Property Investment Lawyer - Strata Scheme building defects claims

Legal proceedings for breach of building defects warranties “must be commenced before the end of the warranty period” under section 18E (1)(a) of the Home Building Act 1989 (NSW).

The warranty period is “is 6 years for a breach that results in a major defect in residential building work” under s 18E (1)(b) Home Building Act 1989.

To find out when the warranty period ends, it is necessary ask: When did the warranty period commence?

McDougall J answered this question in the Supreme Court of New South Wales decision of The Owners – Strata Plan No. 69743 v TRT Constructions Pty Ltd [2016] NSWSC 375.

The court’s ruling on when the warranty period commenced

The court found that the property developer, as owner of the property, engaged a builder, TRT Constructions to build a strata title development at Blacktown.

The Owners Corporation did not know the date that the warranty period commenced because it did not have the building records. All it had was a final occupation certificate.

Note: a vendor of a new strata title property is required to provide a final occupation certificate before it can require a purchaser to complete the purchase (under r 6 Conveyancing (Sale of Land) Regulation 2010).

The final occupation certificate stated that “the development is completed in accordance with the approved plans and specifications and Council’s Development Consent conditions if applicable”. It was issued on 28 October 2002. It referred to a final inspection which took place on 21 October 2002.

The proceedings were commenced on 22 October 2009. Note: the limitation period was 7 years at that time – it is now 6 years.

Was the Owners Corporation too late to commence proceedings?

S 18E (1)(c) Home Building Act 1989 provides “the warranty period starts on completion of the work”.

The Court concluded ‘that the works were completed, at the latest, by 21 October 2002’ for the purposes of s 18E (1)(c) Home Building Act 1989, rather than on the date the certificate was issued. Therefore the Court held that the proceedings were statute barred. That is, they were commenced too late, that is, after the warranty period had ended.

In reaching its conclusion, the Court relied on the final inspection note in the certificate, and not on the date of issue of the certificate, and not on the definition of ‘date of completion of building works’ which is found in s 3C of the Home Building Act 1989 -

3C Date of completion of new buildings in strata schemes

This section applies to residential building work comprising the construction of a new building in a strata scheme (within the meaning of the Strata Schemes Management Act 1996 ) where the issue of an occupation certificate is required to authorise commencement of the use or occupation of the building.

The completion of residential building work to which this section applies occurs on:

the date of issue of an occupation certificate that authorises the occupation and use of the whole of the building, ….

Was there a building contract?

Had it commenced proceedings in time, the Owners Corporation needed to overcome another significant barrier to pursue the proceedings for the building defects, which was to prove that a building contract existed between the property developer and the builder, TRT Constructions.

Because TRT Constructions did not admit to the existence of a building contract, the Owners Corporation needed to rely on inferences drawn from the Home Owners Warranty Insurance Certificate (issued under s 92 Home Building Act 1989 before work commences).

The Court followed the old legal maxim as stated by Lord Mansfield CJ in Blatch v Archer (1774) 1 Cowp 63; 98 ER 969 at 65, 970, respectively, which was as follows:

Paraphrasing, his Lordship said that when the Court weighs and assesses evidence, it must bear in mind the extent to which it was in the power of one party to produce and in the power of the other to contradict evidence bearing on the fact in issue. In this case, … it was peculiarly within the power of TRT Constructions to adduce evidence on the question of the existence and terms of whatever the contract was between it and the developer. (italics added)

The Court concluded that the reference to “Multi-Unit” on the Home Owners Warranty Certificate indicated that “it was the construction of the strata title development”, which was sufficient to prove the existence of a building contract. The Certificate stated that TRT Constructions was to carry out the building work.

Therefore the Owners Corporation was entitled to pursue proceedings against the TRT Constructions for building defects – breaches of warranties under s 18D Home Building Act 1989.

This analysis will greatly assist an owners corporation in pursuing claims for building defects, because the existence of a building contract can be inferred from the Certificate without the need to produce the actual building contract.

Unfortunately in this case, the claim could not be pursued because it was too late.