November 2011
Home Building Amendment Act 2011
On 19 October 2011, the NSW Parliament passed a
package of reforms to the Home Building Act 1989 which
includes changes to:
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home warranty insurance
statutory warranty
contract requirements.
These reforms apply to all residential building work
covered by home warranty insurance but do not apply to
claims that have already been made (whether finalised or
not), or to legal proceedings underway or finalised.
The changes will commence in two stages, the first took
effect on 25 October 2011, while second will begin on 1
February 2012.
October 2011 changes
Requirement to notify home
warranty insurers in writing
Home warranty insurance issued after 30 June 2002
protects consumers, including subsequent purchasers,
from defective or incomplete work where the contractor,
owner builder or developer becomes insolvent, dies,
disappears or fails to comply with a money order of a
Court or the Consumer, Trader and Tenancy Tribunal.
In general, home owners must lodge a claim for defective
or incomplete building work within the insured period. If
the work is defective, the home owner must lodge the
claim within 6 months of becoming aware of the problem.
If the home owner becomes aware of a loss within the
final 6 months of the insurance period, they can take an
additional 6 months after the end of the insured period to
lodge a claim with the insurer.
In cases where a claim cannot be made within the above
time frames because an insured event has not occurred
(ie the builder, owner builder or developer has not died,
disappeared, become insolvent or failed to comply with
a money order of a Court or the Tribunal), home owners
may be able to make a claim after the period of insurance
through a delayed claim.
In order to make a delayed claim, the home owner must:
1. Notify their home warranty insurer in writing of
defective or incomplete building work within the
insured period. If the work is defective, the home
owner must make the notification within 6 months of
becoming aware of the problem. If the home owner
becomes aware of a loss within the final 6 months of
the insurance period, there is an additional 6 months
after the end of the insured period in which to notify
the insurer.
2. Diligently pursue the builder, owner builder or
developer to fix the defective or incomplete work
after the loss becomes apparent.
If your certificate of home warranty insurance is dated
after 30 June 2002 and you have ever verbally notified
your insurer about making a claim, the law now requires
that you make this notification in writing.
You have 6 months from 25 October 2011 to put into
writing any previously given verbal notification. Contact
your insurer or call Fair Trading on 13 32 20 if you are
affected by this change.
Note: The above timeframes only relate to notifying the
insurer of a loss. A formal claim may be lodged at a later
date.
Time limits on home warranty
insurance claims
If your certificate of home warranty insurance is dated
before 30 June 2002, the changes require you to make
a claim within the insurance period. However, if the
work is defective and the loss becomes apparent in
the last 6 months of the insured period, you have a
further 6 months after the end of the period to make your
notification. This is known as an extended claim period.
If you have already properly notified your insurer in
writing of the defective or incomplete work but have not
yet made a claim, you have until 25 April 2012 to make
your claim in order to comply with the new requirements.
November 2011
Contact your insurer or call Fair Trading on 13 32 20 if
you are affected by this change.
defects. The earliest of the following events can be used
to determine when this occurs:
Claiming outside the home
warranty insurance period
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For any new claims against home warranty insurance
policies issued after 30 June 2002, the home owner may
be able to make a claim – a delayed claim – outside the
insurance period provided they:
can demonstrate the builder or tradesperson was
diligently pursued to rectify the problem, and
● have properly notified the insurer in writing during the
insurance period.
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A notification of a loss includes a
'related' loss
It is assumed that the homeowner has notified the
insurer of every loss caused by the defect when making
a notification about faulty work. This change applies
regardless of what is in a homeowner’s policy.
Ten year limit
For home warranty insurance policies issued before 1
July 2010, all claims (including related claims) must be
lodged within 10 years of the work being completed.
Definition of completed
The term ‘completed’ has a very important role in the
legislation because it marks the beginning of the time
periods for statutory warranties and home warranty
insurance.
There is now a clear definition of what is meant
by ‘completion’.
Residential building work is ‘complete’ when it is
completed in accordance with the requirements of the
contract.
If there is no contract, or the contract doesn’t specify
‘completion’, the work is regarded as ‘complete’ when it
can be used for its intended purpose and is free of major
the date the builder ‘handed over’ the project to the
owner
● the date the contractor last carried out work (other
than remedying minor defects)
● the date of the issue of an occupation certificate, or
● 18 months after the owner–builder permit was issued
(in the case of an owner–builder).
Definition of developer
A developer of residential building work also includes
the owner of the land where the development is carried
out and who owns, or will in future own, four or more of
the existing or proposed dwellings. The definition also
provides that if another person or organisation who will
also own four or more of the units in the development
entered into the building contract for the work, then they
are also considered to be the developer.
Proportionate liability
Under the new laws, when a homeowner takes action
against their builder or developer for defective or
incomplete work, the builder or developer will not be
able to limit their responsibility to the part of the work for
which they were directly responsible, regardless of the
provisions contained in the Civil Liability Act 2002.
The amendment does not prevent the builder or
developer from taking subsequent, separate legal action
against any responsible party, such as subcontractors,
for substandard work.
Trader-initiated disputes
Due to the success of the Fair Trading pilot of
trader‑initiated dispute resolution, this service is now
available on an on‑going basis under the new laws. This
does not extend to traders’ disputes with other traders.
November 2011
February 2012 changes
The reforms outlined below will apply to the following
from 1 February 2012:
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new residential building work
new home warranty insurance policies
new residential building contracts.
Statutory warranty periods
Builders, developers, owner–builders and tradespeople
must warrant that, amongst other things, their work has
been performed in a proper and workmanlike manner.
Under the current law a homeowner, or subsequent
purchaser, has the right to enforce these warranties for
up to 7 years after the work was completed.
Commencing 1 February 2012, the warranty period will
be 6 years for structural defects and 2 years for non–
structural defects. These periods will be extended by
6 months if the homeowner or subsequent purchaser
becomes aware of a defect in the last 6 months of these
time periods.
Threshold for mandatory home
warranty insurance and cooling off
periods
Commencing 1 February 2012, all residential building
work worth more than $20,000 must be covered by
mandatory home warranty insurance. The current
threshold is $12,000. The new threshold will also apply to
the sale of a home by an owner–builder and to cooling off
periods.
$5,000 will come into effect. A small job contract must
be in writing, dated and signed on behalf of both of the
parties and contain the following information:
the names of the parties, including the name and
number of the holder of the contractor licence
● a description of the work (including any plans and
specifications for the work)
● the contract price, if known.
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Additional home warranty
insurance benefits for
homeowners
Under the existing law, if a homeowner makes a home
warranty insurance claim, they must pay the first $500 of
that claim. After 1 February 2012, homeowners will only
be required to pay the first $250 of any claim.
In addition, all home warranty insurance policies issued
after 1 February 2012 will receive a minimum cover of
$340,000, regardless of the value of the work.
Definition of ‘related’ corporations
to a builder or developer
Under the existing law, an insurance policy may prevent
a builder, developer or a ‘related’ corporation to a builder
or developer from being a beneficiary of the home
warranty insurance policy for that work.
The definition of a ‘related’ corporation in the existing
law is quite narrow and doesn’t include corporations
that most people would consider as being ‘related’.
Accordingly the new law provides a wider definition of
what it means to be a ‘related’ corporation.
New small job contracts category
Residential building contracts must be in writing and
include a number of requirements.
Commencing 1 February 2012, a new category of written
contracts for ‘small jobs’ worth between $1,001 and
www.fairtrading.nsw.gov.au
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This fact sheet must not be relied
on as legal advice. For more
information about this topic, refer to
the appropriate legislation.
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