The Home Building Amendment Act (Amending Act) received Royal Assent on 5 June 2014. It will commence on a date to be proclaimed. It introduces a raft of changes across many aspects of the regulation of residential building work in New South Wales including:
- building contracts;
- sale contracts;
- statutory warranties;
- licensing, unlicensed contracting and director’s liability; and
- home warranty insurance.
This update relates to arguably the most pressing of those changes, that is, the changes to the regulation of contracts for the building and sale of residential building work. These changes will come into effect immediately upon proclamation of the Amending Act.
The implications for sale contracts arise in two circumstances:
- premises upon which owner-builder work has been performed; and
- premises excluded from the operation of the Home Building Act at the time the work was done, such as tourist, holiday or overnight accommodation but which are no longer being used for that purpose and are being sold as residential dwellings.
Contracts for Sale of Owner Builder Work
Owner-builder work will, upon proclamation of the Amending Act, be exempted from the requirement for home warranty insurance (which will from there on be known as insurance under the Home Building Compensation Fund (IUHBCF). Contractors performing work under a contract with an owner-builder must however take out that insurance.
The Amending Act requires that a vendor of land in respect of which an owner-builder permit was issued within seven years and six months must include a new consumer warning, where the reasonable market cost of the labour and materials involved is $20,000 or more. The owner builder work need not be the construction of new premises. It can be on any part of the premises the subject of the sale.
The warning must state:
- that an owner-building permit issued in relation to the land (and specify the date it issued); and
- that work done under an owner-builder permit is not required to be insured under the Home Building Act (unless done by a contractor to the owner-builder).
Failure to endorse the sale contract with the warning attracts a fine of $110,000 for corporations and $22,000 for others. But perhaps more significantly, failure to include the warning when required under the Act makes the sale contract voidable at the option of the purchaser, before completion of the contract.
Contracts for Sale of Land Subject to Change of Use
In some circumstances the construction of a dwelling is exempt from the requirement for IUHBCF. For example, a dwelling constructed for commercial use as tourist, holiday or overnight accommodation or an educational facility, amongst others. Where that was the case, but that “commercial” use no longer applies, ie the premises have been adapted for use as a domestic dwelling, the Amending Act will require that the contract include a warning to the effect that the property does not have the protection of the IUHBCF.
The warning must appear in land sale contracts where work has been done on the land in the previous six years. Similar penalty consequences apply to those rising out of the failure to include the owner-builder warning.
New Requirements for Building Contracts
The Amending Act will require residential building contracts to include details of any progress payments (except where the Building and Construction Industry Security of Payment Act (1999) applies) and a statement as to the home owner’s termination rights. The statement required is to the effect that the contract may be terminated in the circumstances provided by the general law. The Amending Act goes on to explain that ‘this does not prevent the parties agreeing to additional circumstances in which the contract may be terminated’, the intention being to bring the consumer’s attention to the possibility of the consumer having termination rights of which the consumer may not otherwise be aware.
The cap on deposits for residential building work will change. It is now a flat 10%, no matter what the value of the works or the contract sum.
The Amending Act enacts a new regulation of progress payments for residential building work. The only types of progress claims permitted are those for:
- fixed amounts or percentages payable following the achievement of clearly specified milestones; or
- payment for labour, materials and margin, which must be substantiated with copies of invoices, receipts or other documents.
The amendments permit the adoption of both approaches, thus accommodating variations, provisional sums and the like.
Finally, the statutory warranties implied by the Act are varied in that the warranty that work will be performed in ‘a proper and workmanlike manner and in accordance with the plans and specifications set out in the contract’ will now read ‘a warranty that the work will be performed with due care and skill and in accordance with the plans and specifications set out in the contract’.
The Home Building Act does not permit contracting out of its contract requirements and any contract terms that attempt to do so are to be read down.
Much of the regulation of contracts for residential building work does not apply to contracts between licence holders under the Home Building Act where the work is work the type of work authorised under the respective licences. Contracts with developers will also often be exempt.