Consultation Paper
A re-write of the
Home Building Act 1989
February 2010
© State of New South Wales through NSW Fair Trading, a unit of the Department of
Services, Technology and Administration, 2009
You may copy, distribute, display, download and otherwise freely deal with this information
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Consultation Paper
Re-write of the Home Building Act 1989
TABLE OF CONTENTS
1. Introduction................................................................................................................................2
1.1
1.2
1.3
1.4
W HAT IS THE ROLE OF THE HOME BUILDING ACT?..................................................................2
CHANGES TO THE HOME WARRANTY INSURANCE SCHEME .......................................................2
W HY IS A RE-WRITE OF THE HOME BUILDING ACT BEING PROPOSED?......................................2
HOW CAN I HAVE MY SAY ON THE REWRITE OF THE HOME BUILDING ACT? ...............................3
2. Making the Act clearer and more accessible .........................................................................4
2.1 KEY OPTIONS FOR CHANGE ...................................................................................................4
2.1.1
Including a statement of objectives in the rewritten Act .............................................4
2.1.2
Consolidating the key definitions used in the Act .......................................................4
2.1.3
Clarifying responsibility for statutory warranty obligations..........................................4
2.2 OTHER OPTIONS FOR CHANGE...............................................................................................4
3. Reducing red-tape for consumers and licensed contractors...............................................6
3.1 KEY OPTIONS FOR CHANGE ...................................................................................................6
3.1.1
Increase the monetary threshold for certain contractual requirements ......................6
3.1.2
Streamlining the assessment criteria for licence applications and renewals .............7
3.2 OTHER OPTIONS FOR CHANGE...............................................................................................7
4. Strengthening disciplinary and enforcement powers ...........................................................8
4.1 KEY OPTIONS FOR CHANGE ...................................................................................................8
4.1.1
Allowing NSW Fair Trading to issue fines where builders fail to comply with
rectification orders ....................................................................................................................8
4.1.2
Preventing ‘phoenix’ company activity........................................................................8
4.1.3
Permitting NSW Fair Trading to cancel licences where certain undertakings relating to
conduct are not honoured by a builder.....................................................................................9
4.1.4
Preventing builders demanding or receiving payments not related to the progress of
work
………………………………………………………………………………………………..9
4.1.5
Linking rectification orders to existing statutory warranties ......................................10
4.1.6
Other options for change ..........................................................................................10
5. Providing greater certainty and transparency for both consumers and licensed
contractors...............................................................................................................................11
5.1 KEY OPTIONS FOR CHANGE .................................................................................................11
5.1.1
Factoring building work delays into contract price disclosure ..................................11
5.1.2
Allowing builders to initiate certain dispute resolution processes.............................11
5.1.3
Improving supervision requirements for corporate licence holders ..........................12
5.1.4
Clarifying the point at which the statutory warranty period commences ..................12
5.1.5
Aligning periods of cover under statutory warranties and home warranty insurance12
5.2 OTHER OPTIONS FOR CHANGE.............................................................................................13
6. Clarifying and modernising home warranty insurance arrangements ..............................14
6.1 KEY OPTIONS FOR CHANGE .................................................................................................15
6.1.1
Clarifying the impact of estoppel issues on home warranty insurance claims and
recovery actions .....................................................................................................................15
6.1.2
Preventing home warranty insurance claims by “related” parties.............................15
6.1.3
Preventing claims relating to defects reasonably visible at the time of purchase ....15
6.1.4
Improving access to home warranty insurance in cases of insolvency ....................16
6.2 OTHER OPTIONS FOR CHANGE.............................................................................................16
Facilitating the shift to a uniform national licensing system...................................................18
6.3
6.4
BACKGROUND TO THE NATIONAL LICENSING SYSTEM ............................................................18
KEY OPTIONS FOR CHANGE .................................................................................................18
7. Minor and administrative changes needed to update and improve the Act .....................19
7.1
PROPOSALS .......................................................................................................................19
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Consultation Paper
Re-write of the Home Building Act 1989
1.
Introduction
1.1
What is the role of the Home Building Act?
The Act establishes rules of conduct and minimum standards for residential building
work carried out within NSW. This regulatory framework is designed to protect
consumers and provide certainty for the building industry.
The Home Building Act 1989 (Home Building Act) and Home Building Regulation
2004 (Home Building Regulation) seek to do this by:
• Establishing education, competency and supervision standards for those
working within the home building industry.
• Setting contractual and disclosure requirements for those entering into
contracts for residential building work.
• Providing statutory warranties which create legally enforceable, minimum
standards for the quality of building work.
• Establishing effective mechanisms for the resolution of disputes between
consumers and builders.
• Providing home warranty insurance to protect consumers in cases where a
builder dies, disappears, becomes insolvent or fails to comply with a
compensation order made by a court or the Consumer, Trader and Tenancy
Tribunal.
1.2
Changes to the home warranty insurance scheme
On 8 November 2009, the NSW Government announced major structural reforms to
the home warranty insurance scheme which will apply from 1 July 2010. These
changes are discussed further in chapter 6 of this paper. While the scope of the new
arrangements has been determined, other administrative details will be developed
following separate public consultation to take into account the specific needs of
consumers and industry.
The reform options discussed in chapter 6 will be actively considered for inclusion as
part of the new home warranty insurance arrangements from 1 July 2010.
1.3
Why is a re-write of the Home Building Act being proposed?
The Government intends to re-write the Home Building Act as a result of one of the
recommendations of the 2006 Moss Review into Licensing in the New South Wales
Home Building Industry.
The Moss Review recommended:
“That the Government re-write the Home Building Act 1989 to take into account the
recommendations of this Review, to consolidate the various amendments to the Act
that have occurred over the years, and to make it simpler and easier to understand
for consumers and industry.”
This re-write will consolidate the various amendments to the Act that have occurred
over the years and to make it simpler and easier to understand for consumers and
industry. Accordingly, the objectives of the re-write can be summarised as follows:
•
Making the Act clearer and more accessible.
•
Reducing red-tape for both licensed contractors and consumers.
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Re-write of the Home Building Act 1989
•
Strengthening disciplinary and enforcement powers.
•
Providing greater certainty and transparency for both consumers and licensed
contractors.
•
Clarifying and improving home warranty insurance arrangements.
•
Minor and administrative changes needed to update and improve the Act.
Further, all Australian Governments have agreed that a national occupational
licensing scheme covering builders, plumbers and electricians will be commenced in
2012. The first tranche of building licences will be transferred to the national scheme
in July 2012, with the final building licenses to be transferred in July 2013.
National licensing will involve the enactment by each jurisdiction of uniform national
licensing legislation which will cover matters including the scope of licensed work,
licence eligibility requirements, enforcement and disciplinary arrangements.
Licensing related provisions which are expected to transfer to the national scheme
are currently dispersed throughout the Home Building Act and the Home Building
Regulation. The rewrite of the Act will facilitate the future shift to national licensing.
This paper has been developed based on input from industry, key stakeholder
groups and consumers; through focus groups and face to face meetings, online
surveys and feedback, letters and emails from the public and Fair Trading’s
experiences with the operation of the legislation over recent years.
1.4
How can I have my say on the rewrite of the Home Building Act?
This paper outlines a number of options for changes to the Home Building Act and
the Home Building Regulation.
NSW Fair Trading is seeking the views of all stakeholders on the options for reform
contained in this paper, in particular as to whether they are workable and effective
and whether they would impose any unnecessary red tape.
Submissions are due by Friday 19 March 2010.
Submissions can be made:
By email at [email protected]
By fax to (02) 9338 8990; or
By mail to:
Re-write of the Home Building Act 1989
NSW Fair Trading Policy Division
Department of Services, Technology and Administration
PO Box 972
PARRAMATTA NSW 2124
If your submission contains information that you consider confidential or
commercially sensitive, please indicate this clearly within the submission. NSW Fair
Trading will then make every effort to protect that information, however it could be
subject to appeal under freedom of information legislation.
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2.
Re-write of the Home Building Act 1989
Making the Act clearer and more accessible
The need to make the Home Building Act clearer and more accessible was a key
recommendation arising from the Moss Review. The Act has been amended on
many occasions but up until now there has not been an opportunity to review the Act
as a whole. This has reduced the readability of the Act over time. There are a
number of changes which could help correct this.
2.1 Key options for change
2.1.1 Including a statement of objectives in the rewritten Act
The Home Building Act does not currently include a statement of objectives setting
out the purpose of the legislation.
It is appropriate for the re-written Act to include a statement of objectives. These
objectives could include such things as addressing consumer, public health and
safety risks arising from home building work. Other issues could also be included in
the statement of objectives.
A similar approach is taken in the Victorian Domestic Building Contracts Act 1995
which clearly sets out the objectives of that legislation. These objectives include the
maintenance of proper building standards and ensuring fairness for consumers and
builders. The re-written Act could include similar objectives to these.
2.1.2 Consolidating the key definitions used in the Act
The Home Building Act and the Home Building Regulation contain definitions of a
number of key terms and qualifications to these definitions which are scattered
throughout the legislation. These terms include the definitions of “dwelling”,
“specialist work”, “owner-builder”, “close associate”, “develop” and “residential
building work”.
Consolidating these existing definitions in one location in the new Act would help
clarify their meaning and make the Act easier to use.
2.1.3 Clarifying responsibility for statutory warranty obligations
Section 18B of the Home Building Act indicates that warranties are implied in relation
to the work done by “the holder of a contractor licence, or a person required to hold a
contractor licence”. Licence holders1 are required to engage subcontractors who
hold the relevant trade licence in their own right (per section 4 (2) of the Act).
Even though it is clear that the licence holder, who contracted for the work, is
responsible for statutory warranties, it isn’t always clear whether the subcontractor is
responsible for the statutory warranties. One option to help clarify this aspect of the
Act is to amend this section to make it explicit that subcontractors are also
responsible for statutory warranties.
2.2 Other options for change
•
Reword the definition for “residential building work” used in the Act by clearly
linking it to the actual types and scope of work authorised by the various
contractor licences and certificates.
1
The term “licence holder” is used to describe the holder of a contractor’s licence which
authorises the relevant type of building or trade work.
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•
Replace the term “qualified supervisor certificate” with a more specific and plain
English term.
•
Clarify the fact that those involved in installing fire protection equipment and
systems need to hold a licence authorising “water plumbing” work.
•
Provide clearer definitions in the Act of “contract price” and “domestic building
contract” by creating revised definitions based on those already used in the
Victorian Domestic Building Contracts Act.
•
Clarify that NSW Fair Trading’s discretion under clauses 25 and 39A of the Home
Building Regulation to reject licence applications or renewals where the applicant
has been involved in the management of an externally administrated body
corporate does not apply in relation to a members’ voluntary wind up under the
terms of the Corporations Act 2001.
•
More clearly restate the existing requirements for disclosure in cases where
insurable owner-builder work has been undertaken on a property and that
property is sold within 6 years of completion of this work.
•
Clarify the situations where a purchaser can void a contract for purchase where
an owner-builder fails to provide a certificate of insurance in relation to ownerbuilder work.
•
Revise section 99 of the Act making it clear that a “building claim order” is an
order made by a court or the Consumer, Trader and Tenancy Tribunal in relation
to a “building claim.”
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3. Reducing red-tape for consumers and licensed contractors
The Moss Review noted that the regulatory and licensing regime established by the
Home Building Act imposed compliance costs on business, administrative costs on
Government, and that ultimately these costs were passed on to consumers in the
form of higher prices.
In order to minimise these costs the review recommended that any unnecessary
red-tape in the Home Building Act be identified and removed.
The current re-write of the Act provides an opportunity for regulatory requirements to
be streamlined and modernised where possible and for redundant provisions to be
removed entirely, without compromising the benefits which the scheme delivers.
3.1 Key options for change
3.1.1 Increase the monetary threshold for certain contractual requirements
The Act currently makes all contracts for residential building work valued above
$1000 subject to a number of requirements. These requirements include that:
•
A written contract must be entered into.
•
The contract must disclose a number of prescribed particulars including the
licence details of the builder, a description of the required work including any
plans or specifications, the applicable statutory warranties, details of both the
cooling off period and home warranty insurance for work valued above $12,000.
•
A signed copy of the contract must be provided to the consumer within 5
business days.
•
The licence holder must provide the consumer with prescribed information on the
operation of the Home Building Act including dispute resolution process under the
Act.
•
Deposit restrictions apply, restricting initial deposits to a maximum of 10 per cent
of the contract price for work valued at $20,000 or less, and no more that 5 per
cent for work above $20,000 in price.
•
A five day cooling off period applies where materials and labour is valued above
$12,000.
It could be argued that requiring all of these for any job over $1000 imposes red-tape.
One option for change would be to raise the threshold at which these requirements
apply from $1000 to $12,000.
This would not be intended to reduce consumer protection, but to remove
unnecessary red tape and to reflect increases in the cost of building since these
requirements were first introduced in 2001.
Consumers entering into home building contracts valued below $12,000 would
remain protected by general consumer legislation such as the NSW Fair Trading Act
1987 and could also seek redress through the Consumer, Trader and Tenancy
Tribunal.
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In this option contractors would be required to provide written quotations for all
residential building work below $12,000 in order to provide certainty for consumers
and to assist in the adjudication of disputes between consumers and builders.
3.1.2
Streamlining the assessment criteria for licence applications and
renewals
Clauses 25 and 39A of the Home Building Regulation give NSW Fair Trading a
discretion to prevent an applicant or licensee from holding a licence under the Act
where the Director-General considers there have been an “unreasonable number” of
complaints, formal cautions, penalty notices or paid insurance claims against that
person or entity.
In practice it has proven difficult to determine what is an “unreasonable” number. An
option to resolve this situation is to provide a regulation making power which would
allow the regulations to stipulate the parameters of what is considered to be an
“unreasonable” number.
3.2 Other options for change
•
Combining licensing categories which are virtually identical in terms of the nature
and scope of work performed.
Categories that could be combined are
“decorating” and “painting”. Similarly, “roof tiling” and “roof slating” share the
same qualification and they could also be combined.
•
Increasing the monetary threshold for owner-builder work which requires an
owner-builder permit from $5000 to $12,000 to take into account increased
building costs.
•
Clarifying that licensed builders have the right to obtain owner-builder permits and
in doing so must pay the prescribed fee, but are exempt from the education
coursework associated with owner-builder permits.
•
Deleting clause 23 of the Home Building Regulation 2004 which establishes a
process for apprentices and trainees to do electrical wiring work under the
supervision of a qualified supervisor. This clause is considered redundant as
section 14(2) of the Act allows unqualified individuals to do electrical wiring work
provided they are supervised by an appropriately qualified licensee.
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4. Strengthening disciplinary and enforcement powers
The Home Building Act seeks to prevent sub-standard home building work by
requiring that licensed contractors are well trained and by providing statutory
warranties to establish minimum standards for the conduct of home building work.
Despite this, disciplinary and enforcement powers remain necessary to help ensure
that there are consequences for licensees who fail to meet statutory requirements.
The current re-write of the Act provides an opportunity to consider the effectiveness
of existing disciplinary and enforcements measures and make improvements where
necessary.
4.1 Key options for change
4.1.1
Allowing NSW Fair Trading to issue fines where builders fail to comply
with rectification orders
Recent online surveys suggest there is a high degree of support amongst both
consumers and builders for the role played by NSW Fair Trading building inspectors
in resolving building disputes.
This normally involves informal mediation with the parties reaching mutual agreement
on the required corrective action. The advantages of this approach are that disputes
can be resolved relatively quickly, without the time and expense that can be involved
in formally pursuing a matter in the Consumer, Trader and Tenancy Tribunal or a
Court.
Where rectification works cannot be agreed between the parties, NSW Fair Trading
building inspectors are able to issue binding rectification orders to builders requiring
specified action within a set timeframe.
However, at present, the incentive for compliance with rectification orders is
significantly diminished by the inability of NSW Fair Trading to quickly deal with
licensed contractors who blatantly disregard these orders. Currently, the failure to
comply with such an order can only be dealt with through a complex and time
consuming disciplinary process.
An option to resolve this is to create an offence which could be pursued through a
prosecution in court or dealt with by a fine issued by a Fair Trading building
inspector. The offence could be added to Schedule 6 of the Home Building
Regulation so that it could be dealt with by way of penalty notice, issued by a Fair
Trading building inspector. Similar offences typically involve fines of $750 for an
individual and $1500 for a corporation.
4.1.2 Preventing ‘phoenix’ company activity
The Moss Review highlighted the consumer detriment that can occur as a result of
‘phoenix’ companies operating within the building industry.
A ‘phoenix’ company typically involves a licensed building company which is
deliberately established as a short term venture only. The company markets and
receives funds from consumers, but then defaults on its obligations and extinguishes
its liabilities through insolvency. The business is then re-established through another
corporate structure, under the control of the same individuals, to repeat the
fraudulent behaviour.
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An option to address this problem is to prevent licence applications or renewals from
those who are undischarged bankrupts or in the previous three years had been
involved in the management of a company under external administration.
However, an individual can avoid being captured by this provision if they resign from
a company prior to it entering administration or liquidation.
This option would therefore involve the tightening of this requirement to include those
involved in the management of a company within 12 months prior to the business
entering external administration, excepting those involved in a members’ voluntary
wind up under the terms of the Corporations Act 2001.
Individuals captured by this provision would still be eligible to receive licences
provided that they represent no evident risk to the public and took all reasonable
steps to avoid bankruptcy or insolvency.
4.1.3
Permitting NSW Fair Trading to cancel licences where certain
undertakings relating to conduct are not honoured by a builder
When considering an application for a corporate building licence, NSW Fair Trading
may become aware of an individual who is connected with the proposed new building
company, who would not be accepted as a director of the proposed building
company, because of past conduct or infringements.
On these occasions, the normal practice is to refuse the corporate licence application
until assurances or undertakings are made that the individual in question will not be
exercising any managerial control of the new entity.
Currently, there is a small monetary penalty for failing to comply with any assurances
or undertakings, but no provision for a licence to be cancelled if undertakings are not
met.
One option to rectify this situation is to amend the Act to provide that NSW Fair
Trading can require written undertakings in relation to named individuals and has the
discretion to cancel a building licence with notice if such undertakings are not
honoured.
4.1.4
Preventing builders demanding or receiving payments not related to the
progress of work
Consumers face significant risks where they make payments to licensed contractors
in advance of the actual progress of building work. The size of advance deposits are
capped under the Home Building Act 1989 specifically to address this issue.
However recent research suggests that disputes over payment issues between
builders and consumers remain relatively common. Many consumers remain
susceptible to demands for additional payments to ensure work continues on their
particular building project, even where these payments do not equate to the work
performed.
An option to address this issue is to make demanding or receiving payments, other
than deposits, an offence unless the payments relate directly to the progress of work
carried out or managed under a contract. A similar provision applies in Queensland
under section 65 of the Domestic Building Contracts Act 2000.
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4.1.5 Linking rectification orders to existing statutory warranties
Under section 48E of the Home Building Act 1989, an order may be issued for a
licensee to rectify work which is “defective”, “incomplete”, or which has caused
damage to any work or structure.
Currently there is no explicit link between the defective work referred to in section
48E and the statutory warranty provisions in section 18B of the Act. The statutory
warranty provisions give further definition as to what could be considered defective
or incomplete work by explicitly mentioning matters such as work being carried out in
accordance with plans and specifications, materials being suitable for purpose and
work being performed in a proper manner.
Clarifying the link between rectification orders and statutory warranty provisions
would contribute to greater understanding of builder obligations and assist in
addressing disputes.
4.1.6 Other options for change
• Increase the maximum penalty for corporations who fail to comply with licence
conditions imposed under section 36 of the Act from $4,400 to $11,000.
•
Clarify the powers of NSW Fair Trading to immediately revoke authorities in
cases where the licence or authority has been issued on the basis of fraud or
misrepresentation by an applicant.
•
Provide that individuals are ineligible to receive a second building licence through
a new company or partnership while they are subject to outstanding Court or
Tribunal orders through an existing corporation or partnership.
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5.
Re-write of the Home Building Act 1989
Providing greater certainty and transparency for both
consumers and licensed contractors
Residential building work is technical and specialised in nature, with the result that
many consumers may be placed at a disadvantage when negotiating with licensed
contractors. Consumers may lack sufficient information about building work and may
not be aware of their rights or the availability of dispute resolution mechanisms when
things go wrong. Poor communication and a lack of information can also result in
disputes even when the builder is not actually at fault.
There are a number of possible options which may help to improve the certainty and
transparency of contractual relationships between consumers and licensed
contractors and strike a fair balance in terms of the rights of all parties involved in
residential building work.
5.1 Key options for change
5.1.1 Factoring building work delays into contract price disclosure
Under section 7 of the Home Building Act, a contract for home building needs to
specify the contract price, if known. At present there is no requirement for the
likelihood of delays to be considered or factored into the contract price. However,
recent surveys conducted by NSW Fair Trading suggest that work delays are a
significant source of disputes between licensed contractors and consumers.
To help minimise these disputes, licensed contractors could be required to take
account of the following factors when determining a contract price or estimating the
number of days needed to complete a project:
•
•
•
The effect of inclement weather, having regard to the time of the year when the
work is likely to be carried out.
A reasonable allowance for weekend days, public holidays, rostered days off and
other foreseeable breaks in the continuity of the work.
Provision for any other delays that is reasonable having regard to the nature of
the contract.
It is noted that both Queensland and Victoria already require licensed contractors to
consider similar factors when determining contract prices.
5.1.2 Allowing builders to initiate certain dispute resolution processes
NSW Fair Trading is aware of instances where licensed contractors attempt to
comply with orders from the Consumer, Trader and Tenancy Tribunal but are unable
to do so because they are denied access to the building site by the consumer.
This may occur, for example, because the consumer did not obtain the kind of order
which they originally sought and may want a money order instead. However, this can
place the licensed contractor in an invidious position, where he or she is simply
unable to comply with a Tribunal order, despite their best efforts.
An option to alleviate this situation is for the Tribunal to be given the power to specify
that an order to rectify work is nullified if the consumer does not allow the licensed
contractor site access. The Tribunal would also be given the power to specify that a
money order cannot be granted if a consumer has denied the licensed contractor
access to the site.
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In this option contracts would be required to address the issue of site access rights
for consumers and licensed contractors. Prescriptive standards are not suggested,
instead this option would require that the terms of access be negotiated by the
parties to the contract based on the specific requirements of the project.
5.1.3 Improving supervision requirements for corporate licence holders
At present each corporation holding a contractor licence under Act is only able to
contract for different types of building work if it employs a nominated supervisor who
holds an individual contractor licence or a supervisor certificate. The requirement for
a qualified person to supervise the work done by others is intended to address risks
in relation to the safety and competency of the work being performed.
The endorsement of an individual contractor licence or the obtaining of a supervisor
certificate means that the individual has met the requirements to contract in his or her
own right under a particular licence category.
However, the existing administrative regime for nominated supervisors is
cumbersome, particularly when nominated supervisors leave the employment of the
contractor and the contractor does not provide updated details to NSW Fair Trading.
The current arrangements do not promote effective accountability and supervision.
The issue of supervision could be addressed by requiring a director of a corporation
licensee to hold either an individual contractor licence or qualified supervisor
certificate. This would stabilise the company identity in a manner which is used
successfully in other licensing regimes such as for property agents under the
Property Stock and Business Agents Act 2002. A similar approach to licensing
contractors for home building is also taken in jurisdictions such as Queensland and
Victoria.2
5.1.4 Clarifying the point at which the statutory warranty period commences
In cases where home building work has been completed, statutory warranties in
relation to defects in the work must be enforced within 7 years after the completion of
the work.
However, exactly what constitutes the point of completion of building work is not
defined in the Act and remains subject to interpretation and debate. Various triggers
are often cited by licensed contractors and consumers, such as the date of practical
completion of the work, the point at which either an interim or full certificate of
occupancy is issued, the date at which a strata plan is registered or the point at
which a constructed dwelling is occupied.
An option to address this may be to include a definition of what constitutes
completion of residential building work as this may provide greater certainty for
consumers and licensed contractors.
NSW Fair Trading is specifically seeking input on whether this is practical, and if so,
how the completion date should be defined.
5.1.5
Aligning periods of cover under statutory warranties and home warranty
insurance
The statutory warranty for structural building work currently applies for 7 years from
the date of completion. However, home warranty insurance currently only provides 6
2
See section 31 (2) (b) of the Queensland Building Services Authority Act 1991 and section 29(c) of
Domestic Building Contracts Act 1995 (Victoria)
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years coverage for structural defects. The lack of consistency contributes to
confusion regarding the length of coverage.
Making the statutory warranty period in NSW consistent with the period of home
warranty insurance cover would provide clarity and eliminate misunderstandings.
5.2 Other options for change
• Requiring home building contracts to specifically address issues of progress
payments and termination under the contract. These are issues which should be
dealt with in the contract in a manner determined between the parties, rather than
imposing a certain formula or prescribed standards.
•
Removing the statutory warranty under section 18B (b) relating to the suitability of
materials in cases where these materials are supplied by the consumer rather
than the licence holder. Similar arrangements apply in Queensland under section
42 of the Domestic Building Contracts Act 2000.
•
Requiring those selling residential properties to disclose as a part of the sale
contract whether statutory warranties under the Home Building Act have been
previously enforced in relation to defects in the particular property. Under section
18D (2) of the Act, a statutory warranty on a defect cannot be enforced if it has
been the subject of a previous warranty claim. However, if such previous claims
are not disclosed, then a purchaser is unlikely to be aware of this issue.
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6.
Re-write of the Home Building Act 1989
Clarifying and modernising home warranty insurance
arrangements
Changes to the home warranty insurance scheme
The NSW Government recently announced major structural reforms to the home
warranty insurance scheme. A key aspect of the changes will be that the NSW
Government will take responsibility for underwriting and capitalising the scheme from 1
July 2010. Claims handling, collection of premiums, and the issue of certificates of
insurance will continue to be administered by the private sector, following selection by
competitive tender.
These changes were made necessary by recent contractions in the home warranty
insurance market, which made obtaining insurance more difficult for many licensed
contractors. The Government will take over the underwriting of the scheme to help give
certainty to licensed contractors, apprentices, sub-contractors, suppliers and others
working in the home building industry.
The underwriting criteria and administrative arrangements for the new scheme will be
determined by the Government acting on the advice of the Home Warranty Insurance
Scheme Board with input from consumers and licensed contractors. However, existing
consumer benefits under the current arrangements will be maintained.
The process for initiating the Government’s involvement in the scheme will take place
parallel to the process of re-writing the Home Building Act. The reform options
discussed in chapter 6 will be actively considered for inclusion as part of the new home
warranty insurance arrangements from 1 July 2010.
Home warranty insurance is designed as a safety net where a licensed contractor
does not honour their fundamental responsibilities to consumers – that is, the builder
is unable to begin or complete a building contract or return and rectify defective work.
Home warranty insurance is mandatory for residential building work above a
prescribed contract value – currently $12,000 and is required to be taken out by the
builder on behalf of consumers. The insurance must be of a kind approved by the
Minister and also must be provided by insurers approved by the Minister.
Today, home warranty insurance provides cover of up to $300,000 to consumers in
the case of defective or incomplete home building work. Claims can be made when
a licensed contractor dies, disappears, becomes insolvent or has their licence
suspended by NSW Fair Trading for failing to comply with a compensation order
made by the Consumer, Trader and Tenancy Tribunal or a Court.
There are a number of changes that could be made to the home warranty insurance
provisions in the Act to better protect consumers, clarify existing arrangements and
provide greater certainty to licensed contractors and insurers.
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Consultation Paper
6.1
Re-write of the Home Building Act 1989
Key options for change
6.1.1
Clarifying the impact of estoppel issues on home warranty insurance
claims and recovery actions
The legal doctrine of estoppel is where a person is prevented from asserting a
position which is inconsistent with a position he or she has previously taken,
especially where a representation has been relied on or acted on by others.
In the past it appears that some home warranty insurers, after considering an original
claim, have declined subsequent claims by the beneficiaries of the insurance policy
in relation to the same building, on the basis that the insurer may be unable to seek
recovery from the builder due to estoppel issues.
An option to resolve this is to amend the Act to confirm that beneficiaries to a home
warranty insurance policy have the right to lodge claims in relation to defects and are
not prevented from doing so because of an earlier claim that related to a different
defect. Under this option the Act would also be amended to clarify the rights of
insurers to seek recovery against licensed contractors in such circumstances.
6.1.2 Preventing home warranty insurance claims by “related” parties
A recent legal case has highlighted the inadequacies of the current definition used in
the Act of a “related party”. The case involved a developer who, in the course of
constructing a retirement village, became aware of a number of building defects.
Once construction was completed, the village was sold to a company “related” to the
development through a common director. The company claimed against the home
warranty insurance policy in relation to the defects. This was challenged by the
insurer in court.
However, the NSW Court of Appeal held that the company owning the village was
not “related” to the developer within the terms of clause 55 of the Home Building
Regulation. Clause 55 provides a narrow definition of a “related” party by limiting
only entities which are subsidiaries or holding companies to a particular builder or
developer from being beneficiaries under a home warranty insurance policy.
To ensure that the intent of the Act in this regard is maintained the definition of the
parties “related” to a builder or developer could be expanded to include common
directors, spouses, relatives and members of the executive committee of an owner’s
corporation.
6.1.3
Preventing claims relating to defects reasonably visible at the time of
purchase
Home warranty insurance policies typically exclude claims relating to, “…any defects
in the works which would have been reasonably visible at the time any successor in
title acquired the dwelling”.
This exclusion dates from the original Government run home warranty insurance
scheme which was introduced in 1972. The rationale for this exclusion is that
purchasers should be aware of defects that are obvious on a reasonable inspection
and therefore the rectification cost for the defect should be factored in to the
purchase price. On this basis a rational consumer should not incur unforeseen costs
in relation to visible defects. Despite this, in a recent NSW Court of Appeal ruling, the
court held that as this exclusion was not expressly stated in either the Home Building
Act or Regulation, it was void, despite being included in the terms of the actual
insurance policy.
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Consultation Paper
Re-write of the Home Building Act 1989
An option to resolve this is for the Act to be amended to provide that defects
reasonably visible on a physical inspection of a property are able to be excluded from
the terms of home warranty insurance.
6.1.4 Improving access to home warranty insurance in cases of insolvency
Because members of a partnership are jointly and severally responsible for the
contractual obligations of the partnership, home warranty insurance claims triggered
on the basis of insolvency are normally only accepted when each member of a
partnership can be shown to be insolvent. This can present real problems for a
homeowner left with no access to home warranty insurance where the partnership
may have ceased work on a building job, with one member bankrupt and the other
member(s) refusing to complete or rectify the work.
An option is to amend the Act to provide grounds for consumers to make home
warranty insurance claims in relation to work contracted by a licensed partnership
where one member is insolvent and other member(s) have refused to comply with a
rectification order made by the Consumer, Trader and Tenancy Tribunal or Court.
6.2 Other options for change
•
Clarifying the application of the home warranty insurance exemption under clause
74 of the Home Building Regulation 2004 to multi-storey buildings that have a mix
of residential and commercial usage.
•
Amending the Act and/or Regulations to clearly set out all of the terms and
conditions which home warranty insurers are able to include in their policies.
•
Providing for deemed approval for all claims not determined by an insurer within
90 days from lodgement. Deemed approval already applies to all home warranty
insurance policies issued from 1 September 2005 onwards. An option is to
extend this to cover all policies issued prior to 1 September 2005.
•
Clarifying that an application for an exemption from the requirements of home
warranty insurance under section 97 of the Act must be made prior to the
commencement of work.
•
Stating that home warranty insurance provisions requiring home warranty
insurance be obtained and attached to building contracts (per section 92 of the
Act), do not apply to homeowners (being an owner-builder, licensed contractor or
developer) or successors in title including mortgagees in possession or receivers.
•
Providing that the requirement to obtain home warranty insurance does not apply
in situations where the original licensed contractor (or another licensed contractor
on behalf of the original licensed contractor) returns to the site to rectify defects
under the original contract.
•
Clarifying that home warranty insurance cover in relation to a residential multi
dwelling building, such as strata, community scheme or company title home units,
does cover common property.
•
Raising the minimum level of cover for common property in residential multi
dwelling buildings from the current $200,000 to $300,000 to make the level of
cover provided consistent with that provided under home warranty insurance for
other types of home building work.
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Consultation Paper
Re-write of the Home Building Act 1989
•
Amending the Home Building Act to provide that an owners corporation can lodge
a claim in respect of common property (or where defects are common to multiple
dwellings) on behalf of individual unit owners.
•
Clarifying the meaning of the terms “Notification of a loss”, “Lodgement of a
claim” and “Enforcement of statutory warranty” in both the Act and Regulation
These terms need to be clarified to avoid confusion for insurers and beneficiaries.
For instance, many consumers are unaware that notification of a loss to an
insurer is not the same as lodging an insurance claim. It is also proposed that
notification of a loss be required to be provided to insurers in writing (including
email) to help avoid disputes.
•
Expand the information required to be disclosed to homeowners on a certificate
of insurance to include: insurer and NSW Fair Trading contact details, information
on period of cover and timeframes for notifying a loss and lodging a claim,
information on the need to enforce a statutory warranty, any major limitations
under the policy and the total price (including commission) charged to the
licensed contractor for the insurance cover.
•
Clarifying the meaning of “taking action to enforce a warranty” as per clause 58A
of the Home Building Regulation, by providing that the lodgement of a building
claim in the Consumer, Trader and Tenancy Tribunal would constitute the taking
of action to enforce a statutory warranty for the purpose of making a home
warranty insurance claim.
•
Clarifying the date from which home warranty insurance cover is required for
residential building work undertaken by owner-builders.
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Consultation Paper
Re-write of the Home Building Act 1989
Facilitating the shift to a uniform national licensing system
6.3 Background to the national licensing system
This re-write is being conducted against a background of reforms at the national
level. One of these is an inter-governmental agreement to develop a national
licensing system for a range of occupations including builders, plumbers and
electricians. This new system will commence as soon as possible after 1 July 2012
for plumbing, electrics, gasfitting, airconditioning and refrigeration and 1 July 2013 for
all remaining building trades and builders.
National licensing will involve the enactment by individual States and Territories of
uniform national licensing legislation which will cover matters including:
•
Governance for the national licensing regime.
•
Scope of licensed work.
•
Licensing eligibility requirements (e.g. probity and competency requirements).
•
Disciplinary arrangements.
•
Appeal rights and mechanisms.
•
Licensing enforcement.
•
National licensee register requirements.
At present, it is expected (although not certain3) that the following matters will
continue to be part of State based licensing legislation including:
•
Conduct requirements imposed on licensees (such as contractual requirements,
statutory warranties and home warranty insurance arrangements).
•
Complaint handling and investigation.
•
Dispute resolution mechanisms.
6.4 Key options for change
Given the creation of a national licensing system, an option for change would be for
provisions which will be determined in future at a national level to be located within
their own section in the new Act.
In this option all legislative provisions would remain within the Home Building Act,
however, some form of separation would allow the relevant section of the Act to be
entirely repealed once the transition to the national scheme occurs.
3
It should be noted that in May 2009, the Ministerial Council on Consumer Affairs agreed to a project
which aims to harmonise licensing conduct requirements. There is also capacity under the Intergovernmental Agreement for the Ministerial Council overseeing the agreement to include conduct
requirements for licensees under the national licensing system in the future.
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Consultation Paper
7.
Re-write of the Home Building Act 1989
Minor and administrative changes needed to update and
improve the Act
It is proposed that a number of minor, administrative and machinery type changes be
made to the Act. These are designed to improve the clarity and readability of the
legislation, consistent with the recommendations of the Moss Review.
7.1
Proposals
•
Updating the definition contained in the Act relating to work authorised by the
“structural landscaping” licence to reflect the fact that under NSW Housing Code,
minor forms of development, such as garden sheds, pergolas, fences, earthworks
and retaining walls will no longer need specific development consent.
•
Rephrasing and clarifying clause 39A of the Home Building Regulation 2004
which gives NSW Fair Trading discretion to renew or restore a licence to an
undischarged bankrupt or director of a company under administration, provided
certain conditions are met, including that the individual poses no evident risk to
consumers. It is proposed to simply rephrase and clarify this provision, whilst
retaining its overall intent.
•
Delete section 20(5) of the Act thereby ensuring that an applicant for the issue,
alteration, renewal or restoration of an authority aggrieved by any decision of the
Director-General relating to the application can apply to the Administrative
Decisions Tribunal for a review of the decision.
•
Replace the term “successor-in-title”4 which is used in the Act with the term
“warranty beneficiary” to provide greater clarity.
•
Include a specific provision in the Act to prohibit unqualified plumbing, drainage
and gasfitting work.
•
Requiring corporate licence holders to advise NSW Fair Trading within seven
days where the corporation enters voluntary administration.
4
The term “successor-in-title” to refer to someone who is entitled to the remainder of the statutory
warranty period on building work if a property is sold during the warranty or insurance period.
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