Protection of the rights of purchasers of commercial properties where latent defects arise: Assignment of ongoing rights under building contracts

摘要

A vendor giving a warranty regarding the quality of commercial property is the safest option a purchaser can request to protect itself against latent defects, but this presents real risks to the vendor as to whether it could recover any liability to the purchaser from the builder. This is because the vendor's liability to the purchaser under such a warranty may be a loss that is too remote to be recoverable against the builder. In addition, the purchaser may not have suffered any other economic loss itself, and it is uncertain whether the High Court would follow the cases allowing recovery notwithstanding these issues which are described above. The safest option for a vendor is to give the purchaser an assignment of its rights under the building contract. However, whether that would effectively protect the purchaser would depend on whether the above cases were followed. A possible compromise involves the vendor holding its rights under the building contract "for the benefit" of the purchaser. However, this presents similar uncertainty to the purchaser as an assignment and, in addition, places an obligation on the vendor which carries with it the associated risk of compliance and possible breach. Although members of the High Court appear to have assumed in Woolcock Street Investments Pty Ltd v CDG Pty Ltd (2004) 216 CLR 515; [2004] HCA 16 that there are contractual steps a subsequent purchaser of commercial property can take to protect its interests, those steps are not without risk to both the vendor and the purchaser, and where the risk of latent defects is significant, both parties will need to carefully consider how the issue is settled.