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.
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.