The Home Building Amendment Bill 2014 (NSW) was passed unamended by the NSW Parliament on 28 May 2014.  This Bill, once proclaimed, significantly amends the Home Building Act 1989 (NSW) and construction industry participants should be aware of the changes and how they will affect their business.

What are the key amendments?

Key amendments to the Home Building Act 1989 (NSW) (“HBA”) concern the:

  • statutory warranties regime;
  • resolution of building disputes; and
  • home warranty insurance provisions.

Click here to access the Home Building Amendment Bill 2014 (NSW).

Amendments to the statutory warranties regime

Change from “structural defect” to “major defect”

The Home Building Amendment Bill 2014 (NSW) replaces the definition of “structural defect” in section 18E of the HBA with the concept of “major defect”.

A “major defect” is defined in new section 18E(4) as:

  1. a defect in a major element of a building that is attributable to defective design, defective or faulty workmanship, defective materials, or a failure to comply with the structural performance requirements of the National Construction Code (or any combination of these), and that causes, or is likely to cause:
    1. the inability to inhabit or use the building (or part of the building) for its intended purposes, or
    2. the destruction of the building or any part of the building, or
    3. a threat of collapse of the building or any part of the building, or
  2. a defect of a kind that is prescribed in the regulations as a major defect.

A “major element” is also defined in section 18E(4) as:

  • an internal or external load-bearing component of a building that is essential to the stability of the building, or any part of it (e.g. foundations, floors, walls and beams);
  • a fire safety system;
  • waterproofing; or
  • any other element prescribed by the regulations as a major element of a building.

The limitation period for commencing proceedings for an alleged breach of a statutory warranty is 6 years for a “major defect” and remains 2 years for defects that are not major defects.

Defence of reasonable reliance on instructions from a relevant professional

Defences available to a defendant under section 18F are broadened. Under new section 18F(1)(b), it is a defence to a claim for breach of a statutory warranty if the defendant can prove the deficiencies complained of arise from its reasonable reliance on written instructions from a relevant professional acting for the person for whom the work was contracted and who is independent of the defendant.

Section 18F(4) defines “relevant professional”, while sections 18F(2) and (3) assist in determining whether a relevant professional is independent of the defendant.

Duties

New section 18BA imposes certain duties on persons who have the benefit of a statutory warranty, including:

  • a duty on the person to mitigate their loss arising from a breach of the warranties (which extends to a person entitled to the same rights as those a party to the contract has in respect of the statutory warranties);
  • requiring the person to make reasonable efforts to notify a person against whom the warranty can be enforced within 6 months of a defect becoming apparent;
  • a person must not unreasonably refuse the person who is in breach of the statutory warranty such access to the site as that person reasonably requires to rectify the work; and
  • a failure to comply with a duty may be taken into account by the court or tribunal in subsequent proceedings or, in the case of refused access, must be taken into account.

Due care and skill

The statutory warranty that all work be performed in a “proper and workmanlike manner” (as set out in section 18B(a) of the HBA), is amended such that the work will be required to be “done with due care and skill”.  This change will need to be reflected when drafting the statutory warranties into the terms of a construction contract for residential building work.

Subcontractors are also responsible

New subsection 18B(2) states that the statutory warranties are also implied in a subcontract. Accordingly, where a breach of the statutory warranties relates to work performed by the subcontractor, the subcontractor may be liable for that breach.

Resolution of building disputes

The amendments to Part 3A dealing with resolutions of building disputes, among other things:

  • makes further provisions regarding rectification orders issued by inspectors under sections 48E and F; and
  • requires courts and tribunals to have regard to the principle that rectification of defective work by the party responsible is the preferred outcome under new section 48MA.

Home warranty insurance provisions

The “structural” to “major” defect amendment has resulted in flow-on changes to the terminology used in the period of insurance cover in section 103B of the HBA.

Changes have also been made to provisions dealing with insurance of residential building work in Part 6 of the HBA, including (among others):

  • that residential building work done under a contract must be insured in the name of the person who contracted to do the work;
  • that a contract for insurance in relation to residential building work extends to cover any residential building work done in rectifying the original work; and
  • that a claim for non-completion of work as well as defective work can be made as a delayed claim to allow a beneficiary to continue to pursue a contractor for a breach of the statutory warranties beyond 12 months after the work has finished.

A detailed summary of all amendments made by the Home Building Amendment Bill 2014 (NSW) is contained in the Explanatory Note.