The Home Building Amendment Bill 2014

In June 2014 the Home Building Amendment Bill 2014 (Bill) received Royal Asset. Introducing over 50 amendments to the current Home Building Act 1989 (Act), the Bill is the product of an extensive reform process targeted towards ensuring the Act reflects current industry practice and procedure.

Once the Bill is proclaimed, the following key amendments will take effect.

Statutory warranties for “major defects”

For the purposes of statutory warranties, distinguishing between structural and non-structural defects will become a thing of the past. The Bill replaces “structural defects” with the concept of “major defects” in an attempt to avoid the cost of disputes regarding the nature and character of defects.

Under the amended regime, a six year warranty period exists for a breach of a statutory warranty resulting in a major defect, with a two year warranty period in all other cases.

The Bill defines major defects 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 and which cause, or are 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.

Therefore, there will be a two-step process in ascertaining whether a defect is a major defect, focusing firstly on whether the defect is in a major element of the building, and secondly on the severity of the consequences of the defect to the building. “Major elements of a building” include structural load bearing elements, waterproofing and fire safety systems, and there is scope for other elements to be prescribed as a major element by the Regulations.

Owner-builders now exempt from insurance

The Act currently imposes mandatory home-warranty insurance as a form of last resort cover for home owners if a builder cannot complete or rectify defective work. The Bill now makes owner-builders ineligible for insurance under the Home Building Compensation Fund (known as IUHBCF). When the Bill is proclaimed, owner-builders will no longer be required to take out IUHBCF.

However, contractors who are engaged by owner-builders to complete works under contract must take out IUHBCF. The amendment is directed towards focussing home warranty insurance on the licensed building sector, and to clearly distinguish between homes that are built by qualified, licensed builders, and those built by owner-builders.

As a consequence of this amendment, any vendor of land in respect of which an owner-builder permit was issued within the previous seven years and six months must include a new consumer warning in their contract for sale, where the reasonable market cost of the labour and materials involved is $20,000 or more. The warning must state that a permit was issued in relation to the land, the date on which it issued, and that the work completed under the permit is not required to be insured, unless it was completed by a contractor of the owner-builder. Failure to include such a warning can attract fines of up to $22,000 for individuals and $110,000 for corporations, and can make the contract for sale voidable at the election of the purchaser before completion.

Progress payments

The regulation of progress payments for residential building work has also been amended by the Bill. A progress payment for work completed where the contract price is more than $20,000 may only be demanded where:

• the payment is a specified amount or percentage of the contract price payable after completion of a stage of work that has been described in the contract; or
• the payment is for labour, materials and margin for work already performed or costs already incurred, with the claim supported by invoices, receipts or documentation.

Builders may be subject to a fine for failing to meet progress payment requirements. These new requirements will not apply to residential building work performed under a construction contract to which the Building and Construction Industry Security of Payment Act 1999 applies.

Subcontractor liability

The Bill makes subcontractors liable for the same statutory warranties for which builders are liable. Section 18B of the Act will be amended to imply into each contract for residential building work the statutory warranties contained under the Act. A breach of a statutory warranty that is implied into a contract constitutes a breach of that contract.

This change will not apply retrospectively, meaning subcontractors currently working under a subcontract will not have the statutory warranties implied. However, for those who enter into a subcontract after the Bill has been proclaimed, the warranties will be implied.

Where a subcontractor (or a builder, for that matter) breaches a statutory warranty, the amended regime provides a new defence of reasonable reliance on instruction from a relevant professional. Under the new Section 18F, a claim for breach of a statutory warranty may be defended where the defendant proves the deficiencies complained of arose from the defendant’s reasonable reliance on written instructions from a relevant professional acting for the person for whom the work was contracted, and who is independent of the defendant. The section contains associated definitions and interpretive provisions for determining what constitutes a “relevant professional” and “independence” from the defendant.

Deposits – a blanket 10%

The Act currently allows a builder to request a maximum deposit of 10% for a contract where the price is $20,000 or less, and a 5% deposit for a contract where the price is more than $20,000. As considerable costs are often incurred for building materials and equipment prior to work commencing, the Bill has recognised that in some circumstances, a 5% deposit places pressure on builders to wear the costs of capital-intensive projects in their initial stages.

The Bill therefore has increased the 5% deposit payable by an owner to a builder to 10% for residential building contracts over $20,000. This means that under the amended regime, there will be no distinction, for the purpose of calculating deposits, between contracts for work priced either under or over $20,000. This change will only apply to new contracts entered into after the Bill has been proclaimed.

Completion of buildings in strata schemes

Where residential building work comprises the construction of a building in a strata scheme, practical completion of the building will occur on the date an occupation certificate is issued in respect of that building. Occupation certificates are issued under the Environmental Planning and Assessment Act 1979 at a time where the entire building is safe for occupation and use.

If there is more than one building to be constructed within a strata scheme under a single contract, the date of completion of each building is to be determined as if there was a separate contract for each separate building. Therefore, it is possible for completion of two or more buildings to take place at different times.

The Bill introduces a number of other changes which have not been discussed above. Industry participants who might be affected by the Bill should obtain detailed advice.

Disclaimer

The material contained in this publication is comment of a general nature only and is not, nor is it intended to be, legal advice. Neither Speirs Ryan nor any individual author accepts any responsibility whatsoever for any acts or omissions resulting from reliance upon the content of this or any publication. Before acting on the basis of any material contained in this publication, we recommend you consult your professional adviser.