On 19 October 2011, the New South Wales Government passed various amendments to the Home Building Act 1989. The amendments take effect, generally on assent, which was on 25 October 2011.
The second stage of changes will begin on 1 February 2012.
The key changes to the legislation are:-
Amendment to the Civil Liability Act to remove claims under the Home Building Act from proportionate liability;
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Expansion of the definition of “developer”;
- Clarification of the date of completion of residential building work;
- Forms of contracts;
- Amendment of the warranty period; Amendment of the insurance period; and
- Consequential amendments on the Home Building Regulations.
Changes that have taken affect already since 25 October 2011 include:-
Removal of proportionate liability
The amendment to the Civil Liability Act to remove claims under the Home Building Act from proportionate liability essentially means that when a homeowner takes action against their builder or developer for incomplete or defective work, the builder or developer cannot limit their responsibility to the part of the work for which they were directly responsible.
Schedule 2 of the Home Building Amendment Act inserts a new section 34(3A) into the Civil Liability Act and provides that Part 4 of the Civil Liability Act (the part relating to proportionate liability) does not apply to a claim arising from a breach of statutory warranty under Part 2C of the Home Building Act, including the section 18B warranty. This amendment came into effect on 25 October 2011, but does not apply, by reason of part 13 clause 41 of schedule 1 of the Civil Liability Act to proceedings initiated before the commencement of section 34(3A). It does apply, however, to cases where proceedings have not been commenced.
The Minister’s second reading speech makes it clear that this amendment resulted from the decision of Einstein J in Owners Corporation SP72357 –v- Dasco Constructions Pty Ltd, 2010 NSWSC 819. That was a decision over whether such a defence could be pleaded, and, being an interlocutory decision in those proceedings, remains able to be challenged on an appeal to the Court of Appeal. The Government, however, was not content to wait and see what the outcome of those proceedings were, which suggests that they were concerned that the appeal would not be successful. The Minister, in his second reading speech, said it was never considered that proportionate liability provisions of the Civil Liability Act could apply to statutory warranty claims – hence the Government’s decision to restore the situation to what they had considered to be the position prior to the decision in Dasco.
Requirement to notify home warranty insurers in writing
Home owners generally have to lodge a claim against builders or developers within 6 months of becoming aware of the problem. In some limited cases where a claim could not be made within this timeframe home owners may be able to make a delayed claim.
To make a delayed claim, the home owner must provide the home warranty insurer with written notification of the defective or incomplete building work within 6 months of becoming aware of the problem. Should the homeowner discover the problem within the last 6 months of the insurance period, an additional 6 months after the end of the insured period applies.
To qualify for a delayed claim, the home owner must diligently pursue the builder of developer to rectify the problem after is has become apparent.
Any previous verbal notification to insurers where the home warranty insurance certificates are dated after 30 June 2002 must now be put in writing. This should be done prior to 25 April 2012.
Time limits on home warranty insurance claims
If the certificate of home warranty insurance is dated prior to 30 June 2002 and a defect is discovered within the last 6 months of the insurance period, home owners must properly notify the insurer in writing of the defect. Home owners will have until 25 April 2012 to make a claim under the new amendments.
Claiming outside the home warranty insurance period
Should home owners wish to make a new claim against home warranty insurance issued after 30 June 2002, the home owner may be able to make a delayed claim outside the insurance period if they can demonstrate that they diligently pursued the builder to rectify the problem and if they have provided written notice to the insurer during the insurance period.
Ten year limit
Home owners must ensure that any claims made under home warranty insurance policies issued before 1 July 2010 are lodged within 10 years from the date the work was completed.
Definition of completed
In order to calculate the time limit above, the home owner must be clear on what is meant by completion. Under the new amendments, residential building work is deemed as ‘complete’ if it is completed in accordance with the contract. If no contract exists or if completion is not specified, the work is regarded as completed if it can be used for its intended purpose and is free of major defects.
The following events can determine when this occurs:-
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The date the builder ‘hands over’ the project to the owner;
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The date the contract last carried our work (this does not inc
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lude fixing minor defects);
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The date the occupation certificate is issued; or
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If the situation concerns an owner-builder, 18 months after the owner-permit was issued.
Expansion of the definition of Developer
The definition of developer includes the owner of the land who owns (or will own) 4 or more of the existing proposed dwellings.
Changes that will take effect from 1 February 2012
Statutory warranty periods
Under the current legislation, a homeowner has the right to enforce a warranty against builders, developers and trades people that their work is performed in a proper and workmanlike manner. This right to enforce also applies to subsequent purchasers.
Previously the right to enforce these warranties extended to 7 years after completion of works however as of 1 February 2012, the warranty period for structural defects will be reduced to 6 years and 2 years for non-structural defects. Previously the right to enforce these warranties extended to 7 years after completion of works however as of 1 February 2012, the warranty period for structural defects will be reduced to 6 years and 2 years for non-structural defects.
If the homeowner or subsequent purchaser discovers a defect within the last 6 months of these time periods, the timeframes may be extended by a further 6 months.
Builders should note, however, that if the claim is made within that extended 6 month period, it is deemed to be made within the policy period, and accordingly the insurer has the rights under its arrangements with the builder for security, to recover from the builder or its directors or others the amount of the claim.
Threshold for mandatory home warranty insurance
As of 1 February 2012, all residential building work worth more than $20,000 must be covered by mandatory home warranty insurance.
The current threshold of $12,000 will be abolished.
New small jobs contracts category
From 1 February 2012 all work for ‘small jobs” between $1,000 and $5,000 must be documented by way of a short form written contract. This contract must be dated and signed on behalf of both parties and stipulate:-
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The names of the parties, including the name and number of the contractor licence;
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A description of the work; and
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The contract price.
Additional home warranty insurance benefits for homeowners
The amendments to the legislation will mean that after 1 February 2012, home owners will only be required to pay the first $250 of a home warranty insurance claim. Previously, the figure was the higher amount of $500.
A further additional benefit for home warranty insurance policies issued after 1 February 2012 is that a minimum cover of $340,000 will apply regardless of the value of the work.
If you are a builder, developer or home owner who believes that you may be affected by the new amendments to the Home Building Act 1989, then you should obtain legal advice on the matters or comments contained in this article. Blackstone Waterhouse Lawyers is happy to assist you in that regard.
If you have any queries in relation to any aspect of this article please contact:
Danny Arraj
Managing Partner
02 9279 0288
darraj@blackstonewaterhouse.com.au
Malcolm Davies
Special Counsel
02 9279 0288
mdavies@blackstonewaterhouse.com.au