Know Your Rights: Residential Home Owners, Beware of Builders Bearing Gifts
Considering the recent tragic loss of lives and property at London’s Grenfell Tower, Melbourne’s Lacrosse Apartment Tower and our own disasters at Opal Tower and Mascot Tower, are home-owners aware of their legal rights and builders’ obligations when engaging a contractor to undertake residential building works?
Q: In NSW what legislation deals with the regulation and licensing of residential building work?
The Home Building Act 1989 (HBA) and Home Building Regulation 2014 apply to all residential building work and specialist work entered into on or after 1 May 1997.
Q: What is “residential building work”?
This is work involving the construction of a dwelling, making alterations or additions to a dwelling, and repairing, renovation, decoration or protective treatment of a dwelling. It also includes specialist work done in connection with a dwelling.
Q: What is considered “specialist work” under the HBA?
Specialist work includes the following - gas fitting, air conditioning, electrical, plumbing, refrigeration, draining, water plumbing for fire protection and sprinkler systems.
Q: Are builders/contractors required to be licensed?
Yes. Any individual, partnership or company seeking to undertake residential building work where labour and materials are more than $1,000 or specialist work (irrespective of whether it is residential building work) must hold a contractor licence under the HBA. Where an individual is an employee of a partnership or company that holds a contractor licence but is not the holder of a licence in his or her own capacity, then the individual must be supervised by someone who is licensed.
Q: Do I have to have a contract and what should it include?
Yes. The HBA sets out mandatory contract formalities for the protection of home owners in residential building works. Depending on the contract price the requirements vary. In contracts greater than $20,000 the contract must be in writing and contain the following:
- The names of the parties and licence details for the builder/contractor.
- Description of the work or scope of work.
- Attach plans and specifications and a clause stating they form part of the contract together with any variations.
- Contract price including prime cost items (if possible) predominantly displayed on the first page and a warning with an explanation if the contract price is subject to change or if the price is not known.
- A clause requiring the contractor to ensure all building work will comply with the Building Code of Australia and any laws and conditions relevant to the development consent/development certificates in order to obtain your occupation certificate.
- A clause requiring all variations to the contract to be in writing signed by the parties.
- Expressly set out the statutory warranties. Statutory warranties are discussed below.
- Checklist of 14 items for homeowners to consider and a caution about signing the contract if you cannot answer yes to all items in the checklist.
- A progress payment schedule.
- A termination clause.
- Statement setting out the cooling off period for the contract.
- Provide a signed copy of the contract within five business days of signing.
- A clause that the contractor must give you an insurance certificate under the Home Building Compensation Scheme (HBCS) formerly known as home warranty insurance.
There are other matters to be considered prior to signing a building contract.
Q: What are the statutory warranties?
Even if these warranties are not included in your contract, the law ensures they still apply to the building works done to your home. They are also available to any non-contracting land owner and successors in title for 6 years for major defects (structural) and 2 years for defects that are not major defects (non-structural). Both defect types provide for a 6 month extension if a building defect becomes apparent during the last 6 months of the statutory warranty period.
The statutory warranties are:
- The work will be done with due care and skill in accordance with the plans and specifications;
- All materials supplied by the builder will be good and suitable and the materials will be new;
- The work will comply with the HBA and all other relevant laws;
- The work will be done with due diligence and within the time stated in the contract, or if no time is stipulated, within a reasonable time;
- The work will result in a dwelling that is reasonably fit for occupation as a dwelling;
- The work and any materials used will be reasonably fit for any specified purpose or result made known to the builder that the owner has advised while indicating that the owner relies on the builder’s skill and judgment.
Q: What is a “major defect”?
A major defect is:
- A defect in a major element of a building that is attributable to defective design, defective of faulty workmanship, defective materials, or a failure to comply with the structural performance requirements of the Building Code of Australia, and that causes or is likely to cause:
- The inability to inhabit or use the building (or any part of the building) for its intended purpose; or
- 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.
Q: What is a “major element” of a building?
A major element of a building is:
- An internal or external load-bearing component of a building that is essential to the stability of the building, or any part of it (including but not limited to foundations and footings, floors, walls, roofs, columns and beams); or
- A fire safety system; or
Q: When is work completed?
The date of completion marks the beginning of time periods for defects liability period, statutory warranties and insurance under the HBCS. The HBA defines “completion” when it matches the requirements of the contract.
If there is no contract or the contract doesn’t provide a date for completion, the work is regarded as ‘complete’ when it can be used for its intended purpose free of major defects. The earliest of the following is usually used to determine when completion occurs, on the date:
- The builder handed over the project to the owner;
- The builder last carried out work (other than fixing minor defects);
- The occupation certificate was issued; or
- In the case of an owner/builder, 18 months after the owner/builder permit was issued;
- For strata schemes, the date of issue of the occupation certificate that allows occupation and use of the whole building.
Q: Is there a general bar to file proceedings for a building claim in NSW?
Yes. Legal proceedings cannot be commenced more than 10 years after the issue of an occupation certificate. If no occupation certificate was issued, then the ten year bar starts from the last day the building work was inspected by a certifier or the day on which the building was first occupied.
Q: Do I need Home Warranty Insurance (HWI)?
Yes. The HBA requires a builder undertaking works valued at more than $20,000 to be carried out on a building which is 3 storeys or less, to have home warranty insurance under the HBCS. Since 1 February 2012 HWI policies must provide cover of at least $340,000.
Owners, including non-contracting owners and successors in title, are entitled to claim on the policy in only 4 scenarios where the builder:
- is insolvent;
- is dead;
- has disappeared; or
- licence has been suspended because he failed to comply with an order of a court or tribunal.
Q: Do I need HWI for buildings more than 3 storeys, containing 2 or more separate dwellings?
No. However, a developer must not enter into a contract for the sale of land, i.e. a unit, unless a certificate of insurance is included in the sale contract. The insurance must cover loss from:
- non-completion of the work for 12 months;
- structural defects for 6 years from completion; and
- non-structural defects for 2 years from completion.
Q: What if a builder fails to comply with the insurance requirements?
- is not entitled to damages; or
- able to enforce any other remedy for breach of contract by the owner; and
- is unable to recover money for the work under any other right, including a claim for quantum meruit, unless a court or tribunal orders it; and
- may face a fine.
Q: What do I do if I have a building complaint?
Complaints are generally dealt with by the NSW Department of Fair Trading. However, you may proceed to file a claim with NCAT for residential building claims up to $500,000. Claims over $500,000 are heard by the District Court of NSW, or above $750,000, the Supreme Court of NSW.
The contents of this article is intended to provide a general guide to the subject matter and does not constitute legal advice. Ferrer Lawyers always recommend that you obtain legal advice prior to selecting a builder or entering into any contract.