contract or are presently in a contractual dispute relating to a property or building contract, Coleman Greig's Commercial Property and Litigation and Dispute Resolution teams can provide high quality advice.