The Supreme Court of NSW has ordered a special purpose development company to not dispose of the proceeds of sale of its remaining units in a strata development until a defects claim is resolved.
Cycling to work last year up Lavender Street Milsons Point I noticed a queue for a brew at a new café in a new high rise development. Little did I realise that at that time there was a court case in the queue at the Supreme Court, brewing some interesting law with a practical consequence for developers and property owners with defect claims.
The unit block was completed in July 2021. The building has 125 residential units and 2 commercial units. Since then, the developer Aqualand has sold 121 of the residential units and still owns 4. These 4 units are the developer’s only assets.
The developer company is a special purpose vehicle (SPV) to develop the site within the larger Aqualand group. The developer has not retained the proceeds of sale of the 121 units already sold.
The building is alleged to have defects, and the owners’ corporation has sued the developer for damages. In those proceedings, the owners corporation has served all its evidence including expert evidence that the damage was estimated to be $10.6 million
The owners’ corporation was worried that if the developer sold the remaining 4 units, there would be no assets left to pay the damages.
In November 2024, the owners’ corporation asked the Supreme Court for a freezing order to stop the developer from selling its assets.
The court decided that there was a danger that damages awarded to the owners corporation might be not paid because the developer could dispose of its assets after selling the 4 unsold units, either by distributing the profit by way of a dividend or by loan to other companies in the Aqualand group.
On 6 February 2025 the Supreme Court of NSW ordered that the Developer not dispose of its assets up to the unencumbered value of $10.6 million, being the amount of the owners corporation claim.
As well as giving the case to the owners, the court also ordered the developer to pay the costs of the application – be that a warning to a developer resisting such an application.
What should you do?
If you are a developer, watch out, your SPV may not give you the asset protection you anticipated. On the other side of the fence, if you have a claim for building defects, get advice early about starting a court case and the utility of getting a freezing order over the developer’s assets to protect your interests.
You can read the case here: The Owners Strata Plan No. 102081 v Aqualand Construction Pty Ltd [2025] NSWSC 31 (6 February 2025)
Contact Peter McNamara for advice on whether you can resist a request to hold the proceeds of sale of your development, or on how you might enforce your rights against special purpose development companies.