In a County Court decision handed down on 10 September 2008, the judge determined that the Domestic Building Contracts Act 1995 (Vic) (Act) and the protections it affords will not apply to building contracts between builders and owners who are "developers".

The case involved a building contract between the plaintiff builder and two defendant companies for the construction of a large number of residential units (which subsequently were to become a hotel and serviced apartment complex). The builder applied to the Court for summary relief by reference to a contractual payment certificate and also via the security of payment legislation. The defendants sought to stay the builder's application on the basis that the Act applied to the building contract and that VCAT was the appropriate forum.

The judge reviewed various authorities and:

  • noted that the defendant companies were conceded to be developers
  • determined that the Act was not intended to apply to "major commercial transactions" such as that before him in the present case.

The judge refused the defendants' stay application.

In reaching his decision the judge referred to many well known cases, including Winslow Constructions Pty Ltd v Mt Holden Estates Pty Ltd where Hansen AJA of the Court of Appeal stated "the intent of the DBC Act is to protect individual home owners rather than commercial developers", and also Kane Constructions Pty Ltd v Cole Sopov & Ors where Warren CJ stated ..."it seems to me that the Act was not intended to apply to developers".

The judge distinguished the findings in Mirvac (Docklands) Pty Ltd v Philip and Shaw v Yarranova Pty Ltd, on the basis that the disputes in question in those cases concerned vendor contracts between the developer and owner.

The judgment in Glenrich, if correct, raises a number of issues for owners, builders and developers to consider when contracting for the construction of, or purchase of, a home, including whether or not:

  • an owner who is having a home (including apartment) constructed pursuant to a building contract is a "developer"
  • the building contract in question is a domestic building contract for the purposes of the Act and subject to the restrictions and requirements of the Act including:
  • cost escalation clause restrictions and
  • implied warranties in favour of the owner
  • purchasers need to enquire as to the status of the original owner, to determine whether or not the Act applies and therefore whether the purchaser has (subject to limitation issues) the benefit of implied warranties that run with the land pursuant to sections 8 and 9 of the Act.

The judgment contemplates a scenario where subsequent owners will have different rights depending on whether their home was constructed by a builder under a building contract with a "developer" or "non-developer" owner.

We understand that this aspect of the judgement has been appealed. It remains to be seen whether or not the appeal is successful. In the meantime, parties to building contracts involving domestic building work need to give careful consideration to the above issues before finalising their contractual arrangements.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.