Important Note for all companies in the Construction Industry and Owners, Owners Corporations, Strata-Managers, Property Investors and Owner-Builders

Commencement of Recent Amendments to the Home Building Act 1989 (NSW) (“the HBA”)

Following extensive consultation with a number of stakeholders in the construction and related industry (from 2012), the Home Building Amendment Act 2014 makes no less than 50 changes to the HBA of which all stakeholders need to be aware.

From 15 January 2015, the majority of the amendments to the HBA will take effect.

Relevant amendments which may effect your business and which you should be aware of include the following:

1. Changes to licensing requirements include:

• an increase in the threshold for the requirement for a licence for building and general trade work from $1,000 to over $5,000 (inclusive of labour and materials);

• a “tightening” of licence eligibility to avoid phoenixing;

• harsher penalties, (including prison sentences), for second or subsequent unlicensed contracting offences, or failures to ensure the required statutory insurance;

• a new requirement to notify Fair Trading within 7 days if a licensed builder is wound up.

2. Changes to Owner Builder requirements including:

• Owner Builders will not be able to obtain statutory insurance and if the property is sold within the statutory warranty period, the contract for sale must clearly specify that there is no statutory insurance on the property. Contractors providing goods and/or services to the owner builder will still need to provide certificates on works valued over $20,000.

3. Changes to definition of defects, statutory warranties and dispute resolution include:

• clarification of the term “major defect” to mean:

“…a defect in a major element of a building … and that causes, or is likely to cause:

(i) the inability to inhabit or use the building (or part of the building) for its intended purpose, or

(ii) the destruction of the building or any part of the building, or

(iii) a threat of collapse of the building or any part of the building…”

• clarification of “major element of a building” to mean:

• an internal or external load bearing component of a building that is essential to the stability of the building;

• a fire safety system;

• water proofing;

• if a defect meets the definition of a “major defect”, then it will be covered by a 6 year statutory warranty, however, if a defect does not meet the “major defect” test, it will be covered by a 2 year warranty period;

• notification of a defect subject to the statutory warranties must be given to the builder within 6 months of becoming aware of the defect;

• if a builder seeks access to the property to rectify defects, this request cannot be unreasonably refused by the owner;

• Fair Trading Inspectors, through the issuing of a Rectification Order, can order the owner (or consumer) to pay the builder any money owing under the contract;

• subcontractors will be responsible for statutory warranties for the work performed by the subcontractor, whilst builders will remain responsible for the warranties for all of the work;

• licensees can take advantage of a new defence in proceedings for breach of statutory warranties if they can prove they reasonably relied upon the written advice of a professional engaged by the owner (consumer).

4. Creation of the Home Building Compensation Fund means:

• Home Owners Warranty Insurance will now be known as the Home Building Compensation Fund; and

• the creation of a public register will enable consumers to review a builder’s or tradeperson’s insurance status and history of previous claims made against the builder or tradesperson.

5. From 1 March 2015, changes to contractual requirements for smaller jobs means:

• the threshold of $5,000 for detailed contractual requirements is being raised to $20,000, however home building work under $20,000 will still require a written “minor works” contract;
• the 5% cap of deposits for work valued over $20,000 will be increased to 10% for all projects, regardless of the contractual sum;

• if a contract is over the value of $20,000 then a progress payment schedule and a termination clause must be included in the contract;

• the consumer building guide (which is a mandatory document to be provided to consumers prior to entering a contract) will be streamlined.

What should builders and subcontractors do?

Builders and subcontractors should be aware of the contractual changes, including the amended consumer building guide, and ensure that all contractual documents and licensing requirements are up to date.