Minter Ellison Alert | Changes to NSW Home Building Act underway

20 May 2014

What has happened?

The Home Building Amendment Bill 2014 (NSW) (Bill) had its second reading in the NSW parliament on 6 May 2014. The Bill proposes to change the Home Building Act 1989 (NSW) by ensuring increased levels of consumer protection and facilitating builders in completing their work.

What are the key proposed changes?

'Structural' to 'major' defects

The statutory warranties scheme establishes legally enforceable standards for the quality and performance of building work. Two key changes are proposed to this scheme: 

  • changing the warranty that the work will be performed 'in a proper and workmanlike manner' to one that the work will be 'done with due care and skill'; and
  • replacing "structural defect" with 'major defect' to ensure cover is afforded for a significant defect that may not be considered a structural defect.

Whether a defect is a 'major defect' will be determined by a two-step test:

  • Is the defect in a major element of the building? Major elements will include structural load bearing elements and also fire safety systems and waterproofing. The Bill contemplates a regulation making power to prescribe other major elements. The intent is to try and minimise disputes regarding the concept of what is a 'major element'.
  • What is the severity of the consequences of the defect to the building?

Duty to mitigate

The Bill proposes a positive statutory duty on home owners who claim under a statutory warranty to mitigate their loss. Home owners will also have a duty to not unreasonably refuse a builder access to a building site to rectify defective work.

Statutory warranties by subcontractors

The Bill provides that the statutory warranties will be implied into every contract to do residential building work, not just contracts between the builder and the owner of the land. Accordingly, subcontractors will also be responsible to the principal contractor for any breach of the statutory warranties by the subcontractor, hence providing back-to-back protection for the principal contractor.

Strata

The definition for completion of building work for strata schemes has been updated to be the date on which an occupation certificate is issued that authorises the use and occupation of the entire building. This definition will provide owners corporations with greater certainty as to when the trigger for the limitation period for statutory warranties and insurance takes effect. The new definition will apply only to contracts entered into after the commencement of the Bill (once enacted).

Dispute resolution

Currently, Fair Trading inspectors can issue orders to builders requiring them to rectify defective or incomplete works. The Bill provides that an order can now allow for staged rectification; these orders must specify deadlines for work to be completed.

Builders will be able to apply to have the time frames extended. The Second Reading Speech of the Bill explains that this can occur where it would not be reasonable for the Builder to comply with the order due to delays in the delivery of materials or delays due to adverse weather conditions.

Insurance

The statutory home warranty insurance scheme will be amended to clarify the definition of 'disappeared' as being 'disappeared from Australia' after due search and inquiry.

Other

There are a range of other changes contemplated by the Bill, including provisions regarding changes to contracts to do residential building works (maximum deposits and maximum progress payments), penalties for unlicensed work, kit home supply contracts, licence obligations, notification requirements and disciplinary proceedings.

Author(s) Nicole Green