The Supreme Court of NSW has provided useful guidance on when a property owner will be considered a 'developer' under s 3A of the Home Building act 1989 (NSW).
Brereton J found that a deed of partition allocating individual dwellings between the co-owners did not prevent them from falling within the developer exclusion under their policy of insurance.
In issue
- The central issue was whether each of the five plaintiffs was a 'developer' within the meaning of s 3A of the Home Building Act 1989 (NSW) (the HBA) and, consequently, excluded from cover under the home building policy of insurance (the policy) issued by the NSW Self Insurance Corporation (SICorp) which excluded claims brought by developers.
- The Court also considered whether a deed of partition, under which each plaintiff was to receive no more than three of the proposed dwellings, took the plaintiffs outside the definition of 'developer', even though they remained the registered proprietors of the land on which the dwellings were being constructed.
- The Court considered when ownership is assessed for the purposes of s 3A and the significance of legal and equitable ownership under the HBA.
The background
The five plaintiffs were members of the same extended family, comprising two married couples and three siblings. On 13 October 2015, the plaintiffs became registered proprietors as tenants in common of land at Rosehill, Sydney (the land). On 30 March 2016, they obtained conditional development consent from Parramatta City Council for construction of ten dwellings with basement parking and proposed strata subdivision.
On 11 April 2016, the plaintiffs executed a deed of partition reflecting their respective interests in the development. Under the deed, no plaintiff was to receive more than three units and the lots would be subdivided by registration of a strata plan and transferred to the relevant plaintiff following completion of construction.
The plaintiffs contracted with Dominium Homes Pty Ltd (Dominium) to build 10 townhouses on the land under a building contract dated 15 September 2017 for approximately $2.7 million. However, issues arose with the performance of Dominium’s work and the plaintiffs ultimately terminated the contract in March 2022, before the works had been completed.
Proceedings were commenced against Dominium seeking damages for defective and incomplete work. Although Dominium initially defended the claim, default judgment was ultimately entered in favour of the plaintiffs. Following the assessment of damages, the Court entered judgment against Dominium for approximately $3.76 million, but the company entered liquidation shortly after.
The plaintiffs had also joined SICorp to the proceedings and pursued a claim under the relevant policy. SICorp declined indemnity, relying on the policy exclusion clause (being clause 3.4(a)) for claims made by a 'developer', with clause 7 adopting the same definition given to 'developer' by the HBA.
The plaintiffs relied on the deed of partition, arguing that they were not 'developers' because, upon completion of the project and registration of the subdivision, no plaintiff would own more than three dwellings each. This was relevant insofar as s 3A(2) of the HBA describes the circumstances in which a person on whose behalf residential building work is done will be classified as a developer in relation to said building work as; 'the residential building work is done in connection with an existing or proposed dwelling in a building or residential development where 4 or more of the existing or proposed dwellings are or will be owned by the individual, partnership or corporation, or...'
The parties agreed to have the developer issue determined as a separate question in Court. If the Court determined that the plaintiffs were developers under the meaning of the HBA, the proceedings would be dismissed.
The decision at trial
The Court found in favour of SICorp, determining that each plaintiff was a 'developer' within the meaning of s 3A of the HBA and that they therefore fell within the developer exclusion under the policy.
A key issue was the meaning of the phrase 'will be owned' in s 3A(2)(a) of the HBA. The Court held that the relevant point for determining ownership was when the residential building work was expected to be completed. The provision did not direct attention to some later point after subdivision and subsequent transfers had occurred.
At the time the ten dwellings were expected to be completed, the plaintiffs would remain the registered proprietors of the underlying land as tenants in common. Therefore, each plaintiff would maintain their status as owners of the land at law as well as the newly built dwellings on it.
The Court ultimately found that the deed of partition did not alter that conclusion. Even if the deed conferred separate equitable interests in particular dwellings, the HBA defined an 'owner' as an owner 'at law or in equity'. His Honour held that ownership at law was sufficient and that any equitable interests did not override the plaintiffs’ legal ownership over the land and the dwellings constructed upon it.
As a result, although the plaintiffs intended to retain no more than three dwellings each, they remained legal owners of the entire development (i.e. all 10 dwellings) at the relevant time and therefore satisfied the statutory definition of 'developer'.
As a result, despite obtaining judgment against the builder for approximately $3.76 million, the plaintiffs’ ownership structure ultimately prevented them from recovering against SICorp under the policy.
Implications for you
This decision provides useful guidance when assessing the application of the developer exclusion under s 3A of the HBA. The relevant enquiry focuses on ownership at the time the residential building work is to be completed. In determining whether an insured is a 'developer', the Court will look to the legal ownership of the land and dwellings at that time, rather than the parties’ future intentions regarding subdivision, transfer or allocation of the completed dwellings.
The decision also confirms that arrangements such as deeds of partition will not necessarily prevent an insured from being characterised as a developer where they remain the registered proprietors of the land. Insurers should therefore closely examine the legal ownership structure of the development, rather than relying solely on proposed post-completion ownership arrangements.
