Background

Melbourne’s housing market has boomed over the last two decades, resulting in a spate of cases concerning the application of the Domestic Building Contracts Act 1995 (Vic) (the Act) to property developers. Government intervention and various court rulings have created uncertainty about developers’ rights and obligations under the Act. The recent case of H Buildings v Owners Corporation [2017] VSC 802 has provided much needed guidance on the Act’s scope and application.

Developers generally enter into two types of contracts that are subject to the Act:

  • off-the-plan contracts of sale with purchasers; and
  • construction contracts with builders.

Off-the-plan contracts of sale

In 2004, the Victorian Supreme Court decision in Mirvac (Docklands) v Philp [2004] VSC 301 held that a contract of sale between the developer (Mirvac) and an off-the-plan purchaser was a “Major Domestic Building Contract” on the basis that Mirvac was “arranging or managing the carrying out of building works”, despite the fact that Mirvac was not the builder of the development. The decision surprised the residential development industry, with the outcome being that off-the-plan purchasers could rely on the Act to avoid the contract of sale. The view had previously been that the Act only applied to builders. In light of this decision, the government amended the Act to prevent off-the-plan apartment sales being considered building contracts under the legislation. As confirmed by the Victorian Court of Appeal’s decision in Shaw v Yarranova (2006) 15 VR 289, provided that the home is constructed under a separate contract with a builder, the Act will not affect the sale between a developer and an off-the-plan purchaser.

Contracts between builders and developers

Does the Act apply to developers of multi-apartment residential developments? This question has been the subject of several recent cases and now appears to be settled. In Burbank Australia v Owners Corporation [2015] VSC 160, Justice McDonald noted that the question of the Act’s applicability should not be determined by reference to the identity of the contracting party. Instead, attention should be directed to the nature of the work undertaken.

H Buildings v Owners Corporation confirmed that the Act will apply to:

  • work involving the construction of a residential premises, whether that be a single dwelling or a 200-apartment development; and
  • the residential components of mixed-use developments.

Why the application of the Act is important to developers

The Act impacts the rights and liabilities of developers, most significantly in relation to the commercial structuring of the project, contract negotiations with builders and selling off-the-plan homes. We encourage developers to familiarise themselves with the Act, and any rights or obligations that stem from the legislation.