Important Changes to the
Home Building Amendment Act
Welcome
presenter | David Bannerman
date | 25 March 2015
Liability limited by a scheme approved under Professional Standards Legislation
Home Building Amendment Act
2014
Amendments to Home Building Act
Amendments to the Home Building Act as a result of the Home
Building Amendment Act is now commencing in 2 parts:
•
•
15 January 2015 - Majority of Amendments including:
‒ Licensing, Owner Builders, Home Building Compensation Fund,
Major and General Defects
1 March 2015 - Amendments relating to residential building contracts
including:
‒ Sections 7 & 8 Form of Contracts,
‒ Section 18B – wording of statutory warranty and application to
subcontractors
Building Insurance - History
A brief history of Building Insurance in NSW *
• 1972 to 30 April 1992, Government administered insurance scheme. Cover
for defects was set at $40K and increased to $100K in March 1990.
Incomplete work was capped at $25K.
• 1993 Dodd Inquiry. Recommended to move away from Government
monopoly to private insurers. Avoidance of conflict claims with the
Government acting as both insurer and arbiter on disputes.
• Privatised from 1 May 1997. Minimum cover was $200K, increased to $300K
on 1 March 2007 and $340K on 1 February 2012.
• In 2001, HIH Casualty and General Insurance Limited and FAI General
Insurance Company Limited went into liquidation. They held approximately
40% of home warranty insurance book.
* Based upon Fair Trading NSW Factsheet January 2014
Building Insurance – History (cont)
• From 1 July 2002, NSW shifted from a ‘first resort’ scheme to a ‘last
resort’ scheme, i.e. the scheme provided cover in the event of the
death, insolvency or disappearance of the builder.
• From 1 July 2002, with the shift to a ‘last resort’ scheme, insurance
liability reduced to 6 years for a loss arising from a ‘structural’ defect
or 2 years for loss arising from a ‘non-structural’ defect.
• From 1 July 2010, the NSW Government through SICorp (the NSW Self
Insurance Corporation), became the sole home warranty insurance
agent.
* Based upon Fair Trading NSW Factsheet January 2014
Building Insurance – History (cont)
•
•
From 25 October 2011, for first resort insurance claims needed to have been
made during the period of cover. Owners were unable to notify and claim
after period of cover as previously permitted. A grace period was given to
allow matters notified during cover to be claimed before 25 April 2012.
From 25 October 2011, for last resort insurance, claims need to have been
made during the period of cover (or during 6 month extension period if the
loss occurs in the last 6 months of the period of insurance) if the builder dies,
disappears or becomes insolvent during the period of insurance (or the 6
month extension period). Owners lost the right to make a claim outside the
period of cover, subject to the below point.
* Based upon Fair Trading NSW Factsheet January 2014
Building Insurance – History (cont)
•
•
From 25 October 2011, for last resort insurance, if the builder does not die,
disappear or become insolvent within the insurance period, and the loss was
properly notified, owners can make a claim later but will not be entitled to
indemnity unless they ‘diligently pursued’ enforcement of statutory
warranties.
From 25 October 2011, owners unable to make insurance claims more than 10
years after completion of works.
* Based upon Fair Trading NSW Factsheet January 2014
UNSW Research - Common Strata
Building Defects
Extracted from Easthope, H., Randolph, B., & Judd, S. (2012)
Governing the Compact City: The role and effectiveness of strata
management . Sydney: City Futures Research Centre”
Building Insurance Trends –
Underwriting Performance
2012
$’000
2013
$’000
2014
$’000
Gross Written Premium
47,588
53,156
66,667
Movement in unearned premium
(37,414)
(35,896)
(40,868)
Net Premium Revenue
10,174
17,260
25,799
Recoveries
-
-
30
Movement in outstanding claims provision
(34,679)
(15,140)
(796)
Claims paid
(16,815)
(24,680)
(23,677)
Acquisition costs
(29,651)
(22,609)
(28,383)
Unexpired risk liability
(32,209)
(13,503)
(2,564)
Total underwriting loss
(103,180)
(58,672)
(29,591)
Source – NSW Home Warranty Insurance Fund Financial Statements for
years ended 30 June 2013 and 30 June 2014
Building Insurance Trends
Claims received (by year project certificate issued) as at 31 August 2014
2010/11
2011/12
2012/13
2013/14
2014/15
Total
Claims
Received
576
400
110
4
0
1,090
Notifications
Received
256
189
84
20
0
549
Source – Home Warranty Insurance Fund – Report as at 31 August 2014
Building Insurance Trends (cont)
Claim payments (by year project certificate issued) as at 31 August 2014
Year
Payment to
Claimants & 3rd
Parties ($)
Outstanding
Estimate ($)
Estimated Total
Cost ($)
Average Cost ($)
2010/11
35,632,083
6,477,293
42,109,377
73,107
2011/12
23,379,863
2,433,054
25,812,976
64,532
2012/13
5,716,656
1,856,833
7,573,489
68,851
2013/14
5,231
214,156
219,397
54,847
2014/15
0
0
0
0
TOTALS
64,733,833
10,981,336
75,715,239
65,334
Source – Home Warranty Insurance Fund – Report as at 31
August 2014
Amendments that Started 15/1/15
• Amendments that started on 15 January 2015 matters included–
–
–
–
–
–
Completion date for strata buildings
Statutory Warranty changes ‘major defect’
6 month notification after breach of statutory warranty apparent
Extension of 18F defence
Duty to mitigate loss
Court/Tribunal to have regard to the principal that rectification is the
preferred outcome
– Duty not to unreasonably prevent rectification work
– Home warranty insurance extends to rectification works by original builder
– Home warranty insurance exemption clarified
Date of Completion of Residential
Building Work
Date of Completion of residential building work that is not new buildings in strata
schemes – section 3B
• Completion is when work is complete within the meaning of the contract;
• If the Contract doesn’t define completion, when the work reaches practical completion =
completed except for omissions or defects that do not prevent the work from being
reasonably capable of being used for its intended purpose;
• Practical completion presumed (unless an earlier date is established ) on the earlier of:
1. Hand over of possession;
2. Last attendance onsite to carry out work (other than to remedy defect that doesn’t
affect practical completion);
3. Issuance of occupation certificate that authorises commencement of use of
occupation of the work
• Where 2 or more individual buildings that are reasonably capable of being used and
occupied separately are constructed practical completion can occur at different times.
Date of Completion of New Buildings in
Strata Schemes
• Date of Completion of New Buildings in Strata Schemes – section 3C
(commenced 15 January 2015 with retrospective effect). Except where
proceeds commenced on insurance claims made and not applying to private
insurers Home Owners Warranty Insurance
• Completion occurs on:
1. Date of issue of an occupation certificate that authorises the occupation
and use of the whole of the building;
2. The occurrence of an event prescribed in the regulations (currently none
prescribed
Amendments that Started 15/1/15
• 6 year statutory warranties change from “Structural Defect” to
a 2 Element Test “Major Defect” in a “Major Element”.
• Generally applies retrospectively to:– Building contracts entered into from 1 February 2012
– Insurance contracts entered into from 1 July 2002
Amendments that Started 15/1/15
• Retrospective Application of the changes to the Statutory
Warranties and claims against builders and developers can be
avoided only if before the amending legislation commences:– Court or Tribunal proceedings are commenced; or
– A claim is made under a Home Warranty Insurance contract of
insurance
Amendments that Started 15/1/15
• First Element of 6 year Statutory Warranties – “Major Defect” in
a “Major Element” causing, or likely to cause:– An inability to inhabit or use any part of the building for its
intended purpose; or
– The destruction of any part of the building; or
– A threat of collapse of any part of the building; or
– A defect prescribed by the regulations (currently none are
prescribed).
Amendments that Started 15/1/15
• Second Element of 6 year Statutory Warranties – Major
Element:– Load bearing components essential to the stability of the
building (e.g. foundations, floors, walls, roofs, columns,
beams); or
– A fire safety system; or
– Waterproofing; or
– Other elements prescribed by the regulations (currently none
are prescribed)
Amendments that Started 15/1/15
• Previously 6 year warranties were for a “Structural Defect” in a
“Structural Element”
• “Structural Defect” was defined as a defect in a “Structural
Element” that:
– Results in, the building or part of the building being closed;
– Prevents, or is likely to prevent, the practical use of the building or part of
the building;
– Results in, or is likely to result in, the destruction or physical damage to the
building;
– Results in, or is likely to result in, threat of imminent collapse
Amendments that Started 15/1/15
• “Structural Element” was defined as:
– Any internal or external load bearing component of the
building essential to the stability of the building or any part of
it
– Any component (including weatherproofing) that forms part
of the external walls or roof of the building
Amendments that Started 15/1/15
Extension of Section 18F Defence
• Addition to Section 18F Defence for Builders for new
contracts where there is reasonable reliance upon
instructions given by the owners independent expert.
• Previously had to provide warning in writing to get protection
under 18F
Independent Expert =
1. Not recommended or referred by the Builder; or
2. Not a close associate of the Builder within the past 3 years.
Amendments that Started 15/1/15
Close Associate =
1. Business partner, employee or agent
2. Corporation/Partnership/Joint Venture in which Builder has a
beneficial interest
3. Subsidiary Corporation
4. Is entitled to exercise any other relevant financial interest,
relevant position or relevant power
5. Spouse/De facto (or ex), child, grandchild, sibling, parent or
grandparent
Amendments that Started 15/1/15
• Duty to mitigate loss for contracts entered into after the
amendments commence.
• Duty to not unreasonably prevent a builder from performing
rectification works.
• Court/Tribunal to have regard to the principal that rectification of
defective work is the preferred outcome – This effects all
proceedings commenced after the amendments commence
• Home warranty insurance in force extends to any rectification
work performed by the original builder – Applies with
retrospective effect but not to any proceedings on foot or home
warranty insurance claims already made when the amendments
commence
Amendments that Started 15/1/15
• Under the Act the position that Home Warranty Insurance is not
required for a building that has a rise in storeys of more than 3
and contains two or more separate dwellings.
• There is a change to the definition of storey to having the same
meaning as in the BCA
• Existing definition of storey in clause 74 of the Home Building
Regulation excludes a space which “includes accommodation only
intended for vehicles”
Amendments that Started 15/1/15
• New Definition of storey:
“a space within a building which is situated between one floor level and the floor
level next above, or if there is no floor above, the ceiling or roof above, but not –
(a) space that contains only –
(i) a lift shaft, stairway or meter room; or
(ii) a bathroom, shower room, laundry, water closest, or other sanitary
compartment; or
(iii) accommodation intended for not more than 3 vehicles; or
(iv) a combination of the above; or
(b) a mezzanine”
Amendments that Started 15/1/15
Renamed from the Home Warranty Insurance Fund (HWIF) from 15 January 2015
onwards.
The NSW Self Insurance Corporation (SICorp) is the sole government insurer since 1
July 2010.
Certificates Register:
https://www.hbcf.nsw.gov.au/portal/server.pt/community/home_building_com
pensation_fund/347
Amendments that Started 15/1/15
• Presumption that Owner Builder work completed 18 months after owner
builder permit issued
• No longer require HOW Insurance - Need to disclose in contracts for sale
that Owner Builder works and no insurance
• Owner Builder permits for dual occupancy work prohibited
• Owner Builders only allowed one permit every 5 years
Amendments that Started 15/1/15
• Concluding 15/1/15 Amendments:
– Statutory Warranty change to “Major Defect” in a “Major Element” will have
retrospective application to building contracts entered into after 1 February
2012 where proceedings are not commenced or home warranty insurance
claims are not made prior to 1 December 2014
– 6 month notification period for breach of a statutory warranty period
– Owners will have a duty to provide access and mitigate their losses
– Rectification is the preferred outcome
– Section 18F defence is extended to provide builders with a defect where they
reasonably rely upon instructions given by owner’s independent expert
– Clarified exemption for Home Owners Warranty Insurance (HOWI)
– Register of HOWI certificate
– Owner builder cannot obtain HOWI
Negligence – recent decisions
• On 8 October 2014, the High Court in Brookfield Multiplex Ltd v
Owners Corporation Strata Plan 61288 [2014] HCA 36 (“the
Brookfield case”) found that a builder did not owe a duty of care to
an owners corporation in a serviced apartment complex (not
residential building works) where sophisticated parties had
negotiated rectification clauses.
• The High Court held that a duty of care continues to exist if the
principles in Bryan v Maloney are satisfied.
• The decision is not conclusive with respect to negligence claims for:
‒ Residential building works;
‒ Claims where the builder and developer are the same party; or
‒ Claims against designers or certifiers.
Recent case law on certifiers
• The Owners Corporation of Strata Plan 62254 v Rockdale City
Council [2008] NSWSC 392
‒ Council incorrectly certified the building
‒ Council, as principal certifying authority, found to owe owners corporation
a duty of care
‒ Council liable for negligence and breach of statutory duty
• The Owners, SP75903 v Dix & Anor [2011] NSWSC 245
‒ Whether building has a rise in storeys of more than three
‒ Certifier incorrectly provided advice to the developer that rise in storeys
was greater than 3
‒ Issue of negligence a matter for the trial judge
Changes From 1/3/15 that will
impact Contracts
• Key ‘Contract’ matters that will be discussed:–
–
–
–
Deposits increased from 5% to 10% for contracts over $20,000
Progress Payments – Milestone or Invoiced Costs
5 days cooling off period doesn’t apply universally to all contracts
Consumer information – not required for developers and
contractors
– Termination provisions – requirement that contract state that it
can be terminated as provided by general law
– Changes to the wording of Statutory Warranties – “due care and
skill”
– Subcontractors liable for Statutory Warranties
Changes From 1/3/15 that will
impact Contracts
• Contract Thresholds changed for contracts on and from 1
March 2015
• Small jobs
- threshold pre 1/3/2015 = $1,000
- threshold on and from 1/3/2015 = $5,000
Note: ss 7AAA, 7B, 7C, 7D, 7E, 8 apply
• Large jobs
- threshold pre 1/3/2015 = $5,000
- threshold on and from 1/3/2015 = $20,000
Note: ss 7, 7AA, 7B, 7BA, 7BB, 7C, 7D, 7E, 8 apply
Changes From 1/3/15 that will
impact Contracts
• If non-compliant contracts are entered into there is a
possibility that:
– Builders will be unable to claim progress payments;
– Contracts or part of those contracts may be unenforceable
under section 10 of the Act; or
– Builders may be liable to pay fines arising from offence
proceedings
Changes From 1/3/15 that will
impact Contracts
New Section 8
• Maximum 10% deposit for all residential building works
contracts (previously 5% deposit for contract works over $20K)
• Doesn’t apply to Contracts between licence holders
(subcontracts)
Penalty For Breach
$110,000 for Corporation /$22,000 Penalty Units Otherwise
Changes From 1/3/15 that will
impact Contracts
New Section 8A
Progress Payments – Applies only to:
• new contracts over $20K and
• which the Building and Construction Industry Security of Payment
Act 1999 (SOP ACT) does not apply.
SOP Act – does not apply to “properties in which the contracting
party intends to reside”
Changes From 1/3/15 that will
impact Contracts
Problem:
• New Progress Payment restrictions won’t apply to contracts with
developers
• May apply to :
‒ single residences - if not investment property
‒ dual occupancies - if all parties sign contract and will reside in all
dwellings
Changes From 1/3/15 that will
impact Contracts
New Form of Progress Payment Schedule- either
• Progress Payment Schedule – Specified amounts or
percentages at completion of specific stages described in a
contract in plain language – fixed milestone payments ; or
• Fixed Intervals Supported by Invoices/Receipts - On an ‘as
invoiced’ basis for labour and materials in respect of work
already performed at intervals set out in a contract and
supported by invoices, receipts etc. – Invoices for labour,
materials + margin at fixed payment intervals.
Changes From 1/3/15 that will
impact Contracts
Not Allowed:
Claiming variable % complete at end of each month
Penalty For Breach
$110,000 for Corporation /$22,000 Otherwise
Recommend : Err on side of caution when dealing with houses and
dual occupancies and comply with new progress payment
requirements unless clearly developer
Changes From 1/3/15 that will
impact Contracts
Section 7AA - under new amendments:
• 5 Day Cooling Off Period doesn’t apply to residential building
contracts between:
– builders and developers,
– builders and other licences contractors
– owners who fully prepare contracts
• No requirement to give consumer information for a contract to
do residential building work between:
– a builder and a developer
– builder and licensed contractor
Changes From 1/3/15 that will
impact Contracts
• The Fair Trading Consumer Guide published by Fair Trading NSW
which must be included in residential building contracts will be
updated from 1 March 2015.
• Fair Trading NSW has published a preview of the March 2015
update on its website (Consumer Building Guide) and has stated
that while builders should use the updated guide it will not take
any enforcement action against builders who use older version of
the guide during the first half of 2015.
Changes From 1/3/15 that will
impact Contracts
Section 7(2)(i)
• Termination Statement - a new contract over $20K must
contain a statement that the contract can be terminated as
provided by the general law.
• Parties will, however, still be able to negotiate additional
circumstances in which a contract may be terminated.
• Maximum penalties for failing to comply are $8,800 for a
corporation and $4,400 for an individual
Practical Effect – minimal, termination at general law always existed,
now just needs to be specifically stated in the contact
Changes From 1/3/15 that will
impact Contracts
Section 7E - Terms in Contract Only for Owner/Occupiers - For Contracts which Section 7AA applies ––
plans and specifications:
• All plans and specifications and variations forms part of contract,
• All variations must be in writing signed on behalf of each party
All Contracts – Quality of Construction – work will comply with:
• Building Code Australia
• Codes, standards and any law
• Development consent or complying development certificate
Contract may limit liability for – design and spec by owner or warned against
by builder
Changes From 1/3/15 that will
impact Contracts
Section 18B
• Changes to the wording of Statutory Warranties
– Works be “performed in a proper and workmanlike manner”
now becomes works be “done with due care and skill”
• Maximum penalties for failing to include wording are $8,800 for a
corporation and $4,400 for an individual
Practical Effect - Department of Fair Trading says – change in order to use
consistent language with Australian Consumer Law
Section 51
Improper Conduct – to perform work without “due care and skill” and
Section 56 - grounds for taking disciplinary action
Changes From 1/3/15 that will
impact Contracts
• Certain works included in the definition of “residential building work” in
the Home Building Act (i.e. now apply to contracts entered into from
1/3/15)
– Installation of floor tiles
• Certain works excluded from the definition of “residential building
work” in the Home Building Act (i.e. no longer apply to contracts
entered into from 1/3/15)
– Stand alone contracts for internal painting
– Stand alone contracts for concrete tennis courts
– Stand alone contracts for water features
Changes From 1/3/15 that will
impact Contracts
• Expect Principals/Owners to request Contracts contain a
mechanism for identifying subcontractors
– Subcontractors bound by statutory warranties
– 6 month notification period for breach of a statutory
warranty.
Changes From 1/3/15 that will
impact Contracts
Concluding Home Building Act amendments starting 1 March 2015
• 10% deposit for all residential building contracts
• Contracts must be updated to include:
‒ termination provisions;
‒ changes to the wording of statutory warranties
‒ plans & specs (if necessary) and Quality of Construction
• Progress Payments for contracts signed after 1 March 2015
must accord with the new progress payment provisions (for
applicable contracts)
• Subcontractors bound by statutory warranties
Changes From 1/3/15 that will
impact Contracts
Other interesting aspects arising in remedial works include:
•
•
•
•
•
Asbestos management
Strata insurance management
Exempt or complying development
Interim payments with SOPA
Variations to contracts
Disclaimer
 This is not a legal advice and you should seek legal advice
regarding any of the issues referred to.
 This area of law is regularly amended and new cases decided,
requiring updated information.
 This presentation does not include all possible steps, remedies
and time limitations.
Thank you
Legal advice should be sought in relation to any matters relating to the contents of this
presentation or these slides.
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Liability limited by a scheme approved under Professional Standards Legislation