Liability of property developers?

Discussion in 'Legal Issues' started by Syd00, 10th Jun, 2016.

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  1. Syd00

    Syd00 Member

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    What risks and legal liabilities may a property developer face when contracting with a builder to build residential apartments? Who is responsible for rectifying major defects in and after the warranty period, in situation
    A. Where the developer sells the apartments.
    B. Where the developer holds on to the apartments long term and rents them out.
    I'm basically looking for info as to what extent a developer can be sued.
     
  2. Terry_w

    Terry_w Structuring Lawyer and Finance Broker - all states Business Member

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    You will have to consider these issues when contracting. A developer could be sued easily. The developer may also be able to sue the builder.
     
  3. Paul@PFI

    [email protected] Tax Accounting + SMSF Business Member

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    The developer in B is not a developer but a property owner ?

    I would expect that the developer should seek legal advice on any building contract to ensure appropriate warranty terms and periods are in the contract. Standard builders contracts often favour the builder eg delays, damages for delays,

    What is a "major defect". I had a property built new and my structural warranty is 25 years. It clearly describes events and issues. ie cracking if defined by size of the crack. I had a pillar start to lean after 10 years. The builder was happy to remedy that, repainted and like new.
     
  4. Yllenk

    Yllenk Member

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    Well generally if there are "major defects" then the developer will not approve practical completion of the works and the contractor will have to rectify it prior to handover. For multi residential apartments, there is generally a 12 month defects liability period following practical completion and the developer holds retention money which is refunded at the end of those 12 months (generally 5% of the total cost).

    Otherwise, if a defect becomes evident within the first 6 years of construction then the developer can pursue the builder (or the subsequent title owner can pursue the builder). Keep in mind that most developers are special purpose vehicles/entities and once the development is done they ride into the sunset.

    Hopefully this answers your question?
     
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  5. Paul@PFI

    [email protected] Tax Accounting + SMSF Business Member

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    Varies in each state. Recent changes in NSW reduced the period substantially. A 6 year / 2 year defect period may generally apply. In 2015 changes were made to allow developers greater rights to pass costs through to contractors responsible for defects. Pheonix rules apply in some states (NSW has it) to protect from development entities being shutdown and others used for other devs. The ultimate ownership can be traced and the primary developer remains liable.

    Check out the anomoly re four or more levels below...No insurance required !! But it is required for 3 or less. So what does that say about unfunded defects in high rise projects. The strata may cop the problem and when the strata is stacked by the developer there is reduced chance of a fix.

    Multi_storey_buildings