Implied Warranties in Domestic Building Contracts and Case Study

The building industry is regulated by Domestic Building Contracts Act 1995?(“DBCA”) and the?Building Act 1993?(“BA”). There is also the Domestic Building Contracts Regulations 2017 which prescribes certain matters outlined in the DBCA.

The BA imposes mandatory building standards and controls relating to the construction of buildings, the entry of people such as builders into the building industry and provision of insurance against defective and incomplete work.

The DBCA on the other hand regulates the contractual relationship between a domestic building owner and a registered builder.

From 1 August 2017, any major building works that costs more than $10,000 will require the builder to enter into a major domestic building contract with the owner.

Building work is defined under section 5 of the DBCA and include:

• Erection or construction of a home
• Renovation, alteration, extension, improvement, or repair of a home
• Landscaping, paving, or constructing retaining structures, driveways, garage, swimming pools or spas
• Demolition of a home
• Any work associated with construction of a building on the land where a building permit would be required
• Any site work
• Preparing plans or specifications for building works

Once the works are characterised as “domestic building work” then the DBCA applies to all contracts to carry out the works.

The significance in characterising whether work is domestic building work is that implied warranties under section 8 of the DBCA applies. Builders’ warranties under section 8 include the following:

• all building works would be carried out in property and workmanlike manner and in accordance
• all materials supplied will be good and suitable for the purpose for which they are intended for and that such materials will be new
• the works will comply with all laws and legal requirement
• works will be carried out with reasonable care and skill and be completed by date specified in the contract
• the home will be suitable for occupation at the time the works are completed
• the work and any material used will be reasonably fir for the purpose it is intended

The warranties do not only apply to parties under the domestic building contract, but future owners of the land or building will also benefit from the warranties.

A builder cannot contract out of the warranties and any clause in the domestic building contract that remove the right of an owner against a builder for breaches of any warranties will be void.

Section 134 of the BA allows for an owner to bring a building action against a builder for breach of the implied warranties within 10 years after the date of issue of the occupancy permit or if an occupancy permit is not issued then the date of issue of the certificate of final inspection for the building work.

The Victorian Civil and Administrative Tribunal (“VCAT”) is chiefly responsible for resolving domestic building disputes and if a party starts any action in a Court, then the Court must stay such action on the application of a party if the action could be heard by VCAT and no oral evidence has been given in the Court.

Before a party can bring a building dispute to VCAT, a certificate of conciliation is required. The Domestic Building Dispute Resolution Victoria (“DBDRV”) is a free Victorian Government service that resolves domestic building work disputes through the process of conciliation.

The DBDRV will issue the certificate of conciliation to show that the parties have tried to resolve the dispute through conciliation. Unless the dispute falls within an exception category, the parties to a domestic building dispute must first go to the DBDRV.

Exception categories include:

1. The dispute is not related to domestic building works.
2. The dispute did not arise from a domestic building contract.
3. The dispute relates to work carried out under a contract for one type of work only and is with a single trades person e.g. electrical work, painting or plastering, tiling etc.
4. Injunctive relief is sought.
5. Building Advice and Conciliation Victoria has already dealt with the dispute before 26 April 2017.
6. The limitation period of 10 years has lapsed.

Case Study - Ladyzhenskii v Hallbuild Pty Ltd (Building and Property)?[2022] VCAT 1019

The Tribunal in this matter had to consider whether the builder breached the warranties set out in the BCA and if the builder is entitled to claim contributions from its subcontractor.

The applicant was the owner and engaged the builder to construct a dwelling. The builder subcontracted its concrete works to a concreting contractor (first contractor) to construct a slate-coloured concrete driveway, front path and car park. The driveway was complete around September 2017

About 2 to 3 months later, the owner noticed the sealer applied to the driveway was starting to delaminate. The owner was told by the builder to contact the first contractor however after 3 attempts the driveway was not ale to be repaired.

The builder then engaged a second contractor and paid the sum of $5,386.70. The second contractor completed the works which were approved by the builder on 29 July 2020. The builder gave evidence that the second contractor gave a 15-year guarantee on the remedial works.

On 8 September 2020, the owner again complained that the remedial works had failed.

The owner engaged a building consultant to prepare a report which ultimately stated that the drive was not fit for purpose, and it would need to be uplifted and reconstructed. The cost of complete demolition would be $19,182.4.

The builder engaged an expert who did not share the same opinion as the owner’s expert in that “the cracks are of a minor nature and do not constitute defective works. It is not unusual for concrete paving to crack and cracks of less than 1mm in width are not considered defective”.

The Tribunal found that it was common ground that the driveway is defective and consequently the builder failed to comply with the warranties set out in section 8 of DBCA.

Whilst it was found that the builder had breached section 8, the Tribunal did not agree with the owner’s expert in that it did not provide any “engineering analysis or explanation as to why the driveway needs to be uplifted and replaced, other than stating that the surface is defective or not in accordance with the owner’s desired outcome”. The Tribunal was persuaded by the builder’s expert as the builder’s expert gave an opinion that the substructure of the driveway was sound, there were no structural defects, and it was more than just observational statements.

The Tribunal accepted the builder’s quotation that resealing the driveway would cost $4,213.

It should be noted that the owner did not provide an alternative costing other than costing for complete demolition and reconstruction.

There was also evidence that the builder had paid $5,386.70 to the second contractor and no explanation why the current costing is less than what was paid to the contractor in 2020.

The law provides that the measure of damages recoverable by a building owner for a breach of a building contract is “prima facie the cost to put the building owner in a position had the contract been properly performed. In other words, what will it cost the owner to rectify the defective drive, rather than what it would cost the builder to rectify”. ?

Without any specific evidence as to which extent building costs have increased the Tribunal ultimately found that the builder is liable for the sum of $5,386.70.

The builder was also successful it its claim for indemnity under s 23B of the Wrongs Act 1958 against the second contractor. Section 23B provides that “a person is liable in respect of any damage suffered by another person may recover contribution from any other person liable in respect of the same damage…”.

Key Takeaways

• The statutory warranties do not mean a 10-year warranty for the builder’s work. Any defects arising out of a poor maintenance by the owner or due to wear and tear will be the owner’s responsibility and not the builder’s responsibility.
• Manufacturers or suppliers’ warranties for certain materials are separate to the statutory warranties of a builder. When a builder selects a product or material, they should consider a lengthy warranty period as this will assist them where a defect arises during a manufacturer’s warranty period. If a defect arises outside the manufacturer’s warranty period, then the builder may still be liable under the statutory warranties under building law.
• Building disputes often turn to expert evidence. The parties should engage the right expert to prepare reports and give evidence not only on a “observational” level of the damages but whether the damages are defective works and the cost to fix the defective works.
• Both the builder and owner should also consider that if their primary claim fails whether secondary assessments should be prepared that addresses the costs of the alternative method to fix the defects. In Ladyzhenskii v Hallbuild Pty Ltd the owner did not provide an alternative costing other than costing for complete demolition and reconstruction.