When a property developer heads a project for a new housing development, commercial space, or condominium project, they often do not have any direct involvement with the actual construction process. The developer is generally tasked with managing the sale of the homes or condominium units but is relatively “hands-off” when it comes to the work of building or inspecting the final product. Legally speaking, how does a developer’s “hands-off” status impact its potential liability for construction deficiencies in a project?
This was a question recently before the Alberta Court of Appeal after the balconies of a large condominium complex were found to be unsafe and required complete replacement. The Court’s decision, and the ongoing case, should be followed closely by real estate developers, as the case has the potential to inform liability in similar situations going forward.
Balconies Found to Be Deficient, Requiring Replacement Less Than 10 Years After Condominium Completed
In a recent case before the Alberta Court of Appeal, called Condominium Corporation No. 0522151 (Somerset Condominium) v. JV Somerset Development Inc., the Court reversed a lower court decision dismissing a claim for liability against a developer after significant deficiencies were found in relation to a condominium development in Edmonton. The chambers judge had found that a developer could not be held liable for construction deficiencies if the developer had not been directly involved in the construction process.
In the case, the defendant was the developer of a 215-unit condominium constructed and sold to purchasers in 2004 and 2005. Under the provincial Condominium Property Act, a “developer” is defined as:
“[A] person who, alone or in conjunction with other persons, sells or offers for sale to the public units or proposed units that have not previously been sold to the public by means of an arm’s length transaction…”
In 2012, severe deficiencies were identified with the balconies of the units, as a result of rot caused by deficiencies in the waterproof membranes. As a result of the water damage, the structural integrity of the support beams was compromised, and the balconies no longer met the minimum load-bearing capacity required under the Alberta Building Code. The appellant condominium corporation made the decision to replace each of the balconies, and brought a claim against the defendant, along with the architect of the building and the Project Manager for the cost of the repairs.
The claim alleged that the defendants were negligent in the design and construction of the condominium and that they breached their fiduciary duty to the individual unit owners and the appellant condominium corporation. Further, the claim alleged that the balconies were not constructed using the specifications provided to the municipality in order to secure the requisite building permits. The plaintiff’s claim stated that the defendant developer had failed to ensure the balconies were constructed to code and without deficiencies, failed to notify the plaintiffs of deficiencies, and failed to provide proper supervision and inspection.
Chambers Judge: A Developer Does Not Have a Duty of Care, Vicarious or Otherwise
The developer brought a motion for summary judgment to have the claim dismissed on the basis that the developer had not acted as a general contractor on the project; rather, its role was to initiate the project and sell the units to purchasers. It had no involvement with the design, construction, or inspection of the building itself.
The chambers judge agreed with the developer, dismissing the claim against it on the basis that the developer had no direct involvement with the construction process. Citing ss. 11 and 12 of the Condominium Property Act, the judge noted that there is no specific duty imposed on developers with respect to the prevention of construction defects. The judge went on to address vicarious liability as follows:
“I do not agree with the suggestion, if I can, that a developer, without more, would be vicariously liable for any negligence or breach of duty committed by any party involved in the construction of this building, or any building. I do not believe that there is any authority to support that suggestion or… the role as a guarantor of the integrity of the construction…”
The condominium corporation appealed the dismissal of the claim against the developer to the Alberta Court of Appeal.
Court of Appeal: Developer Liability Unclear and Not Appropriate for Summary Judgment
The Court of Appeal noted that a property developer has potential liability for a construction project under three possible categories:
- Contractual duties
- Breach of duty in tort
- Statutory duties
In the case at hand, none of the contracts between the developer and the purchasers of the units had been placed on the record, and the claim was not based in contract. As a result, it was not possible for the court to determine if the developer owed a contractual duty to the purchasers with respect to the quality of construction. The Court also determined that, at the time of construction, there were no statutory duties imposed on a property developer regarding construction under the New Home Buyer Protection Act, the Consumer Protection Act, or the Condominium Property Act.
This left the potential for liability with respect to a duty the developer owed to the unit owners and the condominium corporation in tort. Citing a 1995 Supreme Court decision called Winnipeg Condominium Corporation No. 36 v. Bird Construction Co., the Court of Appeal noted that it is possible that a contractor could be found liable for construction deficiencies to both initial and subsequent purchasers for deficiencies which present a “real and substantial danger”. However, whether this liability can be extended to a developer would depend on whether there was sufficient proximity to imposing such a duty onto the developer. Even if the duty of care is extended to the developer, the court would then have to conduct an analysis to determine the standard of care, and whether it had been breached.
In either case, the Court of Appeal held that the issues at hand were complex enough that they could not be dismissed via summary judgment and would instead require more in-depth analysis by the court. The decision to dismiss the claim against the developer was overturned, and the case was remanded back to the lower court for a proper trial.
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