Is a Developer Liable for Dangerous Defects if It Wasn’t Involved in Construction?

Authors: Jodi Wildeman, K.C., Bennet Misskey

Tort law imposes duties on contractors to construct buildings safely and free from dangerous defects. But do those duties extend to a developer that did not play a hands-on role in the physical construction of the building? Alberta’s top court was recently tasked with answering that question.

In Condominium Corporation No. 0522151 (Sommerset Condominium v JV Somerset Development Inc., 2022 ABCA 193 (Canlii) [JV Somerset], a condominium corporation brought a claim that included the building’s architect, project manager and developer as defendants for the cost to replace the condominium’s balconies. The claim alleged design and construction deficiencies in the waterproof membranes compromised the structural integrity of the balconies, making them dangerous and in need of replacement.

Developer Played a Limited Role

The record before the court showed that the developer had retained contractors or subcontractors to construct the building on its behalf. The developer’s role was to initiate the project and sell the units.

Given its limited role, the developer brought a summary judgment application to dismiss the claim. The developer argued that even if a contractor has duties in tort to the ultimate owners of a building, a developer is not similarly liable in tort for deficiencies unless it was actually involved in the physical construction of the building.

The chambers judge sided with the developer’s argument on this issue and granted summary judgment in favour of the developer. But a unanimous decision by the Alberta Court of Appeal reversed that decision.

Issue Must Go to Trial, Appeal Court Says

The Alberta Court of Appeal held that the law was not certain enough to conclude on summary judgment that a developer with no hands-on involvement in the construction of a building could not be held liable for dangerous deficiencies. Rather, the issue had to go to trial.

The Court observed that a developer could face potential liability for construction deficiencies under contract, tort or statutory duties. While the relationship between the respondent and the original unit owners would have primarily been one of contract, the Court noted that a developer might still be independently liable in tort where the failure to take reasonable care in construction resulted in defects that pose a substantial danger to the health and safety of the occupants.

This would be an extension of the principles set out in the Supreme Court of Canada’s decision in Winnipeg Condominium Corporation No. 36 v. Bird Construction Co. (Winnipeg Condominium). Since that decision, the law recognizes that a contractor may be liable in tort to the subsequent purchasers of a building for negligent construction defects that pose a real and substantial danger to the health and safety of the occupants years after the initial construction was completed. If negligence is established, the contractor can be liable for the reasonable cost of putting the building into a non‑dangerous state, whether or not actual damage has occurred.

Previous Decision Was Silent on Developer Liability

Winnipeg Condominium also concerned a condominium complex built by a general contractor and its subcontractors on behalf of a developer. In that case, however, the action was commenced against the general contractor and its subcontractor, but the developer was not sued. As a result, the issue of tort liability imposed on a developer to subsequent purchasers was left for another day.

Noting that the liability of the developer in Winnipeg Condominium was not considered, the Alberta Court of Appeal commented that if there was sufficient proximity between the contractor and the subsequent owners of the units to establish a duty of care, it is at least arguable that there would have also been sufficient proximity between the developer and the subsequent purchasers. In other words, if contractors owe such a duty, then developers arguably stand in an analogous relationship.

Whether such a duty extends to developers could not therefore be reasonably determined on summary judgment. The terms of the original contracts between the developer and the initial owners, which were not before the court, would be key to resolving the issue, as would the standard of care imposed.

A Developer’s Duty of Care

Even assuming that the developer had a duty of care to the ultimate unit owners to ensure the building was free of dangerous defects, the Court of Appeal found a trial was required to decide the extent of that duty. For example, would it be enough for the developer to hire competent and responsible architects and contractors? Must the developer also hire skilled and experienced professionals to monitor the contractor’s work? Is the developer required to actually supervise, monitor or check the contractor’s work for dangerous deficiencies? The developer’s lack of a hands-on role in the physical construction would also be relevant to informing the standard of care.

The Alberta Court of Appeal also observed that if the law was to ultimately accept a duty of care in tort as argued by the appellant, the direct effect of that decision would largely apply to homes built before the New Home Buyer Protection Act came into force in 2014. With respect to homes built after 2014, there may be little room for the duty in tort to prevail over the statutory, insurance and implied contractual duties in place under that legislation.

Multiple Sources of Liability

The decision in JV Somerset serves as an important reminder that contractors’ and developers’ liability for construction defects can potentially arise from multiple sources, such as contract, legislation or common law duties in tort, which continue to evolve. The scope of liability is a highly fact-dependent analysis and requires close attention to the law.

MLT Aikins has the right combination of legal and industry experience to help you navigate the rapidly evolving legislative and regulatory landscape, including in updating your construction contracts, establishing administrative procedure and policy, and training employees. We can reduce your risk by helping your organization prepare for new developments. Contact a member of our team to learn more.

Note: This article is of a general nature only and is not exhaustive of all possible legal rights or remedies. In addition, laws may change over time and should be interpreted only in the context of particular circumstances such that these materials are not intended to be relied upon or taken as legal advice or opinion. Readers should consult a legal professional for specific advice in any particular situation.