Who pays for condo defects years after completion?

The condominium, which obtained its temporary occupation permit in 2015, was a joint development by Sing Holdings and UE E&C. Coral Edge Development was incorporated in 2013 to develop the condo.

The defects emerged as Coral Edge Development was being wound up, and it was dissolved in 2020. The main contractor, Greatearth Corporation, became insolvent in 2021.

In 2021, the Waterwoods MCST, represented by lawyer Daniel Tay, head of building and construction at BR Law Corporation, applied to the High Court to have the developer’s dissolution declared void so that it could bring proceedings over the defects.

It sought to recover about $3.9 million to cover rectification works.

However, the High Court dismissed the application. In its grounds of decision published in 2022, the court said it was “pointless” to restore the developer as it no longer had assets available to meet the MCST’s intended claim.

The three cases illustrate why time could work against home owners. A defect may emerge late or a dispute may drag on for years. In Waterwoods’ case, where owners believe they have a legitimate claim over defects, there is no viable company left from which to seek compensation.

Tay said it is common for larger developers to set up a subsidiary company to develop a project. This company would be wound up after the project is completed and its liabilities settled.

As the subsidiary is a separate entity, claimants will not be able to pursue the parent company for liabilities once its subsidiary has been wound up.

Generally, MCSTs would then have to bear the costs – with the bill ultimately falling on home owners – or pursue claims with sub-contractors responsible for the defects.

The first line of protection for home buyers is usually the one-year defects liability period, which starts when the buyers take possession of their homes.

During this period, they can report defects to the developer, which will carry out rectification works.

After that, the legal time limits under the Limitation Act become increasingly important.

Daniel Chen, a partner at law firm Lee & Lee who specialises in MCST disputes, said claims based on contract or tort are generally subject to a six-year limitation period from when the right to sue arises.

But latent defects – problems that existed but were not discovered earlier – are treated differently once the six-year limitation period has passed.

Chen said an MCST may still bring a claim in tort within three years of discovering a latent defect, subject to a long-stop date of 15 years from the completion of the condominium.

Once 15 years have passed, Chen said an MCST would no longer be able to use the latent-defect exception to claim against the developer, main contractor and sub-contractors for the defects.

Some warranties given by contractors or sub-contractors and later assigned to an MCST may also remain enforceable while they are still in force, he added.

However, defect claims can be technical and time-consuming.

“They will usually take a year or two to conclude, even by settlement. If they proceed to trial, even longer,” said Chen.

In cases where responsibility is clear, disputes are often settled through mediation to avoid going to trial.

What home owners can do

For home owners, the key is to act early.

The legal deadline and the risk that a company may be wound up could complicate recovery.

Problems should be documented and investigated as early as possible.

Many home owners today engage surveyors to inspect their new homes after collecting their keys. Such inspections can help identify defects early so that they can seek rectification from the developer.

But such inspections are limited to individual units and some defects in the common areas may remain hidden for years.

Tay suggested that the insurance industry could consider offering retail coverage against latent defects that emerge years later.

This could give MCSTs and home owners another source of compensation as a fail-safe if the company responsible becomes insolvent.

The idea would be to spread the risk through insurance, rather than leave individual owners or an MCST to bear the full cost when there is no longer a viable developer or contractor to pursue.

The cases show that discovering a defect is only the start. Establishing responsibility can be time-consuming. Even a successful claim may not lead to full recovery.

The longer a problem remains unresolved, the fewer options home owners have to recover their losses.