The Home Building Amendment Act 2014 (Amending Act) was passed by New South Wales Parliament on 5 June 2014.  It will commence on a date to be proclaimed.  Although falling short on the long outstanding promise of a re-write of the Home Building Act, it will effect change across:

  • statutory warranties;
  • the compulsory insurance scheme;
  • residential building and sale contracts;
  • owner-builders;
  • licensing and unlicensed contracting; and
  • director’s liabilities.

This update focuses upon changes to the Statutory Warranties and the Compulsory Insurance Scheme.  For an update on the changes in respect of building and sale contracts please click here.

The compulsory insurance required under the Home Building Act is no longer to be called Home Warranty Insurance.  The concern was that name held the insurance out to be something that it was not.  This form of insurance will now be known as ‘Insurance Under the Home Building Compensation Fund’ (IUHBCF).

From the proclamation date, owner-builders will no longer be required to take out IUHBCF.  However contractors who perform work for owner-builders will need to take out IUHBCF.

Previously, the indemnity under IUHBCF was only available upon the death, disappearance or insolvency of the builder.  This was more recently extended to include suspension of the contractor’s licence.  It will, by the latest amendments, also be available when the contractor was a partnership and any of the partners become insolvent.

The provision of forged insurance certificates has had devastating results for some home owners.  The government has moved to address this by creating a register of insurance certificates issued to evidence contracts of IUHBCF entered into on or after 1 July 2010.  The register will be publicly accessible and will also include details of claims successfully made.

In terms of the statutory warranties, the distinction between structural and non-structural defects will be abolished.  In its place is a warranty period of six years for breach of statutory warranty resulting in a major defect or two years in any other case.

A major defect is defined as a defect in a major element of the 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 the above) and which causes or is likely to cause:

  • the inability to inhabit or use the building (or part of the building) for its intended purpose;
  • the destruction of the building or any part of the building; or
  • a threat of collapse of the building or any part of the building.

A ‘major element of the building’ is defined as:

  • internal or external load-bearing components of a building that are essential to the stability of the building or any part of it; or
  • a fire safety system; or
  • waterproofing.

There is provision for the regulations to prescribe other elements as ‘major elements of a building’.

The expiry date for statutory warranties is determined by reference to the date by which the works were complete. The Act already provided considerable guidance as to how the date of completion is ascertained. The Amending Act will make further provision for strata schemes in that the completion date of residential building work comprising the construction of a new building in a strata scheme will be the date of issue of the occupation certificate that authorises the occupation and use of the whole of the building. Separate buildings within the same strata scheme will be addressed separately. So there may be more than one completion date where the strata scheme involves more than one building/occupation certificate.

The defences available to a builder for breach of statutory warranty will be expanded.  For instance, instructions given by the customer which are contrary to the written advice of the contractor before the work was done will be available as a defence. 

Further, reasonable reliance on instructions given by an independent professional, whose instructions were in writing and who acted for the customer may also be usedto ground a defence.  This could be an architect, engineer, surveyor or other professional having expert or specialised qualifications or knowledge in respect of residential building work.

The required degree of ‘independence’ is set intentionally high.  A professional engaged on the basis of a recommendation by the contractor or professional who is a ‘close associate’ of the defendant, as defined under the Act, won’t qualify.