A contract, tape measure and yellow hard hat lay together on a flat surface

Beware Implied Terms in Building Contracts

Ben Johnson, ||

On 27 February, 2019, the Supreme Court of Victoria handed down a decision in Zeng v Leeda Projects Pty Ltd (2019) VSC 106 involving a breach of an implied term to complete building within a reasonable time and determined to award damages against a builder in relation to the homeowner’s loss of use and enjoyment of property.

Facts

In 2011, Yun Zeng (Ms Zeng) purchased a whole floor apartment in Melbourne for almost $6,000,000. At the time of purchase, the apartment was a shell and required renovations to be completed prior to Ms Zeng occupying the apartment.

In 2013, Ms Zeng engaged and entered into a building contract with Leeda Projects Pty Ltd (Leeda) to carry out fit-out works which included a residence and private gallery. The building contract provided for the works to be completed by 3 December, 2014. However, the works took an extra 130 weeks to be completed.

Victorian Civil & Administrative Tribunal (VCAT)

Ms Zeng initiated proceedings in the VCAT, asserting that there was an implied term of her contract with Leeda such that the works would be completed within a reasonable time and claiming damages for the loss of use and enjoyment of her apartment.

The Senior Member in VCAT agreed the weekly rental value of Ms Zeng’s apartment was between $2,500 to $3,000 but rejected her claim for damages for loss of use of the apartment. Ms Zeng was ordered to pay for sums owed to Leeda under the contract while Leeda was ordered to pay Ms Zeng a sum of $100 as nominal damages.

Appeal to the Supreme Court of Victoria

Ms Zeng appealed the VCAT decision with the Supreme Court of Victoria. The Supreme Court overturned the VCAT judgement and held:

  1. There was an implied term in the contract requiring the building works to be completed within a reasonable period; and,
  2. Damages were to be awarded to Ms Zeng for the rental value of her apartment during the period of delay by Leeda.

Interestingly, the Court ruled in Ms Zeng’s favour despite there being no loss of residential income as Ms Zeng never intended to lease the apartment and she hadn’t incurred any expenses with alternative accommodation as she had her own residential property in Melbourne.

The Court found that Leeda was of the understanding that the apartment was to be used as a residence and gallery and any reasonable person would have anticipated the loss of use of the apartment due to the breach of works.

If the building contract had been met, Ms Zeng would have had an extra 130 weeks to use the property for both her residence and private art gallery. The Court therefore held that Ms Zeng had suffered a loss and awarded $145,555.80 in damages in her favour – a sum proportional to the lost weekly rent for the 130 weeks.

When entering into contracts it is important that parties fully understand both the express and implied terms.

If you need assistance in understanding your contract or are presently in a contractual dispute relating to a property or building contract, Coleman Greig’s Commercial Property  and Litigation and Dispute Resolution teams can provide high quality advice.

Share:

Send an enquiry

Any personal information you provide is collected pursuant to our Privacy Policy.

Categories
Archives
Author

More posts

Proposed changes to building and construction law in NSW

The Building Bill 2022 (the Bill) is the key avenue through which the NSW Government has proposed to reshape the culture of the building and construction industry by eliminating poor performance and improving the quality of building statewide.

Can you dismiss an employee who fails to return to the office?

Slowly but surely, most employers are requiring employees to return to the office for at least a portion of their working week. Some employers continue to struggle with employees resistant to returning to the office or those who have an expectation that they can continue to work from home whenever it suits them.

New powers to combat phoenixing in construction

The rise of phoenixing in the building and construction industry in Australia in recent years has proved a significant challenge to regulators. Mismanagement of time or cashflow can quickly propel businesses into insolvency.

The NSW Building Commission’s extraordinary powers

In late 2023, the NSW Government passed the Building Legislation Amendment Bill 2023 (Amendment Bill). The Amendment Bill established the NSW Building Commission and granted it extraordinary powers to enter construction sites, inspect work and take away information and materials.

© 2024 Coleman Greig Lawyers   |  Liability limited by a scheme approved under Professional Standards Legislation. ABN 73 125 176 230