The Home Building Amendment Act 2014 (NSW), containing more than 50 amendments to the Home Building Act 1989 (NSW), was passed by the NSW Parliament in May 2014.
The main purpose of the Home Building Act 1989 (NSW) and Home Building Regulation 2004 (NSW) is to provide consumer protection in the home building industry. The Home Building Act 1989 (NSW) provides for:
- Authorising and regulating builders, tradespeople and owner-builders who undertake residential building work;
- Regulating certain contracts with consumers for residential building work and supplying kit homes;
- Authorising and regulating persons who carry out plumbing, gas fitting and electrical work in both the residential and commercial sectors;
- Disciplinary action against authority holders by the Commissioner for Fair Trading;
- Statutory warranties against defective work by the holders of authorities issued under the Home Building Act 1989 (NSW); and
- A compensation scheme, designed to insure consumers against certain (capped) losses from faulty or incomplete work in certain circumstances, such as where the contractor becomes insolvent, disappears or dies.
It is anticipated that the Home Building Amendment Act 2014 (NSW) and the Home Building Regulation 2014 (NSW) will commence as of mid to late January 2015. The reasons behind the amendments are to focus home warranty insurance on the licensed building sector, and to make a clear distinction between homes that are built by qualified licensed builders and those built by owner-builders.
As part of the 2014 amendments, a new Section 95 of the Home Building Amendment Act 2014 (NSW) will:
- Abolish statutory cover (Home Owner’s Warranty Insurance from the Home Building Compensation Fund) for owner-builder work (Section 95 (1));
- Require disclosure by way of a conspicuous note of details of the owner-builder permit and the absence of owner-builder insurance (Section 95 (2));
- The Section does not apply where the sale occurs more than 7 years and 6 months after the date of the owner-builder permit (Section 95 (3));
- The consumer warning requirement applies not only to the owner-builder but to successors in title (Section 95 (4)).
These changes to owner-builder laws pose significant implications for purchasers who are looking to acquire newly developed properties, in that:
- A purchaser will no longer have the benefit of making claims under the Home Owner’s Warranty Insurance scheme where the property has been erected by an owner-builder. This limits a purchaser’s recourse for defects in most cases to solely against the owner-builder; and
- A vendor has the obligation to disclose that the property was owner-builder developed and that no Home Owner’s Warranty Insurance applies to the improvements erected upon the property, in the event that the vendor decides to sell such property during the period 7 years and 6 months after the date of the owner-builder permit being issued.
From an owner-builder’s point of view, these changes intend to restrict an owner-builder entering into a contract for the sale of land without a consumer warning noted within the contract. If a contract is entered into without such a statement, the contract may be deemed voidable at the discretion of the purchaser before the completion of the contract.
This reform does not preclude private insurers from entering the market and offering insurance to owner-builders which they can attach to the contract for the benefit of the subsequent purchaser.
However, contractors working for an owner-builder will still need to provide home warranty insurance to owner-builders for all work that exceeds the cost of $20,000.00.
Further issues that arise out of these amendments would be in circumstances where a mortgagee exercises a power of sale to sell a property that falls within the new Section 95 guidelines and has not disclosed the requisite owner-builder notations as a result of not having been made aware of these circumstances by the owner-builder in the lead up to the mortgagee exercising its powers.
To counter circumstances where successors in title are unaware as to whether the new Section 95 amendments would apply, there have been discussions of late as to the development of an online register whereby all beneficiaries and potential purchases of properties can access and view insurance particulars for the avoidance of doubt.
Whether you are a purchaser or an owner-builder looking to move into the residential property market in 2015, be sure to keep the above in mind.
If you have any queries regarding owner-builder properties and/or disclosure requirements, please contact us on 02 9264 2911.