Strata Buyers Beware – Your Building may be on borrowed time

Don’t assume statutory warranties will automatically result in recovering money for Building Defect rectification

Public confidence in Strata Development in Australia, is on a slippery slope and at an all-time low.

Streeterlaw warns Lot Owners, Strata Committees and Strata Managing Agents that recovering money for Building Defects is not at all straight forward as it requires strategic planning, complimented with an understanding of competing priorities as well as an understanding of dispute resolution options.

A common Strata Horror Story

A young professional couple, or family buys or invests in Strata or in Off the Plan housing due to the rising cost of housing affordability and the pressure to invest now to get a foot in the market.

Shortly after moving in the young couple or family discover Building Defects and in speaking to their neighbours, they realise that they are not alone.  Then they hear the terrible news that the builders and developers are either in external administration, deregistered or have disappeared. Rectification Building Defect Work needs to be done – the question everyone is asking is “Who is going to pay for it?”.

The answer is, it depends. For the moment, it will be you – directly or indirectly.

Lessons Learnt

The recent lessons learnt from the decision of The Owners –  Strata Plan 81837 v Multiplex Hurstville Pty Ltd [2018] NSWSC 1488  are simple:

1. The Court will examine a party’s entitlement to statutory warranties as a “successor in title” on a case by case basis, after considering and hearing from all of the contractual parties to a development.
2. Prior to commencing proceedings, ensure that the correct entity has brought the claim, with a proper entitlement to relief.
3. Buyer Beware – before you buy understand who is responsible for Building Defects.
4. Litigation is not for the faint hearted – litigate only if you are aware of litigation’s inherent risks.

What should I do if I discover a Building Defect?

Call Strata Legal Solutions team of Accredited Specialists now on 02 8197 0105.

A true story

Sydney Land Holdings Pty Ltd and a variety of companies including SLH 22 entered into a Development Management Agreement (“the DMA”) with Multiplex Hurstville Pty Ltd in Hurstville. Sydney Land Holdings held the property on behalf of eight companies together defined as “trustees,” including SLH 22.

The Project was to construct residential, retail and commercial properties. Under the DMA, Multiplex would obtain a builder to enter into a contract to carry out the Project, but would not build the Project itself. In 2007, Multiplex procured Baseline Constructions Pty Ltd to build the Project.

The Project was discontinued after only two buildings were completed, including a large residential apartment. The registered proprietor of this property – Strata Plan 81837 (“the Owners Corporation”) – alleged that there were defects with the Property, and sought to rely on the statutory warranties implied in the contract as per the Home Building Act 1989.

Statutory Warranties

Under the Home Building Act (“the Act”), “every contract” to do residential building work has implied warranties that both the “work will be done with due care and skill” and “that all materials supplied by the holder or person will be good and suitable for the purpose for which they are used.”

As Sydney Land Holdings had since been deregistered and Baseline was subject to a deed of company arrangement, the only alternative was to attempt to enforce these rights against Multiplex and SLH 22 as “successors in title.” A successor in title is the next person to hold the title.

Under the Act, an “immediate successor in title” is entitled to the benefit of statutory warranties. A person who is a “successor in title” to someone entitled to the benefit of a statutory warranty is entitled to the statutory warranties as well.

The Owners Corporation needed to show that Multiplex and SLH 22 were owners and as such, that this interest had been passed onto them as successors in title, granting them the warranties under the Act.

Were Multiplex and SLH 22 “owners” of the land?

Whilst the Owners Corporation argued that the DMA granted all the rights and entitlements of that of an owner, His Honour found through an in-depth examination of the DMA that that these powers were restricted to Multiplex’s role as a development manager, and did not amount to actual ownership. This was despite the wide powers granted by the DMA to Multiplex, including prohibiting Sydney Land Holdings from doing anything to derogate from Multiplex’s interests.

The Owners Corporation also submitted that SLH 22 was an “owner” as Sydney Land Holdings held such land on trust for SLH 22. The Judge in this case, however, did not find the evidence sufficient to establish that a trust relationship existed.

Although neither Multiplex nor SLH 22 were “owners” for the purposes of the Act, it was also found that the Owners Corporation had not had this interest passed to them. Litigation is complex.

What can I do?

Contact us via https://www.stratalegalsolutions.com.au/

Strata Legal Solutions by Streeterlaw focus on dealing with Building Defects, Strata Disputes and Corporate Governance disputes.

If you need advice, please contact our Accredited Specialist on 8197 0105 or advice@streeterlaw.com.au

Written by Mark Streeter

The Director of Streeterlaw, Mark has been practicing Law since 1994. He has attained his Masters of Law in 1999 and in 2006 was awarded his Specialist Accreditation in Commercial Litigation. Mark is a member of ARITA, a graduate of the AICD and a member of AICM. A member of STEP, Mark enjoys working in the area of Wills and Estates. In 2020 Mark is the Chair of STEP NSW.

Call us on 02 8197 0105 to book an appointment with Mark Streeter!