Important changes to the Home Building Act, 1989 (the Act) come into effect today.
The changes will impact upon home owners, owners corporations, community associations, owner-builders, builders, sub-contractors and developers alike. While it is not life as we know it, the amendments by no means maintain the status quo. However, although this is not a wholesale upheaval of the legislation, non-compliant operators beware. There are a number of (as yet untested) new rules which can trip you up and the penalties for non-compliance are significant.
The Major Changes
- Harsher penalties for unlicensed contracting in certain cases;
- Stricter licencing eligibility requirements and additional notification obligations for license holders. The Office of Fair Trading will be able to consider the conduct of the applicant for the licence for 3 years prior to the date of the application, in an apparent attempt to stamp out phoenix type arrangements. If the applicant is a partnership, every partner of the applicant; or where a corporation, every director of the corporation can be examined;
- Additional categories of work, including internal painting, no longer require a licence;
- Refinements to the regulation of “owner-builder” work; and
- Compliance with a Rectification Order is included as a condition of a licence, exposing licensees to substantial fines for non-compliance.
2. Building Disputes
- Clarifying the “date of completion” for Strata Schemes to correlate with the date of issue of an Occupation Certificate (which includes the issue of an Interim Occupation Certificate).
- Introducing a concept of “Major Defect” to replace “Structural Defect” and identifying fire safety systems and waterproofing as major elements of the building. The amendments surrounding this have generated significant confusion and debate. The current statutory framework of the Statutory Warranties under Part 2C of the Act, requires legal proceedings to enforce the Statutory Warranties to be commenced within 7 years of the date of completion of the building work. This will be replaced with a 2 tier Statutory Warranties framework, as follows:
– For Major Defects, legal proceedings must be commenced within 6 years of the date of completion of the building works.
– For any other defects, legal proceedings must be commenced within 2 years of the date of completion of the building works.
Home Owners and Owners Corporations whose dwellings and buildings were constructed under building contracts entered into before 1 February 2012 will still have the benefit of the 7 year time frame to enforce the Statutory Warranties. Therefore, this change commencing today, will only apply to residential building work done under building contracts entered into after 1 February 2012 (so the changes are in fact partly retrospective).
Comment: There has been significant concern generated regarding the concept of a Major Defect replacing the previously used term “Structural Defect”. To be a Major Defect will require, on one view, a catastrophic effect (i.e. inability to inhabit or use the building; destruction or collapse of the building) being caused by a defect in a structural element of a building. It has been argued that this may limit the scope as to what would be considered a “Major Defect”. The interpretation of these new provisions will be up to the Courts and Tribunal, and regrettably the Office of Fair Trading has not taken the opportunity of specifically identifying defects which are “Major” (but have left the door open to do so).
- Builders are provided with a new statutory defence, which will allow them to reduce their liability by establishing that they acted on the advice of the developer or a relevant professional acting for the developer (eg architect, engineer or surveyor). This overcomes to some extent the amendment to the Act in 2011 which prevented builders and developers from apportioning liability under the Civil Liability Act, 2002. This will place an onus on Plaintiffs to commence proceedings sufficient early enough to allow time for potential claims against “relevant professionals” to be considered if the defence is raised. This also raises potential issues for Plaintiffs in light of the decision in Brookfield Multiplex Ltd v. Owners Corporation Strata Plan No. 61288  HCA 36 (refer to our previous publication in respect of this decision);
- Clarification that Statutory Warranties also apply to contracts for residential building work between a principal contractor and a subcontractor;
- Refinements to the process of “Rectification Orders”, including providing for Fair Trading Inspectors to amend the order on the application of the person on whom the order was served, and the making of staged order; and
- Inserting provisions emphasising that rectification of defective work is the preferred outcome in legal proceedings. A Court or Tribunal will have interpretation rights to this principle. How they will take this into account is not stated, but presumably, at least in the Tribunal, the builder will be directed to perform rectification work, or the Court or Tribunal will be minded to adjourn the proceedings to allow a builder time to rectify the defects.
3. Home Owners Warranty Insurance
- Changing the name of Home Owners Warranty Insurance to the Home Building Compensation Fund (to avoid any confusion with the notion of “insurance”);
- Clarifying what is meant by “disappeared” as a trigger to make a claim on the Home Building Compensation Fund, making it clear that it means that the insured cannot be found in Australia;
- Exempting owner-builder work from obtaining a contract of insurance required under the Act (however the previous provisions requiring the obtaining of insurance will still apply to sale of land before 15 January 2015);
- Clarifying that rectification work done in relation to the original work does not require a separate contract of insurance to be obtained; and
- Introducing a register of insurances, which will assist successors-in-title to identify a relevant insurer.
Heads-up: We will be issuing a Ready Reckoner covering the insurance provisions, look out for this in your inbox.
But wait, there’s more
Further changes will take effect on 1 March 2015, to allow sufficient time for the industry to make amendments to contracts and the like. Coming into force will be:
- Additional requirements covering what a contract for residential building work must contain. This will include a statement that the contract may be terminated in the circumstances provided in the general law, and that the parties may agree on additional circumstances in which the contract may be terminated;
- Increasing maximum deposits under contracts covered by the Act from 5% to 10%;
- In some cases, the reduction of red tape in the building industry by exempting certain parties to a contract (i.e licensed parties) to perform residential building work from the formal requirements of the Act;
- Regulating maximum progress payments under contracts for residential building work, to prevent the occurrence of front end loading of contracts (where a principal pays more than the value of the work performed by the contractor at the commencement of the work); and
- Introducing additional obligations on those persons having the benefit of the Statutory Warranties to mitigate loss (reflecting the pre-existing general obligation at law); to provide reasonable access to a person who is in breach of the Statutory Warranties and to notify the builder and developer of any breach of the Statutory Warranties. A failure to comply with these obligations can be taken into account by a Court or Tribunal. Presumably, it will take a failure into account by reducing the measure of damages a Plaintiff may be entitled to, and may take the failure into account on the question of costs in the proceedings.
These provisions are likely to cause problems for home owners and Owners Corporations in particular, and given the time frames for enforcement of the Statutory Warranties (i.e. 2 years for defects which are not Major Defects), rectification work carried out after 2 years from the date of completion may not be covered by any Statutory Warranties and Home Owners Warranty Insurance at all.