On 25 September, 2013 the NSW Court of Appeal handed down judgment in The Owners – Strata Plan No 61288 v Brookfield Australia Investments Ltd. Brookfield (then called Multiplex Constructions Pty Ltd) constructed serviced apartments under a construction contract with a Developer. Following completion of the building a strata plan was registered. Latent defects in the serviced apartments were later discovered and the owners corporation sued the Builder, Brookfield in negligence. The Court of Appeal held that the Builder had a duty to the Owners Corporation to exercise reasonable care to avoid causing loss to the Owners Corporation arising from latent defects which:
(a) were structural, or
(b) constituted a danger to persons or property in, or in the vicinity of, the serviced apartments, or
(c) made those apartments uninhabitable;
In other words, the Builder would be liable to the owners corporation for latent defects in any of those 3 categories which were caused by its negligence. This was a legal point which had previously been unsettled.
The builder's duty of care would not be greater than its contractual duty.
Because construction of the serviced apartments was not residential building work under the Home Building Act the owners corporation did not have the benefit of statutory warranties under that Act. The case leaves open whether a builder owes the same duty of care to an owners corporation which has the benefit of statutory warranties under the Home Building Act.
The builder's duty of care only applies in favour of a subsequent owner which is "vulnerable" meaning unable to protect itself. A commercial building purchaser which has the opportunity to undertake due diligence and negotiate contractual terms is unlikely to be "vulnerable". The Court of Appeal held that an owners corporation is vulnerable because it is a creature of statute and automatically becomes the owner of the common property when the strata plan is registered and can do nothing to protect itself in relation to building defects.
The most obvious exposure for a builder as a result of this case would be where a strata plan is registered for the building and the units are not residential.