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Residential Focus - 9 October 2018

09 October 2018

#Property & Real Estate

Residential Focus - 9 October 2018

In The Owners – Strata Plan 81837 v Multiplex Hurstville Pty Ltd (2018) NSWSC 1488, the Supreme Court of NSW (the Court) considered whether certain parties to a Development Management Agreement (DMA) fell within the definitions of Owner and Developer of land within the meaning of the Home Building Act 1989 (NSW) (HBA) such that they would owe the HBA statutory warranties to successors in title. 

Facts

Sydney Land Holdings Pty Ltd (SLH) was the registered proprietor of an industrial site (the Property). SLH obtained development consent to redevelop the Property as a mixed residential, retail and commercial development (the Project). SLH and eleven other companies entered into a DMA in relation to the Project. The First Defendant, Multiplex Hurstville Pty Ltd (Multiplex), was appointed as the development manager under the DMA. The Second Defendant, SLH 22 Pty Ltd (SLH 22), was one of eight parties defined as the Trustees under  the DMA and entered into the DMA in a trustee capacity.

The Project included the construction of an apartment tower consisting of 116 residential apartments (Apartment Tower). The Owners Corporation of the Apartment Tower alleged that the building had a number of defects. The Owners Corporation contended that Multiplex and SLH 22 fell within the definitions of Owner and Developer under the HBA, that it is the successor in title to those companies for the purposes of s 18C of the HBA and that it has the benefit of the statutory warranties against those companies under s 18B of the HBA.

In deciding the case, the Court first examined whether Multiplex or SLH 22 was an Owner of the land within the meaning of the HBA.

Definition of owner and developer under the HBA

In Schedule 1 of the HBA, an Owner of land is defined as the only person who, or each person who jointly or severally, at law or in equity:

  • is entitled to the land for an estate of freehold in possession, or
  • is entitled to receive, or receives, or if the land were let to a tenant would be entitled to receive, the rents and profits of the land, whether as beneficial owner, trustee, mortgagee in possession or otherwise. 

Under s 3A of the HBA, an individual, partnership or corporation on whose behalf residential building work is done may be deemed a Developer. S 3A contemplates arrangements where work is done for someone other than the Owner and deems both to be Developers, provided relevant circumstances are satisfied. 

Under s 18C(2) of the HBA, an immediate successor in title to a Developer who is deemed to have done the residential building work, is entitled to the benefit of the statutory warranties against the Developer.

Key provisions of the DMA

The Owners Corporation claimed that by virtue of the DMA, Multiplex acquired all of the powers, rights, entitlements and characteristics to satisfy the definition of an Owner under the HBA. The Court reviewed the relevant provisions of the DMA, which are set out below.

  • Management - Under the DMA, Multiplex was appointed as SLH’s development manager to do all things that Multiplex would be legally entitled to do if it were owner of the Property. The DMA contained detailed provisions concerning the manner in which Multiplex would manage the development. This included selecting, contracting, supervising and monitoring the builder and the building work. Multiplex was appointed as SLH’s attorney to sign documents and SLH agreed to do all things necessary as reasonably required by Multiplex in connection with the Project. 
  • Title and Possession - SLH remained registered proprietor of the property, however all title documents were delivered to Multiplex. Multiplex was also granted exclusive possession of the Property and SLH was unable to assign, sell, lease, mortgage or charge the property without Multiplex’s consent. 
  • Sale proceeds and financial entitlements - SLH was entitled to all sale proceeds, whilst Multiplex was entitled to a Development Management Fee. The Development Management Fee was calculated by reference to the amount equivalent to the sale proceeds and any rent or licence fee paid by a person for use or occupation of the Property. 
  • Call option - The DMA included a call option, entitling Multiplex to call for the Property or the parts of the Property that had not been transferred to purchasers under sale of land contracts. Multiplex was required to pay consideration if it exercised the call.

Was Multiplex an Owner of the Property for the purposes of the HBA?

The Court held that none of the clauses within the DMA gave rise to Multiplex being an Owner and Developer within the meaning of the HBA. Multiplex was not given entire dominion over the land or a present right of beneficial enjoyment over the land. The extensive powers granted to Multiplex were only for the purposes of Multiplex exercising its responsibilities as development manager.

Multiplex’s contractual right to receive an amount equal to the rents paid to SLH in the form of the Development Management Fee did not satisfy the definition of an Owner under the HBA. For a person to be an Owner, that person’s entitlement to the rent must arise by virtue of an estate in freehold and not a contractual arrangement. 

The Owners Corporation's claim placed most reliance on the call option within the DMA. The Owner’s Corporation submitted that Multiplex should be regarded as an Owner because it could obtain a vesting order in respect of the Property. The Court held that Multiplex’s interest in the Property remained contingent, until Multiplex exercised the option. Multiplex did not exercise the option and therefore could not be classified as a beneficial owner of the Property merely because it would be entitled upon exercise of the option.

Was SLH 22 an Owner of the Property within the meaning of the HBA?

The Owners Corporation submitted that SLH 22 was also an Owner of the Property within the meaning of the HBA and contended that:

  • SLH held its interest in the Property on trust for SLH 22 and the other trustees;
  • SLH 22, as beneficiary, had an equitable interest in the trust property being the Property itself and, later, SLH’s interest in the strata scheme
  • SLH 22 had a beneficial interest in the land to the extent SLH held its registered interest
  • accordingly, SLH 22 was an owner of the Property for the purposes of the HBA.

The Court acknowledged that the SLH 22 and SLH did not enter into a deed of trust, an oral declaration of trust or execute any document which established a trust relationship. The Court held that whilst a commercial relationship existed between SLH and SLH 22, the evidence did not warrant the conclusion that the relationship was of a trustee and beneficiary. SLH 22 was therefore not an Owner or Developer of the Property within the meaning of the HBA. 

With increasingly complex arrangements for the development of property, participants should consider whether their roles and rights have a character to bring them within the definition of a Developer under the HBA, with the unintended consequence of the HBA statutory warranties attaching.

Editorial: Christine Jones & Lauren Stables

In the media

New home sales signal downturn in building to continue in 2019
HIA New Home Sales are among a string of housing indicators signalling the national downturn in new home building will continue in 2019, commented HIA Economist, Diwa Hopkins (04 October 2018).  More...

Residential approvals at lowest levels in two years
Recent data by the ABS reveals monthly housing construction approvals in August are at the lowest level since October 2016 (04 October 2018).  More...

Off-the-plan apartment pain as property prices fall
Off-the-plan apartment buyers are being hit with the double-whammy of tougher home loan rules and falling property prices, leaving many struggling to complete their purchases (03 October 2018).  More...

HIA: Bi-partisan support for a Federal Housing Minister
Appointing a Housing Minister is one of 37 recommendations contained in the “Building Up and Moving Out” report released yesterday by the House of Representatives Standing Committee on Infrastructure, Transport and Cities. The Report also lists a number of actions that a new Minister for Housing would be responsible for (20 September 2018).  More...

Tradies to save $52 million thanks to Better Business reforms
Tradies will save $52.3 million over 10 years from not having to renew their licenses every three years, as part of the NSW Government’s Better Business reforms. Minister for Better Regulation Matt Kean said it followed extensive public consultation, which also showed significant support for retaining 13 home building licenses (04 October 2018).  More...

Dodgy certifiers on notice with new laws
Conflicts of interest between building certifiers and developers will be stamped out by tougher regulations being proposed in NSW. Minister for Better Regulation Matt Kean said an options paper is being released which sets out new ways of improving transparency around the appointment of certifiers (02 October 2018).  More...

Published - articles, papers, reports

Housing diversity: Adapting 1.0 infrastructure for 3.0 lives
Alysia Bennett; ArchitectureAU
For greater housing diversity, new typologies can be designed to support emerging household needs over time. Additionally, architects can explore the notion of creating more diversity in available housing stock (2 October 2018).  More...

Australian Bureau of Statistics
03/10/2018 Building Approvals, Australia, Aug 2018 (cat no. 8731.0)
26/09/2018 Engineering Construction Activity, Australia, Jun 2018 (cat no. 8762.0)

In practice and courts

Senate Inquiry into the Treasury Laws Amendment (Improving the Energy Efficiency of Rental Properties) Bill 2018 (295KB) (27 September 2018).

Report for Achieving Low Energy Homes (367KB) (25 September 2018). 

Building and Construction Industry Security of Payment Amendment Bill 2018 and Securing Payments in the Building and Construction Industry - A Proposal for ‘Deemed’ Statutory Trusts - NSW (970KB) (21 September 2018).

ABCB Accessible Housing Options Paper: consultation
The ABCB’s Accessible Housing Options Paper has been released for public consultation. The Options Paper provides a preliminary menu of options and costings on the possible inclusion of a minimum accessibility standard for housing in the NCC. Feedback on the Options Paper is invited until Friday 30 November 2018.  More...

BPB: Options to improve and strengthen certifier independence
Public consultation on the Options Paper – ‘Improving Certifier Independence’ is open until 30 October 2018. The options paper is seeking feedback on three methods for appointing certifiers that will increase certifier independence. NSW consumers can check the register of accredited certifiers through the BPB website.

New dates for Environmental Planning & Assessment Act Updates
Councils, certifiers and other industry practitioners have more time to implement some of the recent EP&A Act updates. Changes affect new provisions for building and subdivision certification, Local Strategic Planning Statements for councils in the Greater Sydney Region and Community Participation Plans. While most of the changes will commence on 1 March 2018, there will be a number of other changes that will involve further design and consultation from mid to late 2018 outlined here.

Cases

The Owners - Strata Plan 81837 v Multiplex Hurstville Pty Ltd [2018] NSWSC 1488
BUILDING AND CONSTRUCTION – separate questions – “owner” – Home Building Act 1989 – whether development manager and another party named in development management agreement were owners and thus developers of land for the purposes of the Home Building Act 1989.
BUILDING AND CONSTRUCTION – separate questions – “ contract to do residential building work” – Home Building Act 1989 – development management agreement – whether development management agreement is a contract to do residential building work.
MISLEADING OR DECEPTIVE CONDUCT – separate questions - representations made to principal certifying authority under Environmental Planning and Assessment Act 1979 – whether made in trade or commerce.
Building Professionals Act 2005 (NSW). Separate questions each answered “No”.
Environmental Planning and Assessment Act 1979 (NSW); Fair Trading Act 1987 (NSW).
Home Building Act 1989 (NSW);  Home Building Amendment (Warranties and Insurance) Act 2010 (NSW);  Home Building Amendment Act 2011 (NSW).

Sunrise Pools Australia Pty Ltd v Gregory [2018] NSWCATAP 232

  • The appeal is dismissed.
  • The appellant is to pay the respondent’s costs of the appeal as agreed or assessed.

APPEAL – costs – substantive proceedings settled before hearing – discretion to order costs.
Civil and Administrative Tribunal Act 2013; Civil and Administrative Tribunal Rules 2014; Home Building Act 1989

Bartel v Ryan [2018] NSWCATAP 231
BUILDING AND CONSTRUCTION – whether Tribunal erred in denying procedural fairness to a party who was legally represented at the hearing. In the Decision, the Tribunal dismissed the Builder’s proceedings. In the Homeowner’s proceedings, the Builder was ordered to pay Ms Ryan $62,300.00.

White v Department of Fair Trading [2018] NSWCATAD 231
HOME BUILDING ACT – application for a contractor licence in the category building – standards issues under clause 28(1) - requirement to demonstrate practical experience – “gained as an employee of or a person otherwise lawfully engaged by, the holder of a contractor licence” – evidence of referees.

Syed Ahmad Shoaib Ali Pty Ltd v Jandson Pty Ltd; Jandson Pty Ltd v Syed Ahmad Shoaib Ali Pty Ltd [2018] NSWCATAP 228
APPEALS – Arguments not addressed – failure to accord natural justice – damages – liability under contract - whole contract not in evidence – proper construction of contract - deposit – implied term - repudiation by depositor – forfeiture of deposit BUILDING AND CONSTRUCTION – meaning of “residential building work” in ss 92 and 94 of the Home Building Act 19898 (NSW) – requirements for insurance – issue and cancellation of insurance – argument raised in final submissions – procedural fairness - quantum meruit GUARANTEE AND INDEMNITY – construction and effect.
Civil and Administrative Tribunal Act 2013 No 2 (NSW); Home Building Act 1989 (NSW), ss 48A, 48K, 92, 94, 98(1), 99(1), 102, 103B, sch 1 cl 2(1); Home Building Amendment Act 1999 (NSW); Home Building Regulation 2014, reg 40; Insurance (Application of Laws) Act 1986 (NSW), s 5; Insurance Contracts Act 1984 (Cth), s 59
Interpretation Act 1987 (NSW), ss 33, 34

Ghazal v Masterton Homes Pty Ltd [2018] NSWCATAP 227
APPEAL: Leave to appeal, challenge to interlocutory decision affecting final decision, refusal to grant adjournment, leave refused.

Islam v Javam [2018] NSWSC 1430
CIVIL PROCEDURE – appeal from Local Court – application for leave to appeal – application for leave to appeal out of time – where amount in issue is disproportionate to the costs incurred – where appeal is arguably not in the best interests of the parties.

Stevenson v Ashton [2018] NSWCATCD 25
BUILDING AND CONSTRUCTION – Home Building – successor in title seeking compensation for allegedly defective work from owner-builder – when work was complete – defective work – whether major defect – whether defect in a major element – what constitutes waterproofing – cost of rectification – whether work order should be made in respect of defective work carried out pursuant to owner-builder permit
WORDS AND PHRASES – “major defect” - “major element” - “waterproofing”.

Tom v Jenkins (No. 2) [2018] NSWCATCD 24
Costs – ‘Calderbank’ offers.
Jurisdiction to make costs orders.

Bellerive Homes Pty Ltd v FW Projects Pty Ltd [2018] NSWSC 1435
CIVIL PROCEDURE – Judgment obtained by plaintiff upon the filing of an adjudication certificate under Building and Construction Industry Security of Payment Act 1999 (NSW) – Application by defendant to stay execution of judgment pending determination of proceedings in the Equity Division – Whether stay should be granted – Discretionary factors.

Petropoulos v CPD Holdings Pty Ltd t/as The Bathroom Exchange (No 2) [2018] NSWCATAP 233
HOME BUILDING – where statutory warranty breached in relation to size of showers – whether damages or rectification appropriate remedy.

Legislation

Regulations and other miscellaneous instruments
Conveyancing (General) Amendment (Optus Fixed Infrastructure Pty Limited) Regulation 2018 (2018-573) — published LW 5 October 2018 - The object of this Regulation is to prescribe Optus Fixed Infrastructure Pty Limited as a prescribed authority for the purposes of section 88A of the Conveyancing Act 1919 so that easements without dominant tenements may be created in favour of that corporation.

Contacts:
Christine Jones, Partner - Construction & Infrastructure (Dispute Resolution) 
T: +61 2 8083 0477 
E: christine.jones@holdingredlich.com

Divya Chaddha, Associate 
T: +61 2 8083 0457
E: Divya.Chaddha@holdingredlich.com

Disclaimer

The information in this publication is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavour to provide accurate and timely information, we do not guarantee that the information in this newsletter is accurate at the date it is received or that it will continue to be accurate in the future.

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