Negligence in residential building contracts

Construction

Implied warranties

Contractors entering into contracts for residential works with homeowners are liable for the statutory warranties under the Home Building Act 1989 (NSW) (the Act). Claims for a breach of the statutory warranties must be commenced within six (6) years for major (structural) defects and two (2) years for any other non-major defects.

Importantly, pursuant to section 18(B)(2) of the Act, the statutory warranties are not limited to a contract to do residential building work for an owner of land and are also implied into subcontracts for the performance of residential building works.

The Building and Designers Practitioners Act 2020 (NSW) recently commenced retrospectively applying to buildings constructed from 11 June 2010. Residential builder’s duty of care is now extended to owners, subsequent owners of land and owners corporations. Builders are liable for the costs to rectify the defects and any damage caused by the defects as well as economic loss such as alternative accommodation. As of 1 July 2021 design practitioners will be required to be registered appropriately insured and provide declarations that their design complies with the Building Code of Australia.

Negligence

In general terms, an action for negligence will arise where a party owes another party a duty of care and breaches that duty of care causing the other party loss or damage.

In the decision of “Star of the Sea” Owners Corporation Strata Plan 72535 v Brookfield [2012] NSWSC 712 the Court noted a contractor’s negligence is limited to the terms and conditions in the contract. In residential building contracts, the Court’s are reluctant to impose a duty of care unless there is a contract between the parties. In particular, the Court’s have repeatedly found that a residential builder does not owe a duty of care to an Owners Corporation.

Contractors must ensure that they are comfortable with the level of risk in their contract as the courts will take a position that commercial parties have the ability and muscle to negotiate their position and will therefore let the contract speak for itself.

Keystone Lawyers can assist with contract reviews so contracting parties are able to understand the level of liability and risk imposed on them by the contract.

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