Building law - Who is a successor in title who may obtain rights for breach of Statutory Warranty under the Home Building Act?

09/01/2019

Under the NSW Home Building Act, a person who is a party to a residential building contract with a Builder has certain rights.  Implied into such Building Contracts is the statutory warranties provided for under Section 18B of the Home Building Act.  We have provided further information in relation to these warranties in our article dated 2 February 2018.

Those rights include that of pursuing the Builder for breach of the statutory warranties provided for under section 18B of the Home Building Act. In the result, if a Builder carries out building work which is in breach of the warranties under section 18B, the owner can sue the Builder for the owner’s loss as a result of that breach.

However it is often the case that a person acquires a residential property only to discover that there has been defective building work carried out on that property by a Builder. That owner did not enter into a building contract with the Builder and so cannot ordinarily sue the Builder for breach of contractual warranties.

The Home Building Act makes some provisions whereby a successor in title may acquire rights. These provisions are set out in Section 18C and Section 18D of the Home Building Act.  These Sections have been amended over time.

Section 18C of the Home Building Act provides that anybody who is an immediate successor in title to an Owner Builder, a holder of a contractor’s licence, a former holder or a developer who has done residential building work on land is entitled to the benefit of the statutory warranties as if the Owner Builder, holder or former holder of licence or developer were required to hold a licence and had done the work under a contract with that successor in title to do the work. This means that the owner can sue that owner Builder or the other people in those categories for defective building work on a property they have purchased.

Section 18D similarly provides that a person who is a successor in title to a person entitled to the benefit of a statutory warranty under that Act is entitled to the same rights as the person’s predecessor in title in respect of the statutory warranty. This means that if an owner acquires a property with defective building work then that owner has the same rights as the owner who originally contracted with the Builder for him/her to carry out building work, to sue for breaches of section 18B.

There are distinctions between Section 18C and 18D. One of the distinctions is that Section 18C refers to the “immediate successor in title” however Section 18D refers to “a successor in title”.   It is not always the owner or registered proprietor of property that enters into a Contract with a Builder to undertake residential building work.  Amendments have been made to the Home Building Act including some amendments as a result of various cases.

In 2010 there was an amendment of Section 18D so as to protect a non-contracting owner. Additionally sometimes the family home for example is held in the name of one spouse rather than both partners.  There are many reasons this may occur.  However these arrangements did not sit within the initial structure of the Home Building Act to provide protection for the home owner for building works. The original structure of the Home Building Act was essentially based on what was thought to be the standard basic home ownership, construction and the sale of the property.

The question of what is a successor in title is complicated.

Where a person buys a house freehold from another person then the situation is likely to be clear. That person is a successor in title to the vendor of the property and can take advantage of sections 18C and 18D. 

However as there is no definition of “successor in title” in the Home Building Act we can perceive many other debates as to the meaning of “successor in title”.

We are aware of numerous cases dealing with some of these aspects however there still remains unchartered Court cases relating to other areas some of these examples are set out below.

One example is with the NSW Supreme Court case of Gardez Nominees Pty Limited -v- NSW Self Insurance Corporation, which was a 2016 decision.  In that case Gardez Nominees acquired a property as a mortgagee in possession and claimed that it was a successor in title to an owner who could sue for breach of statutory warranties. The Supreme Court of New South Wales found that Gardez did not have a sufficient interest in land for it to be regarded as a successor in title and so could not take advantage of the warranties.

There are many strata residential buildings. Most of the strata residential buildings are freehold strata which involves a strata of freehold land to be subdivided by way of a strata scheme.

There are other circumstances in which the construction of strata building is a leasehold strata. Often the land is owned usually for example by National Parks or a Church. The owner offering long term leases over parts of the land with a right to construct a building on that part of the land.  There are many varied structures by which this occurs.  The “purchasers” obtain a long term leasehold.  There are complications as to whether the Home Building Act applies in those circumstances.

In the case of the Owners Strata Plan 91322 -v- Trustees of the Roman Catholic Church & Others, an Owners Corporation owned the common property for a strata building in Sydney. The Owners Corporation in the District Court of New South Wales sought to claim it was the successor in title to the developer and so could sue the developer under section 18B. However, the Court in a Judgment in October 2018 found that the Owners Corporation did not take the property as a successor in title essentially due to the fact that its interest was leasehold and effectively had no rights to recover damages for breach of statutory warranties that would have applied if the strata was a freehold strata rather than a leasehold strata.

There were building defects in the common property. The Owners Corporation did not take the common property as freehold but instead took it on a 99 year leasehold interest from the owner.

Difficulties arise and will continue to arise in that until a superior Court such as the Supreme Court of Appeal of New South Wales or High Court of Australia reviews the legal position, there is uncertainty as to the rights of the “purchaser” of such “residential buildings”.  There is no certainty and we believe a real possibility, that the Supreme Court, or the Court of Appeal or High Court will follow the District Court decision.

One difficulty that remains is that the legal costs associated with ascertaining the true position is large. Further, when a matter is decided in the Court of Appeal there has already been not one but two legal cases for which the losing party must bear the costs of both parties.

As we have previously indicated we again can think of many examples where one could try and “split hairs” and the outcome is uncertain dealing with such issues of the rights of such purchasers. It may be that the uncertainty can be rectified by legislative changes, amendments to the law.

Separately to the provision of statutory warranties by the Home Building Act there may be other opportunities to solve the issues relating to defective building works or other issues that arise in such unusual circumstances.

There may be more cases before the courts in this complicated area of the law.

Watson & Watson solicitors have extensive experience in building and construction law whether it is a strata building complex, commercial building or residential house and can advise you on building contracts and building disputes prior to and after court cases have commenced.  Please contact Richard Watson Accredited Specialist Building & Construction or his Personal Assistant Shereen Da Gloria to discuss your rights if you believe your builder is in breach of the building contract and/or you have any enquiries regarding statutory warranties.

This is only a preliminary view and is not to be taken as legal advice without first contacting Watson & Watson Solicitors on 02 9221 6011.