Australia: Residential Focus: Owners corporation fails to sue Church

Owners corporation sues Church, fails

An owners corporation recently sued a developer and the Archdiocese of Sydney (the Church) for breach of statutory warranties. The owners corporation alleged that it was an "immediate successor in title" to the Church, the holder of the freehold title in the land leased to the owners corporation, thereby a "deemed developer" within the meaning of part 2C of Home Building Act (the HBA), and accordingly, the owners corporation alleged that it was entitled to enforce the statutory warranties against the Church. The Court of Appeal in The Owners – Strata Plan No 91322 v Trustees of the Roman Catholic Church for the Archdiocese of Sydney [2019] NSWCA 89 affirmed the lower court's decision and held that the Owners Corporation was not entitled to sue the Church for breach of statutory warranties.

The facts

The trustees of the Church granted development rights to Spring Cove Developments (the Developer) to construct 16 luxury townhouses and apartments on a parcel of land in Manly.

The trustees of the Church sold the lots "off the plan". The purchasers entered into a tripartite agreement with the trustees of the Church and the Developer which stipulated that upon the registration of the strata plan, the Church would sell its leasehold interest in the relevant lot to the purchaser. After the strata plan was registered, the Church agreed to lease the common property to the owners corporation for a term of 99 years.

The Owners Corporation discovered defects in the apartments and the common property, and sued the Developer and the Church for breach of statutory warranties.

The primary judge held:

At first instance, the primary judge held that because the owners corporation only held a leasehold interest in the land, it was not a "successor in title" within the meaning of section 18D of the HBA. Therefore, the owners corporation was not entitled to enforce the warranties against the Church to recover damages in respect of the defects.

The owners corporation appealed.

The Court of Appeal held:

At the appeal, the owners corporation argued, among other things primarily that upon registration of the strata plan, the common property was vested in the owners corporation pursuant to section 24 of the Strata Schemes Management Act, thereby inferring the notion of succession in title. This was rejected by the Court of Appeal. The Court of Appeal held that the owners corporation's interest in the title was limited to the lease.

The Church furthermore submitted that the phrase "successor in title" is used in section 99 of the HBA, which concerns the obligation to obtain insurance, and that the transmission of the insurance (and benefit of the warranties) is the transmission of the owner's title to the successor. Accordingly, the question of whether a party was a successor in title requires identification of the relevant title held by the first party at the time of the warranties (and insurance) and an assessment of whether the title passed to the second party. This was accepted by the Court of Appeal.

This case reminds of us of the importance in first identifying the relevant interest in a title before attempting to enforce the benefit of the statutory warranties against a developer or deemed developer, including the Church.

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