In brief - Supreme Court's interpretation should provide clarity
A case on appeal currently before the Victorian Supreme Court should finally bring some certainty to the application of the Domestic Building Contracts Act 1995 for residential property developers. In the meantime, developers should ensure that their building contracts comply with all of the requirements under the Act for a major domestic building contract.
Courts lack consistency in applying Domestic Building Contracts Act to developers
For a number of years now, it has remained uncertain whether the Domestic Building Contracts Act (DBCA) applies to residential property developers in Victoria.
The difficulties began in Mirvac (Docklands) Pty Ltd v Philp  VSC 301 (see V ConvR 54-698), where Byrne J found that a typical "off the plan" contract of sale was a major domestic building contract because the developer was "managing or arranging the carrying out of domestic building work". However, in 1-5 Granthman Street Pty Ltd & Anor v Glenrich Builders Pty Ltd  VSCA 228, the County Court of Victoria held that the DBCA does not apply to building contracts between "owner-developers" and builders. Further, in Kane Constructions Pty Ltd v Sopov  VSC 237, the Supreme Court noted that the DBCA was not intended to apply to "developers".
The question has arisen once more in Owners Corporation PS 447493 & Others v Burbank Australia Pty Ltd  VCAT 1911which is presently on appeal to the Supreme Court of Victoria. The Supreme Court's decision should finally give the industry some certainty with respect to the application of the DBCA.
In that case, Deputy President Aird stated that she was not persuaded by the previous decisions that the DBCA did not apply to developers insofar as the owners corporation’s claims arose under the DBCA. Deputy President Aird noted (at ) that, "[T]he Chief Justice’s comments in Kane Constructions whilst interesting, are no more than an observation." Further, she noted that the County Court decision in Glenrich was not binding on the Tribunal.
Law seeks to confer benefits of DBCA and related insurance on purchasers of off-the-plan homes
The effect of section 3(4) of the DBCA and section 137E of the Building Act 1993 (Vic) seem reasonably straightforward. The purchaser of an off-the-plan home must have conferred upon them the benefits of the DBCA and any related insurance. The vendor seems to have the option to elect whether to carry the risk itself of conferring these benefits upon the purchaser under the contract of sale, or whether instead to simply enter into a separate major domestic building contract, the benefits of which will run with the land to be conferred upon the purchaser.
In order to give effect to the legislative scheme established by the interrelated provisions in the Building Act and the DBCA, it is necessary to interpret the words "arrange or manage" in section 3 of the DBCA to exclude contracts of sale which contemplate that a building or a home will be constructed by a builder under a major domestic building contract.
For the developer of a larger development, the election is easy. A separate major domestic building contract will always be preferred because it will result in a more robust contract of sale.
Unfortunately, however, the courts' application of the DBCA to larger developments over the years has been problematic and remains unresolved. The difficulty stems from the structure of the regime, in particular that the protection of home owners with warranties and insurance that run with the land, has the result from time to time, that apparently undeserving developers may unfairly enjoy the benefits of the DBCA at the expense of the builder.
Developers should comply with DBCA requirements for major domestic building contracts
Due to the current uncertainty, developers may find themselves without the benefits of the DBCA in their dealings with builders and they may find their contracts of sale voidable as non-compliant major domestic building contracts. The residential development industry might again be blind-sided by a surprising interpretation of the DBCA.
Until a decision is made, developers should do everything possible to ensure that the building contracts they enter into comply with all of the requirements under the DBCA for a major domestic building contract so that they:
- comply with their express obligation in their contracts of sale to have residences constructed under a major domestic building contract, so as not to risk being in breach
- maximise the likelihood of the building contract being characterised as a major domestic building contract to reduce the risk of the contract of sale being a voidable major domestic building contract
- maximise their consumer protection from the builder
- maximise the ultimate consumer purchaser's protection