Staged commencement dates for the Home Building Amendment Act 2014 (NSW) (Amending Act) have been proclaimed with some of the most significant amendments commencing on 15 January 2015.  Developers, builders, subcontractors, owners and purchasers in the home building sector in NSW need to be aware of these reforms.  There are also additional contractual obligations that should be addressed.

Background

The Amending Act received Royal Assent on 5 June 2014, introducing a raft of changes across many aspects of residential building work in NSW, including:

  • building contracts
  • sale contracts
  • disputes, defects and statutory warranties
  • licensing and unlicensed contracting
  • directors’ liabilities
  • owner-builders, and
  • insurance.

Key benefits for the construction industry

There are a number of key benefits of the reforms for the construction industry with a focus on timely notification of defects and rectification rather than compensation in building disputes, as well as a new defence for builders where there has been reliance on written instructions of a professional acting for the owner (and independent of the builder).

These benefits and other key changes are outlined below in our explanation of the staged commencement.

Staged commencement

15 January 2015

Most significant changes commence on 15 January 2015.  These include:

  • tougher licensing requirements and an increase in the penalties for unlicensed contracting, including the possibility of imprisonment for multiple offences
  • tighter regulation of owner-builders and new mandatory warnings will be required for certain sales contracts
  • for any new disputes relating to defects, tribunals and courts will need to consider rectification as the preferred outcome
  • defects covered by a six year warranty period change from “structural defects” to “major defects” in a “major element”.  A two year warranty period applies to any other defects.  Major elements include load bearing components of a building which are essential to its stability so major structural defects will remain covered by a six year warranty period.  Serious defects in fire safety systems or waterproofing may also now have a six year warranty period. These changes have a retrospective effect unless proceedings have been commenced or an insurance claim made
  • in disputes under new contracts, builders will not be liable where a building defect is due to an owner’s consultant’s defective designs or specifications where the owner’s consultant is independent of the builder
  • you will be able to access a register of details of home building insurance taken out on or after 1 July 2010 and any insurance claims made on those policies, and
  • director or an executive of a licensed contractor may commit an offence if he or she fails to take reasonable steps to prevent the contractor from committing an offence by failing to notify insolvency circumstances within seven days.

1 March 2015

The remaining key changes commence on 1 March 2015 and focus on contracts including:

  • the statutory warranty requiring work to be performed in a proper and workmanlike manner has been changed to a warranty to require work to be done with due skill and care
  • a requirement to include a statement in contracts that the contract may beterminated as provided by the general law. Interestingly, this provision, apparently for the benefit of consumers, may also benefit contractors in circumstances where developers or their financiers might have sought to exclude a contractor’s right to terminate at general law
  • statutory warranties implied into head contracts will now also be implied into new subcontracts
  • a person having the benefit of a statutory warranty relating to a new contract has new duties to mitigate its loss associated with a defect, make reasonable efforts to notify a defect within six months after the defect becomes apparent and not to unreasonably refuse access for the purpose of rectification. A failure to do any of these things may affect the extent of a claimant’s recovery of damages, and
  • a new form of the mandatory consumer building guide is to be issued and will need to be included in relevant contracts.

What you need to do

You should familiarise yourself with the changes that came into effect on 15 January 2015 and you should take the opportunity to check that your contracts as well as your systems for preparing them are updated in advance of the 1 March 2015 changes.

Construction contractors should also review their D&O, management liability and statutory liability insurance policies to address whether there is coverage for the new executive liability offence.  Our Insurance team can assist with this process.

More information is also available here at the NSW Government Fair Trading website.  There is a handy comparison of the new and previous laws available here.