Commercial Litigation and Dispute Resolution Blog

In a recent decision, Condominium Corporation No. 0522151 v JV Somerset Development Inc. (Somerset Condominium)^[1], the Alberta Court of Appeal held that the hands-off developer of a condominium building may be liable for construction deficiencies that emerge years after the units are sold to initial owners.

Background

JV Somerset Development was the developer of a condominium project that consisted of 215 completed units that were sold in late 2004 and early 2005. Starting in 2012, problems with the balconies were identified which were allegedly due to rot caused by water infiltration. The condominium corporation replaced all of the balconies due to concerns for the occupants’ health and safety.

In 2014, the condominium corporation sued the developer (and a number of other parties) for the cost of the balcony repairs. The claim was framed in tort and breach of fiduciary duty, and the condominium corporation sought to have duties or standards imposed at law on the developer, including:

1. The property will be reasonably fit for habitation;
2. Construction will be executed in a good workmanlike manner;
3. Good and proper materials will be supplied throughout construction; and
4. The final product delivered to the consumer will be free of defects in material and labour.

The condominium corporation claimed that the balcony defects were dangerous and created a substantial risk of danger to the health and safety of the occupants, including potential loss of life.^[2]

The developer’s primary defence was that if a contractor has duties in tort to the ultimate owners of a building, the corporation that initiated the development does not — meaning, a developer is not liable in tort for deficiencies unless it was actually involved in the construction of the building.

Summary Dismissal Application

The developer brought an Application for Summary Dismissal on the grounds that there was no merit to the condominium corporation’s claims. When questioned, the condominium corporation had admitted that it had no knowledge or information that the developer was involved in the design, physical construction or inspection of the building.^[3] Specifically, there was no evidence that the developer had been directly involved in installing the waterproof membranes on the balconies, which was the likely source of the water leak.^[4]

The Chambers Judge summarily dismissed the condominium corporation’s claim on the basis that a developer who is not actively involved in the construction of the building has no duty of care to detect or prevent defects in construction, and is not vicariously liable for any breaches by the contractor or subcontractors.^[5] The condominium corporation appealed the Chamber Judge’s decision.

Court of Appeal Decision

In its analysis, the Court of Appeal pointed to three categories where a developer could potentially be found liable for construction deficiencies:^[6]

• Contractual duties, including contractual covenants implied by law;
• Breach of duty in tort; or
• Statutory duties.

The Appeal Court stated that sales contracts entered into by the developer and initial purchasers of the condominium units may provide covenants that exclude all responsibility for the quality of construction, provide a definition of the quality of the units purchased, or may have placed time limits on responsibility for deficiencies.^[7] However, since the condominium corporation’s claim was pleaded as tortious duties and a breach of fiduciary duty, no contracts of sale were on the record. As such, contractual covenants that could exclude the developer’s responsibility of the quality of construction could not be considered by the Court.

The developer’s liability for deficiencies could also be established through statute, such as the New Home Buyers Protection Act^[8], or similar legislation that can be found throughout other Canadian jurisdictions, which implies covenants relating to the quality of construction for newly built homes. However, in Somerset Condominium, the Home Buyers Protection Act came into force 10 years after the construction of the subject condominium under appeal so the statutory terms could not be applied.^[9]

Drawing on Supreme Court of Canada jurisprudence regarding tortious liability,^[10] the Appeal Court noted that a contractor could owe a duty in tort to subsequent purchasers of the building if it could be shown that it was foreseeable that a failure to take reasonable care in construction would create deficiencies that posed a “real and substantial danger” to the health and safety of the occupants. ^[11] Damages in these circumstances would equal the cost of repairs to render the product safe.^[12] The Appeal Court went on to say that if there was sufficient proximity for a duty of care between a contractor and the subsequent purchasers of a development unit, it is arguable that an analogous relationship may extend to a developer and subsequent purchasers.^[13]

Although proximity could be found to be sufficient, the Appeal Court pointed to the various unknown factors that make it impossible to determine the developer’s liability on a summary basis. In particular, establishing the standard of care (for instance, how is the duty of care to be discharged? Must skilled and experienced professions monitor construction? Does the developer have to actually supervise the contractor’s work?) and the measure of damages (in terms of replacement costs of the balconies vs. cost of rendering the balconies safe) cannot be determined without further discovery of records and likely a full trial.^[14]

Takeaways

Claimants that may be considering a claim in tort against a developer for home deficiencies should appreciate that tort liability is a fact-specific analysis. This means that evidence pertaining to things like the “real and substantial danger” that the deficiencies pose to the occupants, measure of damages, and the level of hands-on involvement of the developer in the construction of the home may be critical.

Developers should be aware that developer liability may not be limited to the provisions of a contract but could also stem from statutory obligations and duties under tort law. Seeking legal advice to navigate the various legal obligations and duties may be helpful.

Somerset Condominium is also a good reminder that an application for a summary disposition will often still require litigants to complete questionings and other discovery steps in order to put a sufficient evidentiary record before the court.

_{[1] Condominium Corporation No. 0522151 (Somerset Condominium) v JV Somerset Development Inc, 2022 ABCA 193 [Somerset Condominium].}

_{[2] Somerset Condominium at para 7.}

_{[3] Somerset Condominium at para 10.}

_{[4] Somerset Condominium at para 10.}

_{[5] Somerset Condominium at para 12.}

_{[6] Somerset Condominium at para 13.}

_{[7] Somerset Condominium at para 17.}

_{[8] SA 2012, c N-3.2.}

_{[9] Somerset Condominium at para 37.}

_{[10] See Winnipeg Condominium Corporation No 36 v Bird Construction Co, [1995] 1 SCR 85 and 1688782 Ontario Inc v Maple Leaf Foods Inc, 2020 SCC 35.}

_{[11] Somerset Condominium at paras 24-28.}

_{[12] Somerset Condominium at paras 24-28.}

_{[13] Somerset Condominium at para 30.}

_{[14] Somerset Condominium at paras 31-33.}