Australia: Do builders of multi-level residential apartment developments give the DBC Act implied warranties to building owners and subsequent purchasers?

Introduction

On 29 April 2015 in Burbank Australia Pty Ltd v Owners Corporation the Supreme Court of Victoria held that the implied warranties in the Domestic Building Contracts Act 1995 (DBC Act) do apply to multi-level residential apartment developments, and can be relied upon by building owners and subsequent purchasers.

The DBC Act implies certain warranties by the builder into every domestic building contract (such as that the work will be carried out in a proper and workmanlike manner, with reasonable care and skill, etc). Subsequent owners can also take proceedings against the builder for breach of the warranties, even though they were not a party to the original building contract.

Background

The Court was considering an appeal from VCAT on a question of law. The appellant was the builder of a residential apartment development in Maribyrnong known as Waterford Towers. The owners corporation had commenced proceedings at VCAT alleging defective construction work in the common property. The owners corporation did not come into existence until after the building work was completed, and based its claim solely on the implied warranties in section 8 of the DBC Act. At VCAT the builder sought to have the proceedings struck out on a number of grounds, including that the DBC Act does not apply to developers. VCAT dismissed the builder's strike out application. The builder then appealed to the Court on questions of law which included the following:

• Does the DBC Act apply to multi-apartment developments?
• Does the DBC Act apply to developers?

Does the DBC Act apply to multi-apartment developments?

The Court concluded that the DBC Act does apply to multi-apartment developments.

The Court's reasoning was based on the plain meaning of the words in s3 and s5 of the DBC Act (especially the definition of "home"). The Court considered that, as a matter of ordinary language, the definition of "home" includes a residential apartment in a multi-apartment development of multiple homes. The DBC Act could have expressly excluded residential apartments from the definition of "home" but did not do so.

The Court also considered that construing the reference to "home" in the DBC Act to include a residential apartment development is consistent with the purpose and objects of the DBC Act. The DBC Act has an overriding purpose of protecting consumers. The Court could see no basis for excluding the owner of a residential apartment from the protection of the DBC Act. To do so would create 2 classes of residential premises: a stand alone dwelling house and a residential apartment. This would not promote the purpose and objects of the DBC Act.

Does the DBC Act apply to developers?

The Court also considered whether the DBC Act applies to developers. The Court said that it is misconceived to frame a question about the application of the DBC Act by reference to the identity of a contracting party (save for a contract between a builder and sub-contractor), whether that party be a developer, builder, vendor or purchaser. Section 5 of the DBC Act directs attention to the nature of the work undertaken, rather than the parties to the contract governing the work in question.

The Court said that a contract for the construction of a residential apartment development will be subject to the implied warranties in the DBC Act, whether or not a developer is a party to the building contract, as the works constitute domestic building works. Developers, owners corporations and purchasers of the apartments will have the benefit of those warranties under the DBC Act.

Conclusion

The decision brings to a close uncertainty in this area, with some previous decisions suggesting that developers and building owners of multi-apartment developments should not have the benefit of the consumer protection provisions in the DBC Act.

This decision also reaffirms that builders must ensure the formal requirements of the DBC Act with respect to the contents of major domestic building contracts (including warnings and notices) are satisfied, to avoid breaches of the DBC Act and the application of fines and other sanctions.

Access a copy of the decision here.

Grant Ahearn acknowledges the contribution of Kylie Lightman, Knowledge lawyer, in the preparation of this article.