DEVELOPERS BEWARE - Licensing Issue

Traditionally developers have undertaken developments utilising the services of a building contractor. In doing so, they have been comfortable in the belief that they have complied with their legal obligations on the basis that the building contractor is
appropriately licensed.

However, the literal requirements of legislation such as the Queensland Building Services Authority Act and recent cases
about its application, cast some doubt about whether the use of a licensed building contractor will be sufficient to ensure compliance with the Act. Typically, the uncertainty arises where a contract to sell the development is entered into before the
development is complete. Such contracts may provide either that the contract will settle after the development is complete, or that the contract settles before the construction of building work is complete. In the latter case, the developer is often retained to carry out the balance of the development after the sale of the land has been completed.

The Act provides that it is unlawful for a person to carry out, or undertake to carry out, building work unless the person
holds the appropriate licence. A contravention of that provision can lead to prosecution and significant financial penalties. But perhaps worse still, the offender is not entitled to any profit. It may recover enough to cover expenses only (such as contractors and subcontractors and materials) but no money to cover its own time or profit.

The Act defines carrying out, or undertaking to carry out, building work very broadly. It includes work that is done personally or that the person directly or indirectly causes to be carried out. It also includes advisory services, administration services, management services or supervisory services in relation to building work. It can also include an undertaking under a contract to carry out or make an offer to carry out building work.

The provisions of the Act can have a serious impact on a developer. They may affect the relationship between the developer and the buyer who wants to purchase the end product. If the developer does not hold the appropriate licence to carry out building work, it may find itself in breach of the Act. The case of PJS Development Pty Ltd v Tong involved an off the plan contract for the sale of a unit. As the building and unit had not yet been built, the question arose as to whether the seller had breached the Act by undertaking to carry out building work so that it could sell the legal title to the unit to the buyer upon completion of the work.

The Queensland Supreme Court considered that the contract did not mean the seller was undertaking to, or carrying out, building work for the purposes of the Act. It considered that to carry out, or undertake to carry out, building work must be something which could be characterised as the carrying out of building work in the sense that a building contractor carries out building work. Also, although the court did not decide the case on this point, it noted that the contract was not one for the purposes of carrying out building work, but a contract to sell title to the unit to the buyer. In other words, the buyer had contracted with the seller to acquire legal title to the unit, not for the seller to construct the building and the unit. The case suggests that a developer will not necessarily breach the Act merely by entering into an off the plan contract which in order to be completed, first requires the construction of a building to be completed.

Of course, whether the court would reach the same conclusion in another case may depend on the precise wording of the contract and the overall arrangement. For example, the case before the court was for the sale of a unit. Until it was built, no plan was registered and there was no legal title to transfer. The situation may be different where legal title to the land already exists and can be transferred irrespective of whether the proposed building is constructed or not. Furthermore, the court did not need to consider the position of a developer who has already sold the land to the buyer and has been retained by the buyer to see the development through to its end. Typically, title to the land is transferred to the buyer who makes subsequent periodic or progress payments to the developer to oversee and co-ordinate the building work upon the land. That scenario is quite different to the one considered by the court.

Could it amount to an undertaking or agreement by the developer to carry out building as defined by the Act? The answer will probably depend on the matters for which the developer is retained to do. Is it really undertaking to have building work carried out? Will its duties include the provision of advisory services, administration services, management services or supervisory services in the sense that a building contractor does in order to have building work carried out? The precise wording and true nature of any agreement between the buyer and developer needs to be carefully considered.

Whether agreements between buyers and developers will breach the Act will depend upon the precise wording of the agreements entered into and whether the obligations of the parties is properly construed as carrying out or undertaking to carry out building work in the sense that a building contractor does. Unless considered carefully beforehand, the developer may inadvertently contravene the Act resulting in serious financial consequences.

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