Executive summary

Since 2004, vendors and developers in Victoria selling residential properties ‘off-the-plan’ have benefited from a loophole in the Domestic Building Contracts Act 1995 (Vic) (DBCA) under which they are not liable to purchasers and their successors in title under the warranties in section 8 of the DBCA for building defects (section 8 warranties). The loophole only applies if the property is to be constructed under a separate ‘major domestic building contract’, or if the contract of sale expressly states that this is to occur. In Owners Corporation 1 Plan No PS630504G v J & G Knowles and Associates Pty Ltd (Building and Property) [2025] VCAT 967, neither of these conditions were met and the vendor was directly liable under the section 8 warranties.

In 2023, the Victorian Government Expert Panel on Building Reform recommended extending the section 8 warranties to developers, which would close the loophole.¹ This recommendation did not find its way into the most recent amendments to the DBCA in September this year and does not appear to be on the immediate horizon. For now, the case is a reminder to developers selling ‘off-the-plan’ to ensure that their sale contracts are properly drafted to avoid liability under the section 8 warranties. Click here for more on the case.

Facts

Between 2009-2010, J&G Knowles sold 72 units in a Sydenham apartment development ‘off-the-plan’. Mr Knowles was referred to in the contracts of sale as the registered builder carrying out the construction works.

When defects in the works arose, the owner’s corporation and the lot owners brought proceedings in VCAT in which it was alleged that the contract of sale was a ‘domestic building contract’ under the DBCA and that J&G Knowles was therefore liable for the defects under the statutory warranties in section 8 of the DBCA.

It was also alleged that J&G Knowles was liable to purchasers as an ‘owner builder’ under section 137C of the Building Act 1993 (Vic) (Building Act).

The legislation

Under section 8 of the DBCA, statutory warranties for defective building works in favour of an owner are implied in every ‘domestic building contract’ (section 8 warranties). The warranties are substantial: they run with the land² and apply for 10 years from the date of an occupancy permit.³

A contract of sale may be deemed a domestic building contract if it involves the ‘carrying out, arranging or management of domestic building work’. Many contracts of sale involve the vendor performing at least some, or all, of these tasks leaving them exposed to the section 8 warranties.

A significant loophole lies in section 3(4) of the DBCA, which provides that a contract of sale is not taken to be a domestic building contract if construction will only be completed before settlement (ie an ‘off-the-plan’ sale) and the home is either:

1. being constructed under a separate major domestic building contract;⁴ or
2. if the contract of sale expressly provides for this is to occur.

The section was introduced in 2004 following the VCAT decision of Philp v Mirvac (Docklands) Pty Ltd (Philp),⁵ in which an ‘off-the-plan’ contract of sale of an apartment in the Docklands was deemed to be a domestic building contract. This entitled the purchaser to avoid the contract of sale on the basis that the amount of deposit payable under the contract of sale was more than that permitted under section 11 of the DBCA.

The reaction to the decision was fierce.⁶ Banks and lending institutions warned that they would suspend further finance until this situation was clarified.⁷ Section 3(4) of the DBCA was inserted to restore market confidence. Its effect went well beyond the mischief that it was intended to address in Philp, which was not a case involving the section 8 warranties.

An ‘owner builder’ selling a home under section 137C of the Building Act is liable to purchasers and successors in title for similar warranties to those under section 8 of the DBCA. There is also a similar loophole to this warranty to that in section 3(4) of the DBCA.⁸

It should be noted that the above loopholes do not leave a purchaser and successors in title without any recourse against the builder. It is an offence for a vendor to sell a home off-the-plan unless it is being constructed under a major domestic building contract or the contract of sale provides that this is to occur.⁹ Where this is not so, the vendor may be directly liable to the purchaser under the section 8 warranties.

All of this is, of course, cold comfort if the developer is an SPV with no assets and the builder is insolvent.

Terms of the contract of sale

There was no evidence of a separate building contract between J&G Knowles and a builder. The issues were therefore as follows:

1. Was the contract of sale a domestic building contract in that it involved the carrying out, arranging or management of domestic building work?
2. Was J&G Knowles an ‘owner builder’ for the purposes of section 137C of the Building Act?
3. Did the contract of sale expressly state that the building work was to be carried out under a major domestic building contract with Mr Knowles?

The contract of sale was ambiguous. The relevant clauses were as follows:

2.1 The vendor agrees to complete the Property Buildings in accordance with the Plans and Specifications.

2.2 The name of the Registered Builder carrying out the construction of the Property Buildings is John Warner Knowles and his registration number is DBU 2206.

2.3 If the construction of the Property Buildings has not commenced as at the Day of Sale:

1. 1. the Vendor will do everything that is reasonably possible for a builder to do to ensure that the construction of the Property Buildings will commence as soon as possible, and
   2. the Vendor will complete the construction of the Property Buildings within 547 days after the Day of Sale.

Parties’ positions

J&G Knowles relied on clause 2.2. It further relied on the decision of Shaw v Yarranova (Shaw) in which the Court of Appeal found that off-the-plan sales are not domestic building contracts under the DBCA if the vendor had not promised to perform ‘the practical activities involved in the work of constructing a building’.¹⁰

Applying this test, J&G Knowles noted that:

1. the plans and specifications attached to the contracts of sale were not sufficiently detailed to complete the building of the premises;
2. the provisions authorising the vendor to approve minor variations were not sufficiently detailed; and
3. although J&G Knowles had general supervisory powers, it was Mr Knowles that was the person with the skills to perform the work and who was the registered builder.

As was the case in Shaw, J&G Knowles argued that the general obligation in clause 2.1 did not alter the nature of its obligations under the contract. Clause 2.1 dealt with its role as a developer, particularly its necessary discretions.

What did the Tribunal find?

Was the contract of sale a domestic building contract under the DBCA?

The Tribunal did not agree that J&G Knowles had no practical involvement in the works. It noted that any paucity of plans and specifications could be addressed by the vendor’s ability to manage the works.

The Tribunal did not accept that clause 2.2 was evidence that the building work was to be carried out by Mr Knowles. That clause identified matters required by section 29 of the DBCA – ie in the case of a corporate builder (in this case, J&G Knowles), a director of that corporation must be a registered building practitioner.

The Tribunal found that clause 2.3 (which required the vendor to do everything reasonably possible for a builder to do) supported the argument that the vendor was involved in arranging or managing domestic building work for the purposes of the definition of domestic building work.

Numerous indicia of a domestic building contract were noted. For example, the purchase price including the cost of construction, the provision of standard checklists under section 31(r) of the DBCA, and the vendor being responsible for builder’s warranty insurance.

In isolation, these factors do not necessarily mean that the vendor is carrying out, arranging or managing domestic building work. However, the Tribunal found that together with the absence of clear wording to the effect that the vendor would enter into a major domestic building contract with a builder for the works, the indicia pointed to a building contract rather than a contract of sale.

Did the warranties in section 137C of the Building Act apply?

The concept of an ‘owner builder’ is not defined or referred to as such in this section. The Tribunal held that J&G Knowles was liable under the warranties in section 137C of the Building Act because:

1. it was the owner of the property;
2. had constructed the property; and
3. there was separate major domestic building contract and nor did the sale contract expressly provide for this to occur.

In essence, due to (c) above, this warranty overlapped with the section 8 warranty and provided the purchasers with no additional relief.¹¹

Discussion

Provided the contract of sale is properly drafted, section 3(4) of the DBCA gives a developer selling off-the-plan significant protection from claims by purchasers under the section 8 warranties. Developers in other states such as NSW are not in the same privileged position.¹² The builder remains liable but where it is insolvent and the proceeds of any domestic building insurance are insufficient, a purchaser may be left with no effective remedy.¹³

In 2023, recommendations were made to the Victorian government to extend the warranties in section 8 of the DBCA to developers.¹⁴ The recommendation was not taken up in the recent amendments to the DBCA on 11 September 2025.¹⁵

Amendments introduced by the Building Legislation Amendment (Buyer Protections) Act 2025 commencing on 1 July 2026 will require developers of buildings of more than 3 storeys to lodge bonds of 2% of the total build cost for any defects. Developers will also be required to comply with defect rectification orders issued by the new Building and Plumbing Commission for 10 years after occupancy. See our discussion of these reforms here.

It is unclear whether these obligations will be regarded as a sufficient impost on developers for now, or at least in the run up to the next State election.

Developers and vendors should watch this space carefully.

This article was written by Brian Rom, Partner, and Adam Levenda-Freeman, Law Graduate.

¹ Victoria Government, Expert Panel on Building Reform (Paper No 2, November 2023), [Recommendation 3, 4.3.3].
² They apply to successors in title; section 9 of the DBCA.
³ Building Act 1993 (Vic) s 134(1).
⁴ A low bar: a domestic building contract under which the amount of money that a builder will receive for the carrying out of the work is more than $10,000.
⁵ Philp v Mirvac (Docklands) Pty Ltd [2004] VCAT 367.
⁶ Second reading of Domestic Building Contracts (Amendment) Bill 2004 (Vic) at pages 1640-1648.
⁷ Ibid, page 1648.
⁸ Section 137B and 137E of the Building Act.
⁹ Building Act 1993 (Vic) s 137E.
¹⁰ Shaw v Yarranova [2006] VSCA 291; (2006) 15 VR 289 at [84]-[87].
¹¹ To the extent section 8 of the DBCA did not apply due to the exclusion of section 3(4) of the DBCA, section 137C of the Building Act did not apply.
¹² Under section 18C of the Home Building Act, residential developers are effectively liable under the statutory warranties in section 18B of the Act as if they were the builder.
¹³ The current limit of cover is $300,000 including legal costs. This will not increase under the current reports set to commence on 1 July 2026.
¹⁴ Victoria Government, Expert Panel on Building Reform (Paper No 2, November 2023), [Recommendation 3, 4.3.3].
¹⁵ Domestic Building Contracts Amendment Act 2025 (Vic).