Home Building Amendment Act 2011 - Alert for builders, owners and developers

The Home Building Amendment Bill 2011 has introduced a package of reforms to the Home Building Act 1989 ("the Act"), the Home Building Regulation 2004 and the Civil Liability Act 2002.

The changes affect home warranty insurance and claims, enforcement of statutory warranties and proportionate liability. They will apply to anyone who owns or is contemplating buying a house or unit that was built in the last seven years, or is currently building, renovating or contemplating building or renovating a house or unit.

Immediate changes

Major changes that started from 25 October include:

• Extending the definition of "developer" to the owner of land on which four (4) or more residential units are constructed, even if there is no contract between the land owner and the builder.

• Defining the date of completion of residential building work. Section 3B of the Act now provides that if the building contract does not state when the work is complete, completion will be taken to occur on practical completion of the work. The section also sets out when practical completion is presumed to occur.

• Requiring that home warranty insurance claims be made (or notified in the case of "last resort" policies) during the period of insurance. There is a six month period of grace for claims in relation to losses that became apparent in the last six months of the period of insurance. This extended period does not apply to claims for a loss arising from non-completion of work and for "last resort" policies the insured must "diligently" pursue the enforcement of the statutory warranties.

• Preventing insurance claims under policies issued before 1 July 2010 from being made more than 10 years after the completion of the work.

• Excluding statutory warranty claims from the proportionate liability provision of the Civil Liability Act 2002.

Future changes

The second wave of changes is expected to start on 1 February 2012 and includes:

• Reducing the limitation periods for enforcement of statutory warranties from seven years to six years for structural defects and to two years for other defects. This aligns these periods with those for home warranty insurance;

• Clarifying the date of commencement of the limitation period as the date of completion of the work, or for work that is not completed:

• the date of termination of the contract; or

• in the absence of termination, the date work ceased; or

• if the work never commenced, the date of the contract.

• Raising the threshold for the requirement that residential building work be covered by home warranty insurance and the application of the 5-day cooling-off period to a contract price or value of $20,000 (previously $12,000).

• Raising the threshold for the requirement for written contracts to a contract price or value of $5,000 (previously $1,000) and introducing a written quote (\"short-form\" contract) requirement for work priced or valued between $1,000 and $5,000.

• Increasing the mandatory minimum level of home warranty insurance cover from $300,000 to $340,000.

• Reducing the maximum excess on insurance claims to $250.00.

• Expanding the definition of parties related to a builder or a developer thus reducing the categories of beneficiaries entitled to claim under home warranty insurance policies.

Operation of amendments

The amendments extend to:

• Residential building work commenced or completed before the commencement of the amendments.

• A contract of insurance entered into before the commencement of the amendments.

• A loss or liability that arose before the commencement of the amendments.

• The notification of a loss given before the commencement of the amendments.

The amendments do not apply to or affect:

• any proceedings commenced in a court or tribunal before the commencement of the amendments (whether or not the proceedings are determined before or after the commencement of the amendments);

• the monetary thresholds for contract requirements for building contracts entered into before the commencement of the amendments;

• the limitation period for commencement of proceedings for a breach of a statutory warranty in respect of building contracts entered into before the commencement of the amendments;

• the monetary thresholds for insurance requirements in respect of building contracts entered and building work done before the commencement of the amendments.

• the minimum level of insurance cover and maximum excess for home warranty insurance claims in respect of contracts of insurance entered into before the commencement of the amendments;

• the time limits for making home warranty insurance claims in respect of claims made before the commencement of the amendments;

• the definition of "beneficiaries" under contracts of insurance entered into before the commencement of the amendments.

The changes will affect developers, builders and owners alike. It is important to be aware of their implications and to understand the work, building contracts and insurance policies to which they apply.

Summary of changes

October 2011 changes:

• extended definition of "developer".

• definition of the date of completion of residential building work.

• home warranty insurance claims to be made (or notified in the case of "last resort" policies) during the period of insurance.

• limit of insurance claims from being made more than 10 years after the completion of the work.

• exclusion of statutory warranty claims from the proportionate liability provisions of the Civil Liability Act 2002.

February 2012 changes: 

• reduction of the limitation periods for enforcement of statutory warranties.

• clarification of the date of commencement of the limitation period.

• raised threshold for the requirement for home warranty insurance and the application of the 5-day cooling-off period.

• raised threshold for the requirement for written contracts.

• introduction of a "short-form" contract for low priced work.

• increase in the minimum level of home warranty insurance cover.