Attention Builders and Tradies – You could be liable for latent defects

In the recent decision of The Owners – Strata Plan No 61288 v Brookfield Australia Investments Ltd [2013] NSWCA 317 (“Brookfields”), the Supreme Court of New South Wales found that a builder was liable to owners of an apartment block for latent defects.

A latent defect, as opposed to a patent defect, is a fault or defect with property that is not obvious or readily observable, such as a structural defect. In Brookfields, the Court found that it is not sufficient for a builder to complete a project simply in accordance with the terms of their building contract. The builder was found to be liable for damages for negligence in building the apartment block, due to defects that could not be reasonably discovered.

The interesting thing to note from Brookfields was that the Court commented that subsequent purchasers of the building may also have a claim against the builder, greater than the rights the developer had against the builder.

Builders will have a duty above and beyond the terms of the contract to avoid latent defects in the following circumstances:

1. Where there are structural defects to premises;

2. Where there are any defects which constitute a danger to persons or property near premises; or

3. Where there are defects rendering a premises uninhabitable.
The best way to reduce your risk for latent defects as a builder is to:

1. Ensure your written building contracts contain express clauses limiting your liability for latent defects;

2. Obtain express indemnities for latent defects from any subcontractors engaged to work on a specified part of the project;

3. Obtain warranties for latent defects from any subcontractors engaged to work on a specified part of the project that can be assigned to subsequent purchasers.
McLaughlins can review your building contracts to ensure they contain appropriate limitations of liability, warranties and indemnities to protect you from potential claims from owners.